How Socialism Will Work

 "How do you calculate and factor in scarcity?" many ask when they hear about the socialist idea of free access to goods and services, the implementation of the Marxist aim, “from each according to ability, to each according to need.”

First we have to define what scarcity is.

Orthodox economics and some radical reformers argue it is limited supply - versus- boundless demand. Our wants are essentially “infinite” and the resources to meet them, limited , claim the economists. Von Mise, for instance, claim that without the guidance of prices socialism would sink into inefficiency. According to the argument, scarcity is an unavoidable fact of life. It applies to any goods where the decision to use a unit of that good entails giving up some other potential use. In other words, whatever one decides to do has an "opportunity cost" — that is the opportunity to do something else which one thereby forgoes; economics is concerned with the allocation of scarce resources.

However in the real world, abundance is not a situation where an infinite amount of every good could be produced. Similarly, scarcity is not the situation which exists in the absence of this impossible total or sheer abundance.

Abundance is a situation where productive resources are sufficient to produce enough wealth to satisfy human needs, while scarcity is a situation where productive resources are insufficient for this purpose. Abundance is a relationship between supply and demand, where the former exceeds the latter. In socialism a buffer of surplus stock for any particular item, whether a consumer or a producer good, can be produced, to allow for future fluctuations in the demand for that item, and to provide an adequate response time for any necessary adjustments. Thus achieving abundance can be understood as the maintenance of an adequate buffer of stock in the light of extrapolated trends in demand. The relative abundance or scarcity of a good would be indicated by how easy or difficult it was to maintain such an adequate buffer stock in the face of a demand trend (upward, static, or downward).

 It will thus be possible to choose how to combine different factors for production, and whether to use one rather than another, on the basis of their relative abundance/scarcity.

Whereas capitalism and some models of an “alternative economy” relies on mostly monetary accounting, socialism relies on calculation-in-kind. This is one reason why socialism holds a decisive productive advantage over capitalism because of the elimination for the need to tie up vast quantities of resources and labour implicated in a system of monetary/pricing accounting. In socialism calculations will be done directly in physical quantities of real things, in use-values, without any general unit of calculation. Needs will be communicated to productive units as requests for specific useful things, while productive units will communicate their requirements to their suppliers as requests for other useful things .

"How do you tell when something is becoming scarce, and how do you pass this information on to others?" Is the usual follow-up question.

Well, we use the tools and systems that capitalism bequeathes us, which will be suitably modified and adapted and transformed for the new conditions. There is stock or inventory control systems and logistics. The key to good stock management is the stock turnover rate – how rapidly stock is removed from the shelves – and the point at which it may need to be re-ordered. This will also be affected by considerations such as lead times – how long it takes for fresh stock to arrive – and the need to anticipate possible changes in demand. The just-in-time systems are another well tried and trusted method of warehousing and linkIng supply chains which can be utilised. If requirements are low in relation to a build-up of stock, then this would an automatic indication to a production unit that its production should be reduced. If requirements are high in relation to stock then this would be an automatic indication that its production should be increased.

And there will be the existence of buffer stocks to provides for a period of re-adjustment. It may be argued that this overlooks the problem of opportunity costs. For example, if the supplier of baked beans orders more tin plate from the tin-plate manufacturers then that will mean other uses for this material being deprived by that amount. However, it must be born in mind in the first place that the systematic overproduction of goods – i.e. a buffer stock – applies to all goods, consumption goods as well as production goods.

So increased demand from one consumer/producer, need not necessarily entail a cut in supply to another or at least, not immediately. The existence of buffer stocks provides for a period of re-adjustment. Another point that this argument overlooks the possibility of there being alternative suppliers of this material or indeed, for that matter, more readily available substitutes for containers (say, plastic).

Some kind of “points system” might be used to evaluate different projects facing society - cost-benefit analysis which is not dependant upon dollars and cents calculations. Under capitalism the balance sheet of the relevant benefits and costs advantages and disadvantages of a particular scheme or rival schemes is drawn up in money terms , but in socialism a points system for attributing relative importance to the various relevant considerations could be used instead. The points attributed to these considerations would be subjective, in the sense that this would depend on a deliberate social decision rather than on some objective standard. In the sense that one of the aims of socialism is precisely to rescue humankind from the capitalist fixation with production time/money, cost-benefit type analyses, as a means of taking into account other factors, could therefore be said to be more appropriate for use in socialism than under capitalism. Using points systems to attribute relative importance in this way would not be to recreate some universal unit of evaluation and calculation, but simply to employ a technique to facilitate decision-making in particular concrete cases. The advantages/disadvantages and even the points attributed to them can, and normally would, differ from case to case.

So what we are talking about is not a new abstract universal unit of measurement to replace money and economic value but one technique among others for reaching rational decisions in a society where the criterion of rationality is human welfare.

There is the The “Law of the Minimum” which was formulated by the agricultural chemist, Justus von Liebig in the 19th century. Liebig’s Law can be applied equally to the problem of resource allocation in any economy.For any given bundle of factors required to produce a given good, one of these will be the limiting factor. That is to say, the output of this good will be restricted by the availability of the factor in question constituting the limiting factor. All things being equal, it makes sense from an economic point of view to economise most on those things that are scarcest and to make greatest use of those things that are abundant.

Priorities can be determined by applying Maslow’s “Hierarchy of Needs” as a guide. It would seem reasonable to suppose that needs that were most pressing and upon which the satisfaction of other needs are dependant would take priority over those other needs. We are talking here about our basic physiological needs for food, water, adequate sanitation and housing and so on. This would be reflected in the allocation of resources: high priority end goals would take precedence over low priority end goals where resources common to both are revealed (via the self regulating system of stock control) to be in short supply .

Since the needs of consumers are always needs for a specific product at a specific time in a specific locality, we will assume that socialist society would leave the initial assessment of likely needs to a delegate body under the control of the local community. In a stable society such as socialism, needs would change relatively slowly. Hence it is reasonable to surmise that an efficient system of stock control, recording what individuals actually chose to take under conditions of free access from local distribution centres over a given period, would enable the local distribution committee to estimate what the need for food, drink, clothes and household goods would be over a similar future period. Some needs would be able to be met locally: local transport, restaurants, builders, repairs and some food are examples as well as services such as street-lighting, libraries and refuse collection. The local distribution committee would then communicate needs that could not be met locally to the bodies charged with coordinating supplies to local communities.

Production and distribution in socialism would thus be a question of organising a coordinated and more or less self-regulating system of linkages between users and suppliers, enabling resources and materials to flow smoothly from one productive unit to another, and ultimately to the final user, in response to information flowing in the opposite direction originating from final users. The productive system would thus be set in motion from the consumer end, as individuals and communities took steps to satisfy their self-defined needs. Socialist production is self-regulating production for use.

To ensure the smooth functioning of the system, statistical offices (and those exist now in a variety of forms) would provide estimates of what would have to be produced to meet peoples likely individual and collective needs. These could be calculated in the light of consumer wants as indicated by returns from local distribution committees and of technical data (productive capacity, production methods, productivity, etc) incorporated in input-output tables. For, at any given level of technology (reflected in the input-output tables), a given mix of final goods (consumer wants) requires for its production a given mix of intermediate goods and raw materials; it is this latter mix that statistical offices would be calculating. Such calculations would also indicate whether or not productive capacity would need to be expanded and in what branches. The centres would be essentially an information clearing house, processing information communicated to it about production and distribution and passing on the results to industries for them to draw up their production plans so as to be in a position to meet the requests for their products coming from other industries and from local communities. As stated before the only calculations that would be necessary in socialism would be Calculations -in- Kind. On the one side would be recorded the resources (materials, energy, equipment, labour) used up in production and on the other side the amount of the good produced, together with any by-products. Each part of of production would know its position. If requirements are low in relation to a build-up of stock, then this would an automatic indication to a production unit that its production should be reduced.

The supply of some needs will take place within the local community and in these cases production would not extent beyond this, as for example with local food production for local consumption. Other needs could be communicated as required things to the regional organisation of production. Regional manufacture would produce and assemble required goods for distribution to local communities.

To repeat, given that socialism will still need to concern itself with the efficient allocation of resources and this will be achieved mostly through calculation-in-kind. Decentralised production entails a self-regulating system of stock control. Stocks of goods held at distribution points would be monitored, their rate of depletion providing vital information about the future demand for such goods, information which will be conveyed to the units producing these goods. The units would in turn draw upon the relevant factors of production and the depletion of these would activate yet other production units further back along the production chain. There would thus be a marked degree of automaticity in the way the system operated. The maintenance of surplus stocks would provide a buffer against unforeseen fluctuations in demand. The regional production units would in turn communicate its own manufacturing needs to their own suppliers, and this would extend to world production units extracting and processing the necessary raw materials .

Decisions will be made at different levels of organisation: global, regional and local but with the bulk of decision-making being made at the local level. A socialist economy would be a polycentric not a centrally-planned command economy. Socialism will be a self-regulating , decentralised inter-linked system to eventually provide in due course for a self-sustaining steady-state society. 

Imagine a situation where human needs were in balance with the resources needed to satisfy them. Such a society would already have decided, according to its own criteria and through its own decision-making processes, on the most appropriate way to allocate resources to meet the needs of its members. This having been done, it would only need to go on repeating this continuously from production period to production period. Production would not be ever-increasing but would be stabilised at the level required to satisfy needs. All that would be produced would be products for consumption and the products needed to replace and repair the raw materials and instruments of production used up in producing these consumer goods. This has been called by some economists a “steady-state” economy and what Marx called “simple reproduction”.

In capitalism people's needs are not met and reasonable people feel insecure. People tend to acquire and hoard goods because possession provides some security. People have a tendency to distrust others because the world is organised in such a dog-eat-dog manner. In capitalist society there is a tendency for individuals to seek to validate their sense of worth through the accumulation of possessions. In socialism, status based upon the material wealth at one's command, would be a meaningless concept. Why take more than you need when you can freely take what you need? However, this does require that we appreciate what is meant by "enough" and that we do not project on to socialism the insatiable consumerism of capitalism. The establishment of socialism presupposes the existence of a mass socialist movement and a profound change in social outlook. It is simply not reasonable to suppose that the desire for socialism on such a large scale, and the conscious understanding of what it entails on the part of all concerned, would not influence the way people behaved in socialism and towards each other. Why would they want to jeopardise the new society they had just helped create?

In a particular situation of actual physical shortage perhaps resulting from crop failure we can assume that the shortage can be tackled by some system of direct rationing such as prioritising individuals needs by vulnerability, and if there is no call for that criteria, by lottery, or first come first served.