Appendix Two: The Marxist theory of the state (Once more on the theory of 'state capitalism')

The economics of the transitional period

The most significant thing about all those who sought to revise Trotsky's position on the Russian question is that they always deal with the problem in the abstract and never concretely explain the laws of the transitional society between capitalism and socialism and how such a society would operate. This is not accidental. A concrete consideration would impel them to the conclusion that the fundamental economy in Russia was the same as it was under Lenin and that it could not be otherwise. The germ of the capitalist mode of production, which began under feudalism through the development of commodity production, lies in the function of the independent craftsmen and merchants. When it reaches a certain stage, capitalist relations arise and exist side by side with a feudal superstructure. The latter is burst asunder by revolution and the possibilities latent in capitalist production then have the free possibility of fruition unhampered by feudal restrictions. The whole essence of revolution (both capitalist and proletarian) consists of the fact that the old relationships and the old forms do not correspond with the new mode of production that has ripened within the womb of the old society. In order to free itself from these restrictions, the productive forces have to be reorganised on a different basis. The whole of human history consists of the working-out of this antagonism through all its various stages in different societies.

Socio-economic formations never appear in a chemically pure form. Within a given form of society elements of earlier social formations and relations can coexist more or less uneasily with the new forms. Moreover, this situation may last for some time. The bourgeois revolution does not immediately destroy feudalism at one blow. Powerful feudal elements still remain, and to this day the remnants of feudalism exist even in the most highly developed capitalist countries--the peasantry, the aristocracy, the House of Lords in Britain, the monarchy, and so on. But similar contradictions existed under feudalism too. In the Middle Ages, within the framework of the feudal mode of production the elements of capitalism began to develop in the towns. These capitalist elements played a significant role (trade, usury, etc.) and eventually overthrew the feudal order. But that did not alter the fundamental nature or law of motion of feudal society. Similar observations could be made about slavery, or any other form of society. Marxism analyses social formations concretely, with all their contradictory features, and not as ideal norms.

This is the fundamental error of the state capitalist theory. It sets out from an abstract presentation of the transitional period and fails to distinguish between the mode of production and the mode of appropriation. In every class society there is exploitation and a surplus which is utilised by the exploiting class. But in itself this tells us nothing about the mode of production. For example, the mode of production under capitalism is social as opposed to individual appropriation. As Engels explained:

"The separation between the means of production concentrated in the hands of the capitalists on the one side, and the producers now possessing nothing but their labour power, on the other, was made complete. The contradiction between social production and capitalist [read individual or private, as Engels had already explained] appropriation became manifest as the antagonism between proletariat and bourgeoisie." (Engels, Anti-Dühring, p. 321.)

The transitional economy which, as Lenin pointed out, can and will vary enormously in different countries at different times, and even in the same country at different times, also has a social mode of production, but with state appropriation, and not individual appropriation as under capitalism. This is a form which combines both socialist and capitalist features.

Under capitalism, the system of commodity production par excellence, the product completely dominates the producer. This flows from the form of appropriation, and the contradiction between the form of appropriation and the mode of production; both factors flow from the private ownership of the means of production. Once state ownership takes its place, whatever the resulting system may be, it cannot be capitalism because this basic contradiction will have been abolished. The anarchic character of social production with private appropriation disappears, and with it the law of motion of capitalist society (booms and slumps).

Under socialism, as under capitalism, there will be a social mode of production but, unlike capitalism, there will also be a social mode of distribution. For the first time production and distribution will be in harmony. Merely to point out the capitalist features which undoubtedly existed in Stalinist Russia (wage labour, commodity production, the fact that the bureaucracy consumes an enormous part of the surplus value and so on) is not sufficient to tell us what the nature of the social system was. Here too, an all-sided view is necessary. One can only understand the nature of social relationships which existed in the Soviet Union by taking them in their totality.

From the very beginning of the revolution various sectarian schools have produced the most untenable ideas as a result of their failure to make such an analysis. Lenin summed up the problem thus:

"But what does the word 'transition' mean? Does it mean, as applied to economics, that the present order contains elements, particles, pieces of both capitalism and socialism? Everyone will admit that it does. But not all who admit this take the trouble to consider the precise nature of the elements that constitute the various social-economic forms which exist in Russia at the present time. And this is the crux of the question." (LCW, Vol. 27, p. 335.)

To abstract one side must lead to error. What was puzzling about the Russian phenomenon was precisely the contradictory character of the economy. This was further aggravated by the backwardness and isolation of the Soviet Union. This culminated in the totalitarian Stalinist regime and resulted in the worst features of capitalism coming to the fore--the oppressive relations between managers and workers, piece-work, inequality and so on. Instead of analysing these contradictions, Tony Cliff, in an effort to bolster his theories of state capitalism, endeavours to try and fit them into the pattern of the "normal" laws of capitalist production.

In addition, the tendency under capitalism for the productive forces not only to become centralised but even for measures of statification to be introduced can result in a wrong conclusion. To prove that "state capitalism" in Russia is, in the last analysis, the same as individual capitalism with the same laws, Cliff in his work on Russia, cites the following passage from Anti-Dühring:

"The more productive forces it [the state] takes over, the more it becomes the real collective body of all the capitalists, the more citizens it exploits. The workers remain wage-earners, proletarians. The capitalist relationship is not abolished; it is rather pushed to an extreme. But at this extreme it changes into its opposite. State ownership of the productive forces is not the solution of the conflict, but it contains within itself the formal means, the key to the solution." (Engels, Anti-Dühring, p. 330.)

In point of fact, Engels is arguing precisely the opposite. Let us re-examine the passages and see how we draw different conclusions:

"If the crisis revealed the incapacity of the bourgeoisie any longer to control the modern productive forces, the conversion of the great organisations for production and communication into joint-stock companies and state property shows that for this purpose the bourgeoisie can be dispensed with. All the social functions of the capitalists are now carried out by salaried employees. The capitalist has no longer any social activity save the pocketing of revenues, the clipping of coupons and gambling on the stock exchange, where the different capitalists fleece each other of their capital. just as at first the capitalist mode of production displaced the workers, so now it displaces the capitalists, relegating them, just as it did the workers, to the superfluous population, even if in the first instance not to the industrial reserve army.

"But neither the conversion into joint-stock companies nor into state property deprives the productive forces of their character as capital. In the case of joint-stock companies this is obvious. And the modern state, too, is only the organisation with which bourgeois society provides itself in order to maintain the general external conditions of the capitalist mode of production against encroachments either by the workers or by individual capitalists. The modern state, whatever its form, is an essentially capitalist machine; it is the state of the capitalists, the ideal collective body of all capitalists. The more productive forces it takes over as its property, the more it becomes the real collective body of all the capitalists, the more citizens it exploits. The workers remain wage earners, proletarians. The capitalist relationship is not abolished; it is rather pushed to an extreme. But at this extreme it is transformed into its opposite. State ownership of the productive forces is not the solution of the conflict, but it contains within itself the formal means, the key to the solution." (Engels, Anti-Dühring, p. 330, my emphasis.)

Surely the idea in the foregoing is clear? Insofar as the forces of production have now developed beyond the framework of capitalist relations (that is, the germ of the contradiction has now grown into a malignant disease of the social system, reflecting itself through crises) the capitalists are compelled to "socialise" huge means of production--first, through joint-stock companies and then later, even to "statify" sections of the productive forces. The same idea was brought out sharply by Lenin in his book Imperialism, where he showed that the development of monopolies and socialisation of labour were in fact elements of the new social system within the old.

Once the productive forces had reached this stage, capitalism had already accomplished its historic mission, and because of this the bourgeoisie became more and more superfluous. From being necessary for the development of the forces of production, they now become superfluous parasites and coupon-clippers. In the same way, and for the same reason, the feudal lords also became parasites once their historic mission had been fulfilled. This is merely an indication of the ripeness of capitalism for the social revolution. Writing in Capital, Marx had shown that credit and joint-stock companies were already an indication that the productive forces had outgrown private ownership. Engels shows how the development of production compelled even the capitalists themselves to recognise that the productive forces had a social and not an individual character.

Quantity into quality

Although at a certain stage the capitalist state is constrained to take over this or that sector of the economy, the productive forces do not lose their character as capital. But the whole essence of the problem is that where we have complete stratification, quantity changes into quality capitalism changes into its opposite. This is manifested in the growing tendency towards the concentration of capital, the formation, first of joint stock companies, and later of giant monopolies and multinationals. At a certain stage, there is also a growing tendency towards statisation (nationalisation) of certain sectors of the economy. Of course, this state monopoly capitalism, to give it its right name, has nothing to do with socialism. Here the nationalised industries are only the handmaiden of the private sector, providing the private monopolies with cheap coal, gas, electricity, rail freight and postage, in addition to taking on all the expense of educating the workers' children to provide skilled labourers, taking care of the old and sick, sewers and other "non-profitable" activities that are nonetheless essential to the capitalists, and which they do not pay for.

How otherwise explain the statement of Engels, "But at this extreme it [the capitalist relationship] is transformed into its opposite. State ownership of the productive forces is not the solution of the conflict, but it contains within itself the formal means, the key to the solution"?

If one takes into account the fact that this follows the previously quoted passage in the same section where Engels defines capitalist mode of production (as social production, individual appropriation), we must conclude that Engels hopelessly contradicts himself, if we accept Cliff's conclusions. But from the context, Engels' meaning is clear. He explains that the solution to the contradictions of capitalism lies in the recognition of the social nature of the modern productive forces: "In bringing, therefore, the mode of production, appropriation and exchange into accord with the social character of the means of production." But he shows that this "recognition" precisely consists in asserting conscious organisation and planning, in place of the blind play of forces of the market on the basis of individual ownership. This, however, cannot be done at one stroke. Only "gradually" can social control be fully asserted. The transitional form to this is state ownership. But complete state ownership does not abolish all the features of capitalism immediately, otherwise there would be social ownership, i.e. socialism would be introduced immediately.

But in the same way as we have new elements within the old in the development of society, so in the transitional society we still have the old within the new. Complete stratification marks the extreme limit of capital. The capitalist relation is transformed into its opposite. The elements of the new society which were growing up within the old, now become dominant.

What causes the conflict within capitalism is the fact that the laws manifest themselves blindly. But once the whole of industry is nationalised, for the first time control and planning can be consciously asserted by the producers. Control and planning will, however, in the first stages, take place within given limits. These limits will be determined by the level of technique when the new social order takes over. Society cannot step from the "realm of necessity" into the "realm of freedom" overnight. Only on the basis of a limitless development of the productive forces will freedom in its fullest sense become a reality. The stage will be reached in which the domination over persons by things and the oppression of man by man will be replaced by the administration of things by conscious human beings.

Before such a stage is reached society must pass through the transitional period. But in so far as immediately after private ownership has been abolished and control and planning become a possibility for the first time, then in one sense the realm of necessity has already been left behind. However, while it is now possible to speak of "freedom", this is so only in the sense that necessity has become consciously recognised. At this stage (the transitional period), Engels pointed out:

"The social character of the means of production and of the products É is quite consciously asserted by the producers, and is transformed from a cause of disorder and periodic collapse into the most powerful level of production itself.

"The forces operating in society work exactly like the forces operating in nature; blindly, violently, destructively, so long as we do not understand them and fail to take them into account. But when once we have recognised them and understand how they work, their direction and their effects, the gradual subjection of them to our will and the use of them for the attainment of our aims depends entirely upon ourselves. And this is quite especially true of the mighty productive forces of the present day." (Engels, Anti-Dühring, p. 331.)

Engels, quoting Hegel, further summed up the relationship between freedom, necessity and the transitional period, thus: "Freedom is the realisation of necessity. 'Necessity is blind only insofar as it is not understood'." (Ibid., p. 136.)

Marx and Engels only touched on the contradictory character of the transitional period. They left its elaboration to succeeding generations, laying down only the general laws. But clearly they showed the need for state ownership as the necessary transitional state for the development of the productive forces. Engels explained the need for the state during this stage for two reasons:

1) To take measures against the old ruling class;

2) Because the transitional society cannot immediately guarantee enough for all.

The logic of Tony Cliff's thesis is that in the transitional society there can be no vestiges of capitalism in the internal economy. While Cliff may argue vehemently that he agrees with the need for the state in the transitional period, it is evident that he has not thought out the economic reasons which make the state necessary and what character the economy assumes in this period. Before socialism can be introduced there must necessarily be a tremendous development of the forces of production, far beyond those reached under capitalism.

As Trotsky explained, even in America there is still not enough production to guarantee the immediate introduction of socialism.Therefore, there will still have to be an intervening period in which capitalist laws will operate in a modified form. Of course, in America, this would be of short duration. But it will not be possible to skip this stage entirely. What are the capitalist laws which will remain? Cliff not only fails to answer this; he falls into the trap of "bureaucratic collectivism" by failing to recognise that money, labour power, the existence of the working class, surplus value, etc., are all survivals of the old capitalist system which were carried over even under the regime of Lenin. It is impossible to introduce immediately direct social production and distribution. Particularly was this the case in backward Russia.

Writing to Conrad Schmidt in 1890, Engels gave a magnificent example of the thoroughly materialist approach to the problem of the economics of the transition from capitalism to socialism. He wrote:

"There has been a discussion in the Volkstribune about the division of products in the future society, whether this will take place according to the amount of work done or otherwise. The question has been approached very 'materialistically,' in opposition to certain idealistic forms of phraseology about justice. But strangely enough it has never struck anyone that, after all, the method of division essentially depends on how much there is to divide, and this must surely change with progress of production and social organisation, so that the method of division may also change. But to everyone who took part in the discussion 'socialist society' appeared not as involved in continuous change and progress but as a stable affair fixed once and for all which must, therefore, have its method of division fixed once and for all. All one can reasonably do, however, is (1) to try and discover the method of division to be used at the beginning, and (2) to try and find the general tendency in which the further development will proceed. But about this I do not find a single word in the whole debate." (Marx and Engels, Selected Correspondence, p. 393.)

Writing in Anti-Dühring, Engels pointed out: "Direct social production and direct distribution exclude all exchange of commodities, therefore also the transformation of the product into commodities (at any rate within the community) and consequently also their transformation into values." (Engels, Anti-Dühring, p. 366, my emphasis.)

But only socialism could realise this. In the transitional period, distribution still remains indirect--only gradually does society gain complete control over the product--and therefore the production of commodities and of exchange between the different sectors of production must necessarily take place. The law of value applies and must apply until there is direct access to the product by the producers. This can only take place on the basis of complete control of social production and thus direct social distribution, in which each individual takes whatever he or she requires. Marx deals with this problem in passing in Volume Ill of Capital, where he is discussing the problem of capitalist production as a whole:

"Accordingly a portion of the profit, of surplus value and of the surplus product, in which only newly added labour is represented, so far as its value is concerned, serves as an insurance fundÉ This is also the only portion of the surplus-value and surplus product and thus of surplus-labour, which would continue to exist, outside of that portion which serves for accumulation and for expansion of the process of reproduction, even after the abolition of the capitalist system É and the fact that all new capital arises out of profit, rent, or other forms of revenue, that is, out of surplus labourÉ" (Marx, Capital, Vol. 3, pp. 847-8, my emphasis.)

In this chapter Marx is dealing, in an analysis of the process of production, in his own words, with "the value of the total annual product of labour [which] is under discussion, in other words, the value of the product of the total social capital".

Repeating this in the same chapter, in answer to Storch, one of the bourgeois economists, he declared: "In the first place, it is a false abstraction to regard a nation, whose mode of production is based upon value or otherwise capitalistically organised, as an aggregate body working merely for the satisfaction of the national wants.

"In the second place, after the abolition of the capitalist mode of production, but with social production still in vogue, the determination of value continues to prevail in such a way that the regulation of the labour time and the distribution of the social labour among the various groups of production also the keeping of accounts in connection with this, becomes more essential than ever." (Ibid., Vol. 3, p. 851, my emphasis.)

Money and the state

This is in line with the scattered remarks made by Marx and Engels at various times which deal with the transitional period. Engels explains that under capitalism joint-stock companies and state ownership are beyond the framework, properly speaking, of capitalist production. Elsewhere, Marx pointed out that credit also extended capitalist production beyond its limits even before the transition to a workers' state. And, as we have shown in the above passages (and also in the Critique of the Gotha Programme,) Marx considered that bourgeois law, bourgeois distribution and in that sense a bourgeois state still continue to exist during the transition from capitalism to socialism. Discussing the role of money and the state in the transitional period, Trotsky developed this idea even further:

"ÉThese two problems, state and money, have a number of traits in common, for they both reduce themselves in the last analysis to the problem of problems: productivity of labour. State compulsion like money compulsion is an inheritance from the class society, which is incapable of defining the relations of man to man except in the form of fetishes, churchly or secular, after appointing to defend them the most alarming of all fetishes, the state, with a great knife between its teeth. In a communist society, the state and money will disappear. Their gradual dying away ought consequently to begin under socialism only at that historical moment when the state turns into a semi-state, and money begins to lose its magic power. This will mean that socialism, having freed itself from capitalist fetishes, is beginning to create a more lucid, free and worthy relation among them. Such characteristically anarchist demands as the 'abolition' of money, 'abolition' of wages, or 'liquidation' of the state and family possess interest merely as models of mechanical thinking.

"Money cannot be arbitrarily 'abolished,' nor the state and the old family 'liquidated.' They have to exhaust their historic mission, evaporate, and fall away. The death-blow to money fetishism will be struck only upon that stage when the steady growth of social wealth has made us bipeds forget our miserly attitude toward every excess minute of labour, and our humiliating fear about the size of our ration. Having lost its ability to bring happiness or trample men in the dust, money will turn into mere book-keeping receipts for the conveniences of statisticians and for planning purposes. In the still more distant future, probably these receipts will not be needed. But we can leave this question entirely to posterity, who will be more intelligent than we are.

"The nationalisation of the means of production and credit, the co-operativising or state-ising of internal trade, the monopoly of foreign trade, the collectivisation of agriculture, the law on inheritance--set strict limits upon the personal accumulation of money and hinder its conversion into private capital (usurious, commercial and industrial). These functions of money, however, bound up as they are with exploitation, are not liquidated at the beginning of a proletarian revolution, but in a modified form are transferred to the state, the universal merchant, creditor and industrialist. At the same time the more elementary functions of money, as measure of value, means of exchange and medium of payment, are not only preserved, but acquire a broader field of action than they had under capitalism." (Trotsky, The Revolution Betrayed, pp. 65-6, emphasis in original.)

Before private ownership of the means of production is abolished, the market is dominant over man who is helpless before the laws of the economy he himself has created. After its abolition, however, he begins for the first time to exercise conscious control. But consciousness here merely means the recognition of law, not the abolition of law. Herein lies the peculiarity of the transitional period--that because man now understands the nature of the productive forces to that extent he can exercise control over them. But he cannot transcend the limits of the given development of the productive forces. However, now that the productive forces have been released from the fetters of individual capitalist production, they can be developed and expanded at such a pace that the material basis of society can be raised to new heights. In this way the material conditions can be laid to proceed to a classless society, where the intermediate form of state ownership is transformed into real social ownership.

Once this stage (socialism) has been reached, there would be real social production and distribution for the first time. Money, the law of value and the state all wither away, because they would no longer be necessary. In other words, all the forces of constraint which are a necessary reflection of the limited nature of technique and the development of production at a given stage, now disappear together with the of the division of labour. However, this does not happen in 24 hours. The prior condition is a colossal raising of living standards and the cultural level of society. Until such time, all the features referred to above--capitalist features carried over from the old capitalist society--will linger on in the transitional period.

The position of Cliff, Shachtman and all others who have revised Trotsky's position on Russia, remains completely in the dark concerning the transitional period. And for a very good reason. If one considers the theory of the transitional stage in the light of the Russian experience, there is one of only two conclusions: either Russia was still in a transitional stage, which took on horrible distortions, or Russia had never been a workers' state from the very beginning. There are no other alternatives.

In his book on Russia, Cliff cites a quotation from The Revolution Betrayed:

"The nationalisation of the land, the means of industrial production, transport and exchange, together with the monopoly of foreign trade, constitutes the basis of the Soviet social structure. Through these relations, established by the proletarian revolution, the nature of the Soviet Union as a proletarian state is for us basically defined." (Trotsky, The Revolution Betrayed, p. 248.)

One of Cliff's conclusions is that, in this case, "neither the Paris Commune nor the Bolshevik dictatorship were workers' states as the former did not statify the means of production at all, and the latter did not do so for some time". (Cliff, Russia: a Marxist Analysis, p. 133.) Here we see that Cliff bases his case on whether or not the working class has control over the state machine. But here let us examine Cliff's method of separating the economic basis of a workers' state from the question of workers' control of the state machine.

For a temporary period, for shorter or longer duration, it would be possible for the proletariat to take power politically while not immediately proceeding to transform the existing property relations. This was the position in Russia where the proletariat took power in October 1917, but did not undertake major nationalisation until it was forced upon them in 1918. But if the proletariat did not proceed to carry through the economic transformation, then inevitably the proletarian regime would be doomed to collapse. The laws of the economy will always break through in the end. Either the proletariat would proceed to nationalise the entire economy, or inevitably the capitalist system would emerge predominant. Cliff falls to show how the basic form of Russian economy would differ under a healthy workers' state.

His case is no better based upon the experience of the Paris Commune and the first stages of the Russian Revolution. The same would apply to them as aforementioned. These regimes were a transition to the complete economic rule of the proletariat. Such transitions are more or less inevitable in the change over from one society to another. Both in the case of the Commune and in the case of the Russian Revolution, they could not last for long if the proletariat did not go on to nationalise industry. Has Cliff forgotten that one of the main lessons taught by Marx and assiduously learned by the Bolsheviks, was the failure of the French proletariat to nationalise the Bank of France? So we see a state can be a proletarian state on the basis of political power, or it can be a proletarian state on the basis of the economy; or it can be a transition to both of these as we will show.

The same laws apply to the capitalist counter-revolution. Trotsky correctly argued that in the event of a bourgeois counter-revolution in Russia, the bourgeoisie might, for a time, even retain state ownership before breaking it up and handing it to private ownership. To a scholastic, it would appear then that you can have a workers' state and a bourgeois state on the basis of state ownership, or you can have a workers' state or a bourgeois state on the basis of private ownership. However, it is obvious that one could only arrive at this mode of reasoning if one failed to take into consideration the movement of society in one direction or another.

All sorts of unforeseen relationships can develop out of the class structure of society and the state. To take the example of Russia. In 1917 up to the capture of control of the soviets by the Bolsheviks, we had the situation as sketched by Trotsky in the History of the Russian Revolution, where, because of the Menshevik majority, in a certain sense the bourgeoisie ruled through the soviets--the organs of workers' rule par excellence. If we accept Cliff's schema, this could this not possibly happen. Of course, had the Bolsheviks not taken power, the bourgeoisie, having used the Mensheviks and through them the soviets in the transitional period, would have abolished the soviets as they did in Germany after 1918.

In the transition from one society to another, it is clear that there is not an unbridgeable gulf. It is not a dialectical method to think in finished categories; "workers' state" or "capitalist state" and the devil take any transition or motion between the two. It is clear that when Marx spoke of the smashing of the old state form in relation to the Commune, he took it for granted that the economy would be transformed at a greater or lesser pace and would come into consonance with the political forms.

Did the law of value operate within the Soviet economy?

Marxist economics explains that the law of value underlies the basis of all commodity production. It reaches its height under capitalism, where commodity production is universal. The basis of this law is that the value of commodities are determined by the amount of socially necessary labour contained in them ("congealed labour time"). This value, in turn, is expressed through the exchange of commodities. This law regulates the capitalist system by changes in demand and supply through competition. Even under a workers' state--a transitional regime between capitalism and socialism--commodities would still of course be produced and so the law of value would also continue to operate in a modified form.

Cliff attempted to use this law to argue that there could be crises (booms and slumps) in the USSR. However, his whole approach on the law of value was unsound from a Marxist point of view. In the most involved and peculiar manner he argued that the law of value did not apply within the economy of the Soviet Union, but only in its relations to world capitalism. He imagined he had found the basis of the law of value, not in Russian society, but in the world capitalist environment.

"Hence if one examines the relations within the Russian economy, one is bound to conclude that the source of the law of value, as the motor and regulator of production, is not to be found in it," says Cliff. (Cliff, Russia: a Marxist Analysis, p. 159.) And he concludes: "The law of value is thus seen to be the arbiter of the Russian economic structure as soon as it is seen in the concrete historical situation today--the anarchic world market." (Ibid., p. 161.)

According to the Marxist view, it is in exchange that the law of value manifests itself. And this holds true for all forms of society. For example, the way in which the break-up of primitive communism took place was through the exchange and barter between different primitive communities. This led to the development of private property. In the same way, in slave society the products of the slave became commodities when they were exchanged. Through this development, the "commodity of commodities"--money--appeared already in antiquity, although it only reached its full expression under capitalism, a society in which commodity production is not the exception, but the rule. Thus, even in antiquity, the law of value existed, leading to that enslavement of the producer by the product and resulting in the end in the destruction of the old slave society, undermined by the contradictions caused by the money economy.

Under feudalism, the exchange of the surplus produced by the self-sufficient lords and barons in their "natural economy" became commodities, and in fact, was the starting point of capitalist development through the rise of merchant capital. Therefore, if it was in exchange only between Russia and the outside world that the law of value manifested itself, as Cliff asserts, all that this would mean is that the Russian surplus was exchanged on the basis of the law of value.

However, when Cliff first put forward this argument, the participation of the Soviet Union on the world market, in comparison with its total production, was extremely small. Cliff unavoidably realised the weakness of this point. Thus, in an amazing feat of mental acrobatics, he found that the law of value manifested itself not in exchange, but in competition. Even this would not be so bad if he had argued that this was competition on the world market on classical capitalist lines. But he could not argue this because it was at variance with the facts. So he introduced a new conception. He found his "competition" and his "law of value" in the production of--armaments! "Because international competition takes mainly a military form, the law of value expresses itself in its opposite, viz., a striving after use-valuesÉ But as competition with other countries is mainly military, the state as consumer is interested in certain specific use values, such as tanks, aeroplanes, and so on." (Cliff, Russia: a Marxist Analysis, p.160.) This most peculiar line of argument, far from solving anything, merely lands us in ever more intractable contradictions.

The pressure of world capitalism forced the Soviet Union to devote an enormous proportion of the national income on armaments production and defence on the one hand, and the greatest capital construction in history in proportion to the national income for the needs of defence, on the other. Here Cliff claimed to have found his law of value. The law of value manifested itself in the armaments competition between two social systems! This can only be described as a concession to Shachtman's theory of bureaucratic collectivism. If this theory were correct, we would be in the presence of an entirely new economy never before seen in history or foreseen by the Marxists or anyone else. This piece of nonsense in turn led Cliff to capitulate to the bourgeois arguments of Keynesianism in the West, under the fig-leaf of the so-called theory of the permanent arms economy. Thus, one false theory begets another in an infinite progression of muddle.

Here again we would point out the dangers of indiscriminate use of quotations and amalgamations of ideas to form a "thesis". In reality Cliff's book is a hybrid of the theories of bureaucratic collectivism and state capitalism. If this section of Cliff's book means anything at all, it leads straight to the road of Shachtman's bureaucratic collectivism.

The whole idea is partially borrowed from Rudolf Hilferding, the German Social Democratic leader, who consistently argued that in Russia and Nazi Germany the law of value did not apply and that these were entirely new social formations. And it is also based on a misunderstanding of some passages in Bukharin's Imperialism and the World Economy. Here Bukharin argued on the basis of "state capitalism"--the organic union of trusts with finance capital--and in which he, together with Lenin, brilliantly prophesied a form of dictatorship which was later realised in Fascism. This concept had nothing to do with state ownership of the means of production, but was based on the fusion of finance capital with the state. In fact, Bukharin chose as one of his classic examples of such state monopoly capitalismÉ America.

Cliff's argument on armaments partakes of a mystical and not an economic category. At best, even if we accepted it as correct, it would only explain why Russian produced armaments, but not how or on what economic basis the armaments were produced. Even if the USSR had been a healthy workers' state, in imperialist encirclement, there would be the absolute necessity to produce armaments and compete with the arms technique and production of the rival capitalist systems. But this argument about armaments was entirely false. The greater part of production in the USSR was not armaments but means of production. Again, this would explain why the bureaucracy was attempting to accumulate the means of production at a frantic speed, but it explained nothing about the system of production itself. It is true that in a healthy workers' state the accumulation of arms would be smaller for social reasons (internationalist and revolutionary policy towards workers in other lands), but it would nevertheless have to take place, under the pressure of world imperialism.

A quicker or slower tempo in the development of the means of production does not necessarily tell us the method by which these are produced. Cliff says that the bureaucracy was developing the means of production under the pressure of world imperialism. Good. But all this tells us again is why the pace is fast. From the point of view of even classical bourgeois political economy, Cliff's argument was a pure evasion. It merely assumed what had to be proved.

Not for nothing did Trotsky point out in The Revolution Betrayed that the whole progressive content of the activity of the Stalinist bureaucracy and its preoccupation, was the raising of the productivity of labour and the defence of the country. We have seen that if the law of value only applied because of the existence of capitalism in world economy, then it would only apply to those products exchanged on the world market. But Cliff argues two contradictory theses in relation to the Soviet economy. On the one hand he says:

"This does not mean that the price system in Russia is arbitrary, dependent on the whim of the bureaucracy. The basis of price here too is the costs of production. If price is to be used as a transmission belt through which the bureaucracy directs production as a whole, it must fit its purpose, and as nearly as possible reflect the real costs, that is, the socially necessary labour absorbed in the different products É" (Cliff, Russia: A Marxist Analysis, p. 156, my emphasis.)

Three pages later, Cliff asserts the central point he intends to prove:

"ÉIf one examines the relations within the Russian economy, one is bound to conclude that the source of the law of valueÉ is not to be found in it." (Ibid., p. 159.)

In his first quotation, Cliff shows precisely the way in which the law of value manifested itself internally in Russian society under Stalinism. Even if one abstracts from the world market, leaving aside the interacting effect which it undoubtedly had, when Cliff says that "the real costs, that is the socially necessary labour absorbed in the different products" must reflect the real prices, he is saying that the same law applied in the USSR as in capitalist society. The difference is that, whereas in capitalist society it manifests itself blindly by the laws of the market, in the Soviet economy conscious activity played an important role.

In this connection the second quotation crushingly refutes Cliff's argument that capitalism existed in the USSR under these given conditions because the law of value did not operate blindly, but was consciously harnessed. In capitalist society, the law of value, as he says, manifests itself through the "autonomy of economic activity", i.e., it is the market which dominates. The first quotation shows clearly that the market--and this is the point--was, within given limits, controlled consciously and therefore it was not capitalism as understood by Marxists.

Previously Cliff said that the law of value did not operate in the USSR. Here he is showing precisely how it did operate: not on the lines of classical capitalism, but in a transitional society between capitalism and socialism. We see therefore, that Cliff claimed that Stalinist Russia was a capitalist society--yet he found the source of the basic law of capitalist production outside of Russia. Now, in any capitalist society in which the reserve fund is in the hands of the capitalist class, as Engels explains:

"ÉIf this production and reserve fund does in fact exist in the hands of the capitalist class, if it has in fact arisen through the accumulation of profit É then it necessarily consists of the accumulated surplus of the product of labour handed over to the capitalist class by the working class, over and above the sum of wages paid to the working class by the capitalist class. In this case, however, it is not wages that determine value, but the quantity of labour; in this case the working class hands over to the capitalist class in the product of labour a greater quantity of value than it receives from it in the shape of wages; and then the profit on capital like all other forms of appropriation without payment of the labour product of others, is explained as a simple component part of the surplus value discovered by Marx." (Engels, Anti-Dühring, Progress Publishers, Moscow 1969, p. 233.)

This indicates that where there is wage labour, where there is the accumulation of capital, the law of value must apply, no matter in how complicated a form it may manifest itself. Further on, Engels explains in answer to Dühring's five kinds of value, and the "natural costs of production", that in Capital Marx is dealing with the value of commodities and "in the whole section of which deals with value there is not even the slightest indication of whether or to what extent Marx considers the theory of value of commodities applicable to other forms of society". In this sense it is clear that in the transitional society also: "Value itself is nothing more than the expression of the socially necessary labour materialised in an object."

Here it is only necessary to ask: what determined the value of machines, consumer goods, etc., produced in the Soviet Union? Was it arbitrary? What determined the calculations of the bureaucracy? What was it that they measured in price? What determined wages? Were wages payments for labour power? What determined money? What determined the profits of enterprises? Was there capital? Was the division of labour abolished? Cliff gives two contradictory answers to these questions. On the one hand he agrees that it was the law of value on which all calculations and the movement of Russian society developed. On the other, he finds the law of value only operating as the result of pressure from the outside world, although how this occurs he does not explain in any serious way.

The meaning of transition

The surprising thing is that Cliff himself points out that the bureaucracy did not and could not determine prices arbitrarily. Its inability to determine the amount of money in circulation was not arbitrary either. And this has been so in every society where money (let us remember, the commodity of commodities) has played a role. Engels, dealing with this problem, pertinently asked Dühring:

"If the sword [no matter who wields it--bureaucrat, capitalist, or government] has the magic economic power ascribed to it by Herr Dühring, why is it that no government has been able to succeed in permanently compelling bad money to have the 'distribution value' of good money, or assignats the 'distribution value' of gold?" (Engels, Anti-Dühring, p. 228.)

In The Revolution Betrayed, Trotsky explains this problem very clearly. He shows that the economic categories peculiar to capitalism still remain in the transitional society between capitalism and socialism. Here is the key: the laws remain, but are modified. Some of the laws of capitalism apply and some are abrogated. For example, Trotsky argues:

"The role of money in Soviet economy is not only unfinished but, as we have said, still has a long growth ahead. The transitional epoch between capitalism and socialism taken as a whole does not mean a cutting down of trade but, on the contrary, its extraordinary extension. All branches of industry transform themselves and grow. New ones continually arise, and all are compelled to define their relations to one another both quantitatively and qualitatively. The liquidation of the consummatory peasant economy, and at the same time of the shut-in family life, means a transfer to the sphere of social interchange, and ipso facto money circulation, of all the labour energy which was formerly expended within the limits of the peasant's yard, or within the walls of his private dwelling. All products and services begin for the first time in history to be exchanged for one another." (Trotsky, The Revolution Betrayed, NY, 1972, p. 67, my emphasis.)

What is the key to this enigma? It can only be found in the fact that this was a transitional society. The state could now regulate, not arbitrarily, however, but only within the confines of the law of value. Any attempt to violate and pass beyond the strict limits set by the development of the productive forces themselves, immediately results in the reassertion of the domination of production over producer. This is what Stalin had to discover in relation to price and money when the Russian economy was inflicted with a crisis of inflation which completely distorted and disrupted the plan. The law of value was not abolished, but was modified.

One has only to pose the problem in this way to see the answer. A serious economic analysis must lead us to conclude that this was a transitional society in which some of the laws peculiar to socialism applied, and some peculiar to capitalism. That is after all, the meaning of transition. Although Cliff does not recognise this, in fact he admits it, when he says that the bureaucracy could consciously regulate (though within limits) the rate of investment, the proportions between means of production and means of consumption, the price of articles of consumption. That is to say, he is proving that certain of the basic laws of capitalism did not apply.

Was there a transformation of money into capital in Russia? In polemicising against Stalin, Trotsky answers this by showing that the investments were made on the basis of a plan, but nevertheless, what was invested was the surplus value produced by the workers. Here Trotsky shows the basic fallacy in Stalin's idea that the state could decide and regulate without reference to the economy. We might add that Stalin never denied that there was commodity production in Russia.

In spite of the fact that there was only one "employer" in Stalinist Russia, nevertheless, the state bought labour power. It is true that because of the full employment which would normally place the seller of the commodity labour power in a strong position, the state imposed various restrictions on the free sale of labour power. In just the same way, as in a period of full employment, under Fascism (or even in "democratic" Britain, if it comes to that) the employers get the state to intervene to offset the advantages which accrue from this situation for the sale of labour power. But only someone hopelessly lost in abstractions could argue that this negated the labour theory of value.

It is true that in the classical capitalist economy there was free sale of labour power. However, already in Marx's Capital there is a whole section on the ferocious laws to hold down wages in England, after the Black Death had so reduced the population that the nascent proletarians were in a favourable position to demand higher wages. Did this mean that the basic Marxist laws did not apply? On the contrary. In the three volumes of Capital, Marx was dealing with a "pure" capitalism which never existed, from which he extracted the fundamental laws. This represents the "ideal norm". But in practice, reality will always differ from the norm in one way or another.

The fact that in particular cases there may be a distortion of this or that element will not alter the basic laws. Nazi Germany, despite many perversions, remained fundamentally a system of capitalist economy, because the economy was dominated by production on the basis of private property and commodity production. One had only to compare the slave labour in Stalin's camps with the proletariat in the Russian cities to see the difference. The one was a slave based on slave labour, the other a wage slave. The one sold his labour power, the other was purely an instrument of labour himself. There is the fundamental distinction.

It is not at all accidental that the money used by the state must necessarily have the same basis as money in capitalist society. Not accidentally, as Trotsky explained, the only real money in Russia (or in any transitional economy--even an ideal workers' state) had to be based on gold. The rouble devaluations in Stalin's Russia were in themselves a striking confirmation of the fact that the law of money circulation, and thus of the circulation of commodities, maintained its validity in the USSR. And not only in the USSR. In any transitional economy the economic categories of money, value, surplus value, etc., must necessarily continue as elements of the old society within the new society.

Cliff argues that "the most important source of state income was the turn-over tax, which is an indirect tax". (Cliff, Russia: A Marxist Analysis, p. 47.) However, the turnover tax, in an indirect way, proves that the law of value did apply in Stalinist Russia. Cliff shows how the turnover tax applied in Russia. But he does not see that this tax must have been based on something. No matter how much the state might add to the price by placing an additional tax, the price had to be based on something. What else could this be but the value of the product, the socially necessary labour time contained in it? Or do we think that the state simply determined such things on an arbitrary basis, that is, by administrative fiat, backed by force. But this is an utterly childish argument, which was already demolished in the pages of Anti-Dühring. Engels ridiculed Dühring's "tax by the sword", out of which the surplus was supposedly extracted, when he wrote:

"Or, on the other hand, the alleged tax surcharges represent a real sum of value, namely that produced by the labouring, value-producing class but appropriated by the monopolist class, and then this sum of value consists merely of unpaid labour; in this event, in spite of the man with the sword in his hand, in spite of the alleged tax surcharges, we come once again to the Marxian theory of surplus value." (Engels, Anti-Dühring, p. 226.)

The turn-over tax in Russia and the other manipulations of the bureaucracy did not in any way invalidate the law of value. What is the essence of the law of value? That the value of the product is determined by the average amount of socially necessary labour time. That must be the point of departure. It necessarily manifests itself through exchange. Marx devoted a great part of his first volume of Capital to explaining the historical development of the commodity form from accidental exchange among savages through its transitions, till we arrive at commodity production par excellence, capitalist production.

Even in a classical capitalist economy the law of value does not reveal itself directly. As is known, commodities are sold above or below their value. Only accidentally would a commodity be sold at its actual value. In the third volume of Capital Marx explains the price of production of commodities. That is to say, that the capitalist only gets the cost of production of his commodity plus the average rate of profit. Thus some capitalists will be paid below the actual rate, others above. Because of the different organic composition of different capitals, only in this complicated fashion does the law of value reveal itself. This is effected, of course, through competition.

Monopoly is merely a more complicated development of the law of value. Because of the controlling position held by some monopolies, they can extort a price above the value of the commodities, but only by other commodities being sold below their value. The total values produced by society would still amount to the same. To the degree that socialism is developed so the law of value would "wither away". And Engels, having had a good laugh at Dühring's expense, ends by pointing out that under socialism "people will be able to manage everything very simply without the intervention of the famous 'value'."

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