More on socialist economics

DBB drills down into the gory details of socialist economics:

Ok, I understand now your price setting for widgets, but what about the ad agency? Or IT work? Or anything else where what you make is a unique entity, rather than a mass produced item?

Most service industries can operate on a straight time-cost basis.

And as for materials - it seems the labor cost would not necessarily be appropriate in terms of hours - what about scarcity? If the material is gold, for instance, the labor cost first varies on the quality of the mine - it takes more labor to get gold out of an old one. But then I suppose that is covered by your formula. But what about the fact that you can use all of the hours you want, if there is no gold left in the mountains, you can't get any more. Then you are stuck with the finite amount of gold in existence, and there is no labor aside from shipping costs if you want to buy it. How, then, is the price set if you can't use labor hours to set it? Labor hours to move a lead brick are probably identical to the hours to move a gold brick, and yet you really can't price the two the same, can you?

Gold is not really a good example, since its use-value is limited; useful only in electronics and jewelry. And the issue is not paying for transportation per se.

Under socialist economics decisions about allocating scarce resources are generally made politically, not economically. I'll talk about specific political mechanisms in another series, but the fundamental premise of socialist economics is that by and large people get together like grown-ups and make social decisions about how to allocate scarce, finite resources.

Under capitalism, economic decisions about how to allocate scarce resources optimize profit, the ability to exploit surplus labor. The profit optimization is only indirectly related to maximizing use-value; near equilibrium (or under adverse disequilibria, such as depressions) the profit motive doesn't optimize use-value at all. Only socialized, political allocation of resources has a chance of systematically optimizing use-value, even near equilibrium.

DBB has more questions.

I understand better the notion of how prices can be calculated, but I still wonder how you can come to the ultimate number. Is it the average of all shoemakers or just some ideal shoemaker?

I assume we're still talking about the extended economy; in the extended economy there is no "ultimate" number. Each individual producer's price is capped by his own actual labor time (or the actual labor time of the group). We can also use more sophisticated price-setting mechanisms, such as marginal cost, to provide temporary, limited incentives for efficiency.

An endeavor can be part of the subsistence (or fully socialized) economy only where the socially necessary labor time, a statistical abstraction, can be calculated. There are a number of statistical tricks, but basically it's going to be something near the mean of all individual producers.

I mean, what if basically every shoemaker takes five hours to make a shoe, but there's some mutant shoemaker out there that actually can make one in an hour that is of the same quality. So it ends up that the price is set to a maximum of five hours (is each hour a "dollar"?) for a shoe.

Now this mutant shoemaker can, in secret, spend five hours making five shoes and then lie and tell the government inspector that he really took him 25 hours to make those shoes. Now he spent five hours of his own labor and he, after selling his shoes, has 25 hours of labor he can spend on other items. So in essence he just got to charge five times the labor he expended on a shoe. Is that ok in the system? Or is there somehow that could be stopped?

This is indeed the central "problem" of a labor-time-based extended economy. But how much of a problem is it really? Our mutant shoemaker has to at least pretend to work the extra hours: We can still have auditors and various political/legal checks to ensure basic factual honesty.

If everyone is "slacking", then first of all it's at least fair. But even a few non-slackers will tend to have a positive feedback effect, since their products will be cheaper than their competitors: the biggest slackers (with the highest prices) will be the first to go out of business.

There will always be a few people slacking. Not optimal, but limited by definition.

Also, I wonder generally about wealth - even with a tight communist system, some people could save up their currency of hours, invest it, earn interest on it, while others could blow it all on WWF Pay Per View or whatever. So while no one would be dirt poor, in that everyone would have all of the necessities in life, you could still have rich or even filthy rich people, if not within one generation, within several, as those who save pass on their wealth through inheritance and so on. Would that present a problem?

You're getting a little ahead of yourself; we're talking about early-stage socialism here, not late-stage communism. So forgive me if I'm a little vague.

Generally speaking, saving is considered hoarding under communism; savings are kept not individually, but as a society, with political controls. Interest is one of the three great evils of capitalism (along with rent and profit), and is likely to be eliminated even in early- or mid-stage socialism. And inheritance is right out.

More importantly, early-stage communism rests on having conditions of substantial abundance and surplus, precisely those conditions which undermine the scarcity mechanics of capitalism and which early-stage socialism can create more effectively. At a certain point, hoarding material wealth will become as ridiculous as hoarding air.