Socialist economics

DBB asks, how would a socialist economy actually work?

About the best we have historically is Maoist Economics and the Revolutionary Road to Communism: The Shanghai Textbook, written in 1975, which describes the basic principles of China's socialist economy and politics. (I'm still reading the book myself.) Of course the political and economic conditions in pre-revolutionary and revolutionary China were very different from our own.

There isn't a consensus in the socialist/communist community as to how an industrialized society such as our own would operate on socialist principles; what follows are my own personal speculations. I'm specifically talking about a socialist economy in the sense of economics that form the transition between capitalism and communism.

To simplify, I will assume here that all labor is of equal intensity (everyone works as hard as everyone else) and equal "desirability" (there's no difference between gardening and sewer maintenance). These factors can be adjusted for in practice, but the theoretical underpinnings don't change much. I'll ignore here the political structures and focus on the economics.

First, we have the subsistence economy, the production of goods and services that are required for people to just live: food, housing, basic clothing, sanitation, medical care, education and child-rearing, etc. We have the advantage that these endeavors (except for housing) are already low-profit under capitalism — some, such as sanitation, are already government-operated — and are presently very efficient. The government can directly run the subsistence economy.

Assuming about 125 million working people in the US at 8 hours per day there are about 1 billion hours of labor power per day available. We already know that the subsistence economy requires less than the total available labor power. For simplicity, we'll assume that 500 mh/d (million hours per day) of socially necessary labor time is required to operate the subsistence economy; this time creates 1,000 mh/d of labor power. Our subsistence economy then runs at 200% efficiency.

Everyone is guaranteed subsistence, and everyone is therefore required by law to contribute his or her share of labor to the economy: everyone is required to work at least 4 hours per day. A person can simply apply to the government for a job, in which case the government will employ the person in the subsistence economy.

The subsistence economy would be fully socialized; the extended economy, whatever can be produced by the surplus labor power not required by the subsistence economy, can be run on truly free market lines, since there the indirect coercion of starvation is absent.

A person or group of people have three options: They can simply work 4 hours per day in the subsistence economy, and have the remainder of the time for leisure (or participation in the "free" economy, doing things like blogging, writing free software, etc.). They can work 4 hours per day in the subsistence economy and work additional time in the extended economy. Or they can work all their time in the extended economy (offset by some other people working 8 hours per day in the subsistence economy).

If some group of people want to work in the extended economy, they would propose the endeavor to the government.

Constant capital for the extended economy is created within the extended economy itself. Constant capital is owned by the government, and rented to those using the capital on a time-basis.

If the group wants to work full time, the government provides a limited amount of variable capital: the right of the people in the group to consume subsistence resources while they work. The government also provides a stimulus, extended purchasing power equal to the time worked over and above the subsistence time of 4 hours per day.

The price of the commodity being produced cannot exceed the total time necessary to produce the commodity divided by the number of items produced.

Suppose a group of people 10 people want to work 8 hours per day making stylish shoes (i.e. shoes not required in the subsistence economy). The present a proposal to the government, with a business plan, market research, etc. and it's approved. The Great Proletarian Footware Revolution Company is born.

They will require a shoe-making machine, which takes 10,000 hours to produce and will produce 1,000,000 pairs of shoes over its lifetime. The government owns the shoe-making machine, and rents it to TGPFRC for 1/100 hour per pair. They provide the workers of TGPFRC with one year's variable capital and one year's stimulus capital: 8 * 5 * 42 (everyone gets 10 weeks/year vacation in our socialist paradise) = 1,680 hours per worker. Since they are working full-time in the extended economy, each worker is taxed 840 hours for the year; each worker thus has an initial 840 hours to spend in the extended economy.

We'll assume that these 10 people can make 10,000 pairs of shoes per year. The maximum price of one pair of shoes would be 16,800 / 10,000 + 0.01 or 1.69 hours; TGPFRC would be free to set the price lower if they wished. So long as they can sell shoes to other people in the extended economy for more than 0.85 hours per pair of shoes, TGPFRC is a going concern and can operate indefinitely. Anything over 0.85 hours per shoe would be allocated by mutual agreement to the workers in TGPFRC. If, however, people in the extended economy aren't willing to spend 0.85 hours per pair for their shoes, the operation will eventually go "bankrupt", and the people will either have to get jobs on a farm or convince the government to fund a new endeavor.

In a socialist economy, there isn't the desperate competitive pressure to increase efficiency. But remember: the people in The Great Proletarian Footware Revolution Company are there because they like making shoes (or at least they prefer it to working on a farm). Why wouldn't they innovate and become more efficient just because it's fun?

Even if they didn't, someone, somewhere is going to form The All Power to the Soviets Boots and Sandals Company and — just because its cool — will produce 20,000 pairs of shoes using 16,800 labor hours (and machinery of the same cost), with a maximum price of 0.85 hours per pair. The Great Proletarian Footware Revolution Company would then be forced to follow suit. But, because the government is involved, they'll help The Great Proletarian Footware Revolution Company operate more efficiently, for the benefit of everyone.