Production for use

Production for use is a phrase referring to the principle of economic organization and production taken as a defining criterion for a socialist economy. It is held in contrast to production for profit. This criterion is used to distinguish socialism from capitalism, and was one of the fundamental defining characteristics of socialism initially shared by Marxian socialists, evolutionary socialists, social anarchists and Christian socialists.[1][2]

This principle is broad and can refer to an array of different configurations that vary based on the underlying theory of economics employed. In its classic definition, production for use implied an economic system whereby the law of value and law of accumulation no longer directed economic activity, whereby a direct measure of utility and value is used in place of the abstractions of the price system, money, and capital.[3] Alternative conceptions of socialism that don't utilize the profit system such as the Lange model involve the use of a price system and monetary calculation.

The central critique of the profits system by socialists is that the accumulation of capital ("making money") becomes increasingly detached from the process of producing economic value, leading to waste, inefficiency, and social issues. Essentially it is a distortion of proper accounting based on the assertion of the law of value instead of the "real" costs of the factors of production, objectively determined outside of social relations.

Exposition

Production for use refers to an arrangement whereby the production of goods and services is carried out ex ante (directly) for their utility (also called Use-value). The implication is that the value of economic output would be based on use-value or a direct measure of utility as opposed to exchange-value; because economic activity would be undertaken to directly satisfy economic demands and human needs, the productive apparatus would directly serve individual and social needs. This is contrasted with production for exchange of the produced good or service in order to profit, where production is subjected to the perpetual accumulation of capital, a condition where production is only undertaken if it generates profit, implying an ex post or indirect means of satisfying economic demand. The profits system is oriented toward generating a profit to be reinvested into the economy (and the constant continuation of this process), the result being that society is structured around the need for a perpetual accumulation of capital.[4] In contrast, production for use means that the accumulation of capital is not a compulsory driving force in the economy, and by extension, the core process which society and culture revolves around. Production for profit, in contrast, is the dominant mode of production in the modern world system, equivocates "profitability" and "productivity" and presumes that the former always equates to the latter.

Some thinkers, including the Austrian philosopher and political economist Otto Neurath, have used the phrase socialization to refer to the same concept of "production for use". In Neurath's phraseology, "total socialization" involves calculation in kind in place of financial calculation and a system of planning in place of market-based allocation of economic goods.[5] Alternative conceptions exist in the form of market socialism.

Usage

Norman Thomas, a presidential candidate in the United States for the Socialist Party of America, contrasted socialism with capitalism by stating that socialism is based on production for use and an end to the profit system.[6]

Eugene V. Debs popularly used the phrase when running for president of the United States in 1912, stating that capitalism is founded upon production for profit, and in contrast, socialism is postulated upon production for use.[7]

Karl Marx referred to the "production of use-values" as a feature of any economic mode of production, but characterized capitalism as a mode of production that subjugated the production of use-value for the self-expansion of capital (i.e.: capital accumulation or production for profit). In contrast, socialism was vaguely defined as a system based on the direct production of use-value free of the process of continuous capital accumulation.[8]

Friedrich Hayek defined socialism as "...the common ownership of the means of production and their 'employment for use, not for profit.'", associating the rise of the welfare state by social democrats in post-World War II Europe as a rejection of socialism in the technical sense.[9]

Description

Proponents of socialism argue that production for profit (i.e., capitalism) does not always satisfy the economic needs of people, especially the working-class, because capital only invests in production when it is profitable. This fails to satisfy demand (the needs) of people who lack basic necessities but have insufficient purchasing power to acquire these needs in a manner that would be profitable for businesses. This results in a number of inefficiencies: unsold items are rarely given away to people who need but can’t afford them, unemployed workers are not utilized to produce such services, and resources are expended on occupations that serve no other purpose than to support the accumulation of profit instead of being utilized to provide useful goods and services.[10] For example, the United States housing bubble resulted in an overproduction of housing units that could not be sold at a profit, despite there being sufficient demand and need for housing units.

Production for use in some form was the historically dominant modality until the initial primitive accumulation of capital.

Production for use is not in conflict with market allocation. For example, final output (goods and services for consumption) would still be distributed to consumers through a market. Only in a sufficiently developed stage of socialism whereby the forces of production are advanced enough to allow for superabundances of goods and services can distribution be based on free-access / according to needs.

Economic planning is not synonymous with production for use. Planning is essential in modern globalised production both within enterprises and within nation states. Planning to maximize profitability (i.e., within industries and private corporations) or to improve the efficiency of capital accumulation in the capitalist macro-economy (i.e., monetary policy, fiscal policy, industrial policy) does not change the fundamental criteria and need to generate a financial profit to be reinvested into the economy, lest it go into a crisis. A more recent critique of production for profit is that it fails spectacularly to address issues such as externalities which the board and management of a for profit enterprise are often under a fiduciary responsibility to ignore if they harm or conflict with the shareholders' profit motives.

Criticisms of production for profit

Socialists suggest a number of irrational outcomes occur from capitalism and the need to accumulate capital when capitalist economies reach a point in development whereby investment accumulates at a greater rate than growth of profitable investment opportunities. The central critique of the profits system maintained by socialists is that the accumulation of capital ("making money") becomes further detached from the process of producing economic value, leading to waste, inefficiency and underlying social issues.

Advertisement and planned obsolescence are strategies used by businesses to generate demand for the perpetual consumption required for capitalism to sustain itself so that instead of satisfying social and individual needs, capitalism first and foremost serves the artificial need for the perpetual accumulation of capital.

The creation of industries, projects and services for no other purpose than generating profit, economic growth or maintaining employment. The drive to create such industries arises from the need to absorb the savings in the economy (and thus, to maintain the accumulation of capital). This can take the form of corporatization and commercialization of public services (i.e., transforming them into profit-generating industries to absorb investment), or the creation and expansion of sectors of the economy that don't produce any economic value by themselves (that deal only with exchange-related activities) such as financial services, contributing to the formation of economic bubbles, crises and ultimately recessions.[11]

For socialists, the solution to these problems entails a reorientation of the economic system from production for profit and the need to accumulate capital to a system where production is adjusted to meet individual and social demands directly.

Criticisms of central planning

Socialist and non-socialist critics of the Soviet model of economic planning have criticized the Soviet model of a planned economy on similar grounds to the critique leveled against capitalism: production was often undertaken in order to fulfill plan targets as opposed to being produced for use.[12]

Contrasted with state capitalism

As an objective criterion for socialism, production for use can be used to evaluate the socialistic content of the composition of former and existing economic systems. For example, an economic system that is dominated by nationalized firms organized around the production of profit – whether this profit is retained by the firm or paid to the government as a dividend payment – would be a state capitalist economy. In such a system, the organizational structure of the firm remains similar to a private-sector firm; non-financial costs are externalized because profitability is the criterion for production, so that the majority of the economy remains essentially capitalist despite the formal title of "public ownership". This has led many socialists to categorize the current Chinese economic system as a capitalist or state-capitalist economy.[13]

The economy of the Soviet Union was based upon capital accumulation for reinvestment and production for profit; the difference between Western capitalism was that the Soviet Union achieved this through nationalized industry and state-directed investment with the eventual goal of building a socialist society based upon production for use and self-management. Vladimir Lenin described the Soviet economy as "state-monopoly capitalism"[14] and did not consider it to be socialism. During the 1965 Liberman Reforms, the Soviet Union re-introduced profitability as a criterion for industrial enterprises. Other views argue the Soviet Union evolved into a non-capitalist and non-socialist system characterized by control and subordination of society by the party apparatus or those who coordinate the economy (bureaucratic collectivism).

Contrary socialist theories

The concept of production for use has been rejected by some socialists, most notably proponents of market socialism, who argue that socially held enterprises can compete with each other and generate profit in a market economy, with or without addressing the issue of distribution of this profit. Neoclassical economists argue that, under conditions of Pareto optimality, the pursuit of profit leads to a satisfaction of economic demands - the provision of use-values - and that market socialism would be able to achieve this outcome while retaining profitability as the operational criteria for socialist enterprises. In particular, some market socialists justify their position by claiming that society as a whole would control the surplus product (the profit generated by publicly owned firms), which could be used to finance public goods or public investment as opposed to accumulating in the hands of capitalists/shareholders.

Social democrats have rejected this concept altogether, and wish to retain the capitalist economic system by promoting a welfare state and economic interventions in order to make capitalism more "equitable" without questioning the legitimacy of the profits system.

Social production and peer-to-peer processes

See also: Sharing economy

Michel Bauwens identifies the emergence of the open software movement and peer-to-peer production as an emergent alternative mode of production to the capitalist economy that is based on collaborative self-management, common ownership of resources, and the (direct) production of use-values through the free cooperation of producers who have access to distributed capital.[15]

Commons-based peer production generally involves developers who produce goods and services with no aim to profit directly, but freely contribute to a project relying upon an open common pool of resources and software code. In both cases, production is carried out directly for use - software is produced solely for their use-value.

Valuation and calculation

Multiple forms of valuation have been proposed to govern production in a socialist economy, to serve as a unit of account and to quantify the usefulness of an object in socialism. These include valuations based on labor-time, the expenditure of energy in production, or disaggregated units of physical quantities.[16]

Physical quantities

The classic formulation of socialism involved replacing the criteria of value from money (exchange-value) to physical utility (use-value), to be quantified in terms of physical quantities (Calculation in kind and Input-Output analysis) or some natural unit of accounting, such as energy accounting.[17]

Input-output model analysis is based upon directly determining the physical quantities of goods and services to be produced and allocating economic inputs accordingly; thus production targets are pre-planned.[18] Soviet economic planning was overwhelmingly focused on material balances - balancing the supply of economic inputs with planned output targets.

Marginal cost

Oskar Lange formulated a mechanism for the direct allocation of capital goods in a socialist economy that was based on the marginal cost of production. Under a capitalist economy, managers of firms are ordered and legally required to base production around profitability, and in theory, competitive pressure creates a downward pressure on profits and forces private businesses to be responsive to demands of consumers, indirectly approximating production for use. In the Lange Model, the firms would be publicly owned and the managers would be tasked with setting the price of output to its marginal cost, thereby achieving pareto efficiency through direct allocation.

Cybernetics

See also: Cybernetics

Cybernetics, the use of computers to coordinate production in an optimal fashion, has been suggested for socialist economies. Oskar Lange, rejecting his earlier proposals for market socialism, argued that the computer is more efficient than the market process at solving the multitude of simultaneous equations required for allocating economic inputs efficiently (either in terms of physical quantities or monetary prices).[19]

Salvador Allende's socialist-led government developed Project Cybersyn; a system whereby economic decisions and feedback could be relayed in real-time through a network of telex machines fusing the information received/given by state enterprises and government departments. The project was disbanded after the 1973 Chilean coup d'état.

Free market

Based on the perspective that the law of value would continue to operate in a socialist economy, it is argued that a market economy purged of parasitical and wasteful elements in the form of private ownership of the means of production and the distortions that arise from the concentration of power and wealth in a class of capitalists would enable the market to operate efficiently without distortions. Simply replacing the antagonistic interests between capitalists and workers in enterprises would alter the orientation of the economy from private profit to meeting the demands of the community, as firms would seek to maximize the benefits to the member-workers - who would, as a whole, comprise society. Cooperative economist Jaroslav Vanek suggests that worker self-management and cooperative ownership of enterprises operating in a free-market would allow for a genuine free-market economy free of the market-distorting, monopolistic tendencies and antagonistic interests that emerge from private ownership over production.[20]

See also

References

  1. ↑ "Socialism and Capitalism: Are They Qualitatively Different Socioeconomic Systems?", by Kotz, David M. Retrieved February 19, 2011, from University of Massachusetts: http://people.umass.edu/dmkotz/Soc_and_Cap_Diff_Syst_06_12.pdf: "This understanding of socialism was held not just by revolutionary Marxist socialists but also by evolutionary socialists, Christian socialists, and even anarchists. At that time, there was also wide agreement about the basic institutions of the future socialist system: public ownership instead of private ownership of the means of production, economic planning instead of market forces, production for use instead of for profit."
  2. ↑ Paul Craig Roberts (29 October 2002). "My Time with Soviet Economics". VDARE.com. Retrieved 13 March 2013. The purpose of socialist planning was to eliminate market exchange (in the means of production) and organize production for society's direct use.
  3. ↑ Bockman, Johanna (2011). Markets in the name of Socialism: The Left-Wing origins of Neoliberalism. Stanford University Press. p. 20. ISBN 978-0-8047-7566-3. According to nineteenth-century socialist views, socialism would function without capitalist economic categories - such as money, prices, interest, profits and rent - and thus would function according to laws other than those described by current economic science. While some socialists recognized the need for money and prices at least during the transition from capitalism to socialism, socialists more commonly believed that the socialist economy would soon administratively mobilize the economy in physical units without the use of prices or money.
  4. ↑ "Production for Use", The Western Socialist (1967), Vol.36. Retrieved February 19, 2011: http://www.worldsocialism.org/canada/production.for.use.1969.v36n268.htm
  5. ↑ Nemeth, Uebel and Schmitz, Elizabeth, Thomas and Stefan (2007). Otto Neurath's Economics in Context. Springer. p. 63. ISBN 978-1-4020-6904-8.
  6. ↑ "Is the New Deal Socialism?", by Norman Thomas, Democratic Socialists of America (1936), Retrieved March 23, 2012: http://www.chicagodsa.org/thomasnewdeal.html
  7. ↑ The Socialist Party’s Appeal, by Debs, Eugene. 1912. The Independent.
  8. ↑ Karl Marx. "Capital, Volume 1; Chapter Seven: The Labour-Process and the Process of Producing Surplus-Value". Marxists.org. Retrieved 9 December 2012.
  9. ↑ Friedrich Hayek (1960). "The Decline of Socialism and the Rise of the Welfare State". University of Chicago Press. Retrieved 20 January 2013.
  10. ↑ "Let's produce for use, not profit", Socialist Standard, May 2010. Retrieved August 07, 2010: http://www.worldsocialism.org/spgb/may10/page23.html
  11. ↑ Economic Crisis from a Socialist Perspective. Retrieved June 23, 2011, from rdwolff.com: http://www.rdwolff.com/content/economic-crisis-socialist-perspective
  12. ↑ The Rise and Fall of Socialist Planning, Ellman, Michael. (P.23): "In fact, the central authorities are partially ignorant of the situation throughout the economy, and this is a major factor causing such phenomena as the dictatorship over needs, bureaucratization, production for plan rather than use..."
  13. ↑ "China - 'Socialist market economy' or just plain capitalism?", Retrieved February 19, 2011: http://www.marxist.com/china-socialist-market-economy200106.htm
  14. ↑ Lenin's Collected Works Vol. 27, p. 293, quoted by Aufheben
  15. ↑ "The Political Economy of Peer Production". CTheory. 2005-01-12.
  16. ↑ "The Economics of Feasible Socialism Revisited" by Nove, Alec. 1991. (P.22)
  17. ↑ "The Alternative to Capitalism", World Socialist Party USA. Retrieved March 17, 2011: http://wspus.org/in-depth/the-alternative-to-capitalism/: "Wealth in socialism would be produced directly as such, i. e. as useful articles needed for human survival and enjoyment; resources and labour would be allocated for this purpose by conscious decisions, not through the operation of economic laws acting with the same coercive force as laws of nature. Although their effect is similar, the economic laws which come into operation in an exchange economy such as capitalism are not natural laws, since they arise out of a specific set of social relationships existing between human beings."
  18. ↑ "Quantity-Directed Socialism, Socialist Economics", Retrieved March 16, 2011: http://www.economictheories.org/2009/06/quantity-directed-socialism.html
  19. ↑ "The Computer and the market", Lange, Oskar. Retrieved March 16, 2011: http://www.calculemus.org/lect/L-I-MNS/12/ekon-i-modele/lange-comp-market.htm
  20. ↑ "Cooperative Economics: An Interview with Jaroslav Vanek", interview by Albert Perkins. Retrieved March 17, 2011: http://www.ru.org/51cooper.html

Further reading

  • Harold, Loeb. Production For Use. Basic Books, Inc. 1936. ISBN 978-1443745246
  • Strachey, John. How Socialism Works. Modern Age Books. 1939.
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