Value, History, and Marxist Macroeconomics

Adam Smith famously preached that free exchange reliably pushes “market price” down to the level of “natural price,” which he understood to be the true value of any commodity. That value, in turn, was based on the costs needed to produce the item in question. For a moral philosopher like Smith, natural price was the just price, but it was acceptable for market price to diverge from it (via what Smith called “accidents”) precisely because the “invisible hand” of free market competition would reign it back in.Footnote ⁹ David Ricardo pushed Smith's argument further by noting that labor, too, had “natural” and “market” prices, with the former defined as nothing higher than “that price which is necessary to enable the laborers, one with another, to subsist and to perpetuate their race, without either increase or diminution.”Footnote ¹⁰ Marx, in turn, was a post-Ricardian (according to Paul Samuelson's dismissive appellationFootnote ¹¹) because he only accepted that capitalism tended to suppress market wages, while predicting that someday incomes would be based on a valuation other than supply-and-demand. Marx's signature concept of “surplus value” arose from the observation that workers under capitalism created more value than was reflected by their market wages (systematically, not just “accidentally”). The confiscation of that excess by capitalists was what Marx called “exploitation,” and eliminating this phenomenon became the prerequisite for—perhaps even the definition of—socialism.Footnote ¹²

As the mathematical sophistication of economics developed, it became obvious that Smith's (and Ricardo's, and Marx's) “natural price” could not be calculated by measuring the value of production inputs—at least, not at the microeconomic level that would be needed to derive the price of any particular commodity. The so-called “neoclassical” economists (Alfred Marshall, William Stanley Jevons, Carl Menger, etc.) of the late nineteenth century solved this problem by decreeing that the cost of an item under conditions of free market exchange was by definition the same as its value. Whereas socialists continued to affirm that humans (and thus their labor power) had an intrinsic value, neoclassical economists held that value did not exist outside of market relations. Things were worth whatever the market said they were worth, and that which was not exchanged had no value at all (in the economic sense).Footnote ¹³ Only in this way could economics ever become mathematical, because quantification required a consistent means of determining price, and had no place for a definition of value distinct from price. By the middle of the twentieth century this had progressed to the point where an American scholar could complain, in an otherwise sympathetic review of a Soviet contemporary's work, that the latter's books were undermined by the fact that “there are no mathematical formulas, and even his vocabulary—terms like welfare, wants, and useful results—becomes fuzzy.”Footnote ¹⁴

Soviet economists during the Stalinist era were indeed reluctant to reduce the concept of value to a market-determined microeconomic price. The early work of the Soviet scholar Leonid Kantorovich, who won the Nobel Memorial Prize in Economics in 1975, was initially viewed with suspicion by his peers for precisely this reason. His models of resource allocation appeared to use metrics that focused on output rather than input, on the “optimal” utilization of produced goods rather than on production itself. Though Kantorovich used the phrase “objectively determined valuations” to describe his primary statistical tool, it was easy enough to see these as shadow prices, and that was sufficient to keep him on the margins until after Iosif Stalin's death.Footnote ¹⁵ Significantly, Kantorovich would later scoff at his opponents for using a historical, interpretive method rather than a mathematical one. “The computer cannot digest some of our economists’ scholarly products,” he said. “ . . . After pouring out all the water there was either nothing left, or just one big question mark, the formulation of an unsolved problem.”Footnote ¹⁶

These debates over math were, in a sense, a distraction from an even more fundamental disagreement about history. In 1943, a group of ten prominent Soviet economists led by Lev Leontiev, the author of that country's standard textbook on political economy, published a much-discussed article that Stalin would later use as the inspiration for his own book on economics.Footnote ¹⁷ Using what was then becoming a popular invective, Leontiev and his co-authors declared that “to deny the existence of economic laws under socialism is to slip into the most vulgar voluntarism, which may be summarized as follows: in place of an orderly process of development, there is arbitrariness, accident and chaos.” There were definitely economic laws, they argued, but like any social laws, these were specific to each historical era.Footnote ¹⁸ This was an old debate, dating at least to the so called “historical school” of economics, popular in Germany in the second half of the nineteenth century, which posited that the complex and ever-changing processes of production and distribution could only be understood within their historical contexts. Max Weber and Joseph Schumpeter are usually included in this tradition, and in the United States one of its most eloquent advocates was Thorstein Veblen. The latter even coined the term “neoclassical economics” in 1900 to describe those who had rejected dynamic historical time in favor of “an inquiry directed to the determination of the conditions of an equilibrium of activities and a quiescent normal situation. . . . It is the movement of a consummately conceived and self-balanced mechanism, not that of a cumulatively unfolding process or an institutional adaptation to cumulatively unfolding exigencies.”Footnote ¹⁹ All the other sciences, Veblen continued, were being transformed in the late nineteenth century by evolutionary theories in ways that restored change and time to the center of attention. He suggested that those categories had been repudiated during the Enlightenment because of their association with religious teleologies, leaving science to concentrate on static systems that could be analogized to mechanical constructs. By the end of the nineteenth century, however, evolutionary theory provided a secularized way to reintroduce dynamic, meaningful change, and the hard sciences were being transformed in tandem. As Phillip Mirowski has argued, even physics—the aspirational science for so many economists—was being upended in the nineteenth century by the recognition that time matters, because each state creates new conditions from which subsequent states emerge. Neoclassical economists were developing theories based on the first law of thermodynamics (energy can neither be created nor destroyed) even as physicists were exploring the second law of thermodynamics (as energy is transferred or transformed, it becomes more and more disordered through a process of entropy). The isomorphism of Newtonian physics was being transcended, and instead of the closed systems of circulation described by economists, actual scientists came to accept that the flow of time is meaningful.Footnote ²⁰

Stalin argued that the “law of value” was one example of a principle that changed over time.Footnote ²¹ Under capitalism, the phrase “everything has its price” is more than a mere aphorism. Everything is, in theory, subjected to the forces of supply and demand—everything, in other words, is commodified. Socialism was supposed to change that. That was the message conveyed to Polish economics students during the Stalinist years, which we know thanks to a preserved set of lecture transcripts from the prestigious Main School for Planning and Statistics (Szkoła Główna Planowania i Statystyki, or SGPiS). This Warsaw institution traces its origins back to a private business school founded in 1906, and during the interwar years it became Poland's premier center of higher education in economics. In 1949 it was nationalized and assigned the task of training those who would lead the country's rapidly expanding planning and accounting apparatus. In their first systematic introduction to Marxist economic analysis, students at SGPiS were taught that “liquidating the private ownership of the means of production, and the exploitation of people by people, on the basis of socialized means of production, means first and foremost that labor power ceased to be a commodity. It is unnecessary to emphasize that this is the initial moment that determines the character of commodity production in socialism.”Footnote ²²

Some took this to imply that the very idea of economic laws ceased to have any meaning. In 1951, Maksymilian Pohorille and Włodzimierz Brus published a textbook on the political economy of socialism in which they suggested that it was possible for the proletariat to remake the very rules by which the economy operated.Footnote ²³ Within a year, students at SGPiS were instructed to ignore those passages (though they continued to be assigned the remainder of the book). The retraction acknowledged that “Stalin teaches that one may not equate the objectivity of economic laws with their spontaneity, with the powerlessness of society against those laws. Marxism-Leninism has nothing in common with fatalism, with proclamations of passivity, with subordinating humanity to laws of development.” On the other hand, this correction continued, “economic laws have a historical character. The majority of them function only during a certain historical period, within the framework of a particular formation, after which they are superseded by new laws.”Footnote ²⁴

This shift had broad implications, particularly when paired with another distinctive feature of Marxism: its focus on macroeconomic analysis and its dismissal of methodological individualism. The economist Bronisław Minc (not to be confused with his infamous older brother, Hilary) repeated the aphorism that the main difference between “bourgeois” and socialist economists was that the former studied how people related to things, and the latter studied how people related to each other.Footnote ²⁵ With such a methodology, he continued, capitalists could only understand value in the narrowest of terms, while socialists could see the bigger picture:

The goal of the socialist planner, Minc said, was to assess what people needed and wanted, and in doing so, market prices could sometimes be a useful tool. However, “it is of course necessary to differentiate between the categories of value and price. Price, resulting from its very nature, is not the same as value and it must diverge from it.”Footnote ²⁷ Price in a socialist society was a discernable but purely administrative statistical figure, whereas value worked at a higher level of abstraction. Contrary to a common misperception, the famous “labor theory of value” was never meant to offer a prediction about the price of any specific commodity. Instead, it is a conceptual framework for understanding the dynamic relationship between labor, profit, and production on the aggregate level. As the author and Marxist activist Fredy Perlman put it, “Marx's principal aim was not to study scarcity, or to explain price, or to allocate resources, but to analyze how the working activity of people is regulated in a capitalist economy.”Footnote ²⁸ To be more precise, Marx was in fact very interested in the structural dynamics of pricing, but was not interested in explaining why a specific good in a specific shop was traded for a specific amount of money on a specific day. For our purposes, what matters most is that he placed the relationship between value and price at the center of his historical story, and when that was abandoned (as it was in the Polish People's Republic), socialism itself was gravely weakened.

Marx's understanding of the relationship between value and price was dynamic, expressing itself differently in the past, the present, and the future. In the distant past, he wrote, the fact that value came from labor was immediately transparent, but “in the course of time . . . some portion at least of the products of labor must be produced with a special view to exchange. From that moment the distinction becomes firmly established between the utility of an object for the purposes of consumption, and its utility for the purposes of exchange.”Footnote ²⁹ There then followed a protracted period of what he called “simple commodity production,” with societies that produced some commodities without all aspects of life being commodified. During that period, the exchange of goods was highly localized, playing a relatively small role in the larger processes of production and distribution. Insofar as commodity exchange was carried out, it broadly adhered to an understanding of labor equivalencies. As Engels put it in his postscript to volume 3 of Capital,

Value and price were thus reliably correlated up to the time when capitalism cast its veil of complexity and obfuscation over the social hierarchies that governed production. Marx claimed that the total of all commodity prices continued to reflect the total of all labor inputs, but the competitive logic of market exchange determined how all that value got distributed among different people who were situated differently in society. The key point here is that Marx started with a historiosophical scheme of epochal transformation, then described how the broad forces of production and circulation functioned during each successive period, and only then moved down to the detailed workings of the system. As the economist Fred Mosely has written, “Modern macroeconomics in recent decades has been obsessed with the ‘micro foundations of macroeconomics.’ Marx's logical method is the opposite—the macro foundations (the prior determination of the total surplus-value) of microeconomics (the individual parts of surplus-value).”Footnote ³¹

Moseley's observation is crucial, because it allows us to understand why socialist economists like Bronisław Minc considered superficial mathematical precision to be dangerous. Obviously one must utilize math, wrote Minc,

For the same reason, Minc rejected the neoclassical concept of “equilibrium.” Minc proclaimed that “in a socialist economy, the regularity distinctive to a capitalist economy—that the sum of the prices of all products . . . equals the sum of their value—no longer applies.” This claim was based on a differentiation between two economic spheres: one in which consumers purchased things from state firms, and another in which state firms exchanged goods among themselves. In the first sphere there had to be an equilibrium between the nominal value of the earnings of the population and the nominal value of the items they purchased. Such a balance, however, was just the tautological confirmation that the number of banknotes in circulation placed a limit on how many of them could be spent. When it came to the administration of production, however, prices were nothing more (nor less) than a “means of evidence and control”—a phrase that would appear repeatedly in the PRL's economic documents prior to 1956.Footnote ³³ In a course on accounting, students at SGPiS were taught the following:

The purchase of an appliance by a Polish consumer from a state-owned shop involved a genuine transfer of ownership, so such things were commodities by any definition. But the interactions between two factories in a socialist country involved two parts of one entity (let's think of it as “Poland Incorporated”) with one collective owner (the Polish people). Therefore, no exchange of value actually took place, because a transfer between a Polish supplier and a Polish manufacturer involved a mere relocation within a single corporate structure. In capitalist societies, when a firm sends materials from one section of the factory to another along a chain of production, no market exchange takes place, and the same was true for Poland Incorporated. SGPiS students were taught that in such circumstances “the state does not lose property rights, because both the firm producing a given item and the firm receiving that item are owned by the whole nation.”Footnote ³⁵ If there was no exchange of property, then there was no exchange of (commodified) value. This meant that prices were not—and logically could not be—determined by negotiations based on supply-and-demand equilibrium. There was no reason in principle that all the branches of Poland Incorporated could not just eliminate pricing altogether. There were, of course, countless practical, administrative obstacles. The informational, accounting, and bureaucratic complexities of a massive national economy were so intricate that a single allocation system would have been a herculean challenge (given the limited computer power available at the time). Nonetheless, this was an administrative and technological dilemma, not a theoretical weakness. One way to manage such a process was to use prices to convey information throughout the system, requiring each office and factory to maintain balanced books—thus the utilization of “monetary forms of evidence and control.” But utilizing pricing was not the same as allowing prices to dictate production decisions. Individual factories did not need to maximize profits any more than each individual division in a capitalist corporation had to make a profit in order for the firm as a whole to thrive. In a draft planning document from 1946 we read about a distinction between “capitalist profitability” and “socialist profitability.” Even if a particular firm failed to attain profitability in the conventional sense of the word, this text noted, losses were acceptable as long as the firm contributed something essential to society.Footnote ³⁶

An excellent example of how value calculations worked in practice during the Stalinist era would be the so-called “settlement price” (cena rozliczeniowa). The term exists in capitalist accounting as well, but it had a more specific connotation in the PRL. The settlement price of business-to-business goods was calculated by averaging the cost of production for a particular item across an entire sector of the economy. We can see the significance of this technical concept in a presentation delivered to coal mine managers in Katowice in 1947 by the Director of the Central Administration of the Coal Industry (Centralny Zarząd Przemysłu Węglowego), Fryderyk Topolski. He explained that ordinary miners had long been flummoxed by the mysterious logic governing which mines succeeded and which failed in the bad old days under capitalism. The employees of a particular mine might work hard and their firm might be well managed, yet they might nonetheless go bankrupt because they were not sufficiently profitable. That rate of profit, in turn, was determined largely by the market price of coal, which would fall if some other mine in some other region managed to dig up the coal more cheaply. But this problem did not arise under socialism, he continued, thanks to the settlement price system. Utilizing a sectoral average was the key, Topolski said:

It is hard to imagine a passage that more starkly illustrates the difference between the logic of capitalism and the logic of socialism. Topolski was saying that the profitability of a particular firm could be lost under one system of accounting but restored under another, because both systems rested on political choices about what to count, and how. A system based entirely on exchange value at the level of the individual firm would reveal that one mine required more labor than another to produce the same amount of coal. This would create incentives for technological or organizational innovations to improve the productivity of the underperforming mine, or it would lead to that mine's closure. If, on the other hand, the entire society was viewed as an interconnected whole, other considerations were made visible. Perhaps the costs of retraining and relocating the displaced workers exceeded the reduced productivity of laboring under suboptimal conditions. Perhaps the benefits of encouraging economic development in a particular region were greater than the losses accrued by a single firm. Neoclassical economists would find this whole line of reasoning nonsensical, because their approach is based on calculating profits by measuring the exchangeable commodities produced by individual firms. The Marxists were looking at different numbers. To be sure, their assessments could be wrong (and often were) but it cannot be a priori assumed that what is optimal for a specific firm will always be optimal for society as a whole. If a series of coal mines all have the same owner (the state), then their fate becomes a question of administration, and thus a question in which ethics, social impact, political power, and efficiency must all be considered. In other words, they had to consider all aspects of production and distribution from the point of view of Poland Incorporated, externalizing nothing. The whole point of neoclassical economics had been to banish considerations of morality, society, and politics from economic calculation. Socialism in the 1940s and 1950s brought these concerns back in.

The Resurrection of Neoclassical Economics

The worldview described so far enjoyed only a brief moment of supremacy during the Stalinist era. Perhaps the enforced intellectual conformity of those years was only superficially obscuring the ongoing strength of neoclassical economics—a plausible interpretation given the continued presence of highly respected pre-war scholars like Oskar Lange, Michał Kalecki, Edward Lipiński, or Czesław Bobrowski. Lange in particular had been an outspoken proponent of market socialism in the interwar years, and his 1936 polemic with Ludwik Von Mises is often cited as one of the foundational texts of this approach.Footnote ³⁸ During the Stalinist era, however, these scholars had either withdrawn from the public eye or reversed their earlier positions.Footnote ³⁹ The first manifestation of dissent from the Stalinist path came not from any of the old dignitaries, but from a group of younger economists who wrote directly to First Secretary Edward Ochab in May, 1956: Włodzimierz Brus, Henryk Fiszel, Bohdan Gliński, Kazimierz Łaski, Zofia Morecka, and Józef Pajestka. These authors raised a long list of concerns, ending with a proposal: “we are deeply convinced that a fundamental change in the style of economic activity, an ‘uekonomicznienie’ of that activity (not at all limited to investment, but to the entirety of this problem) ought to bring huge effects. It ought to reveal the virtually incalculable reserves which are right under our feet.”Footnote ⁴⁰ The neologism “uekonomicznienie,” is hard to translate. Although literally it would be rendered as “economize,” it meant more than just cost-cutting. Rather, it referred to a comprehensive approach to policymaking built around “objective” economic metrics, which in turn were understood in surprisingly neoclassical terms. Writing in 1957, Czesław Bobrowski exemplified the rhetorical strategies of the reformers. He summarized the “attack” mounted by his fellow economists:

The movement for economic reform exploded into public view during a dramatic academic conference (if that's not a contradiction in terms): the Second Convention of Polish Economists, held in Warsaw on June 7–9, 1956. This gathering brought together about 600 academics and policy advisors from across the country, and their debates set the tone for the reform efforts to come.Footnote ⁴² The timing revealed that changes were happening on many different levels: later that same month (June 28), a strike in Poznań led to demonstrations that were suppressed by a deadly military crackdown. While some leaders of the PZPR (Polska Zjednoczona Partia Robotnicza, or Polish United Workers Party) responded with familiar Cold War rhetoric about “enemy agitators” and “foreign influence,” others were grappling with the cognitive dissonance of a communist state violently crushing a worker's revolt. An ad hoc commission was immediately formed to investigate the causes of the workers’ discontent, nominally under the leadership of Vice-Premier Piotr Jaroszewicz, but in fact led by Michał Kalecki, an economist of international renown.Footnote ⁴³ Kalecki's work was barely started, however, when yet another political earthquake shook the country: the famous “Polish October,” when the VIII Plenum of the PZPR Central Committee elevated Władysław Gomułka to power. For reform-minded economists, Gomułka's triumph seemed to signify boundless opportunities. The Jaroszewicz/Kalecki commission was replaced by a more formalized “Economic Council” (Rada Ekonomiczna), called into being by a parliamentary resolution on December 1.Footnote ⁴⁴ This body included thirty-six prominent experts, including all the leading economists of the day. Oskar Lange was now the chair, and Czesław Bobrowski was vice-chair. Five others joined Lange and Bobrowski to constitute a presidium: Michał Kalecki, Edward Lipiński, Włodzimierz Brus, Kazimierz Secomski, and Edmund Pszczółkowski. The Council first met on February 9, 1957, and their preliminary declaration, outlining their broad goals, was published one year after the Poznań strikes, in June of 1957.Footnote ⁴⁵

In his concluding remarks to that 1956 Convention, Oskar Lange announced the emergence of a new professional consensus: “finally, there exists an entirely united view among us . . . namely, that our national economy needs full and effective economic accounting.”Footnote ⁴⁶ That was a polemical exaggeration, obscuring the fact that competing views were expressed at the Convention, and would persist from the margins for years. Nonetheless, it is true that the center of gravity (or at least, the center of institutional power) among economists had profoundly shifted. It is telling that the most excitement at the Conference was generated by Kalecki's presentation, which was by far the most technical. Filled with subtle and precise argumentation, and abundant mathematical equations, it is the only paper that would have been inaccessible to outsiders—which might have been precisely why the insiders found it so appealing. Apparently the attendees, particularly the younger ones, were inspired by how Kalecki made economics seem intellectually sophisticated and mathematically rigorous, devoid of the philosophical and moral fluff of the more orthodox Marxists. This was by far the most oft-mentioned message of the conference attendees: they wanted to move from “ideology” to “science.” One of the subsequent speakers from the floor (no one even bothered with the pretense of a Q&A format) summed up the mood well:

The 68-year-old Edward Lipiński, perhaps the most senior scholar at the Convention, summed up the implications of this “scientific” approach by outlining a (re)new(ed) understanding of value and prices:

Lipiński rejected Minc's claim (quoted above) that capitalist economists studied relations between people and things, whereas socialist economists studied the relations among people. Every economist, he said, belonged to one academic discipline, with one set of methods and one (deductive, mathematical) evidentiary standard. The forms of property ownership may change, but economics remains the same: the scientific study of the allocation of scarce goods (a definition that came from “bourgeois” economists like Lionel Robbins and Paul Samuelson, but would also characterize their Polish peers after 1956).Footnote ⁴⁹

By defining economics in this way, it became possible to sever ties with “soft” fields like philosophy, politics, and history, and line up alongside biology, chemistry, and (above all) physics. As one of the commentators from the floor at the 1956 Convention put it, the way they had been teaching economics up until then

In particular, this speaker continued, economists undermined the scientific nature of their discipline by imagining that the essence of human relations might change over time, thus introducing mutations in economic laws. People who advocated a historical approach were, in this speaker's opinion, a danger to the profession: “cultivating a distinctive ‘theory of stages,’ which justifies everything, does serious harm to the science of economics and forces people to doubt the representatives of that science.”Footnote ⁵⁰ In fact this speaker got things exactly backwards. The Stalinist-era cost-of-production assessments, contrary to their reputation, had actually been an attempt (admittedly, a failed attempt) to calculate the hard facts of material output. The reformists, on the other hand, wanted to base everything on the irreducibly social phenomenon of competitive pricing. Before 1956, planners tried to figure out how many X were needed to make Y; afterwards they were trying to balance the price of X with the price of Y. By mystifying the irreducibly social and cultural nature of pricing, the reformers got to pose as scientists while turning the fluidity of social life into a set of quantifiable variables.

From this supposedly scientific foundation, Lipiński inserted commodity valuation into socialism through the back door. The labor theory of value had been based on the amount of “socially necessary” labor contributed to a product. Lipiński relocated this calculation to the realm of consumption: “only by selling a good to a producer or consumer can I measure whether the amount of labor used in creating the product was socially necessary, whether it corresponded to the needs of society. If I contributed too much labor to the production of a machine that manufactures a consumer good, the demand for that good will show whether the amount of labor was or was not in accordance with social need.” He went so far as to claim that “essentially, socialism implies the satisfaction of needs, and thus the mobilization of the sort of production that society demands.” With demand established as the measure of value, it followed that “if, therefore, a product appears as a value, it has a monetary price, which functions according to the law of value, which makes price equal to value.”Footnote ⁵¹

As we have seen, during the Stalinist era firms needed to account for items or services they transferred to or received from other firms with measures of “evidence and control,” but they did not buy or sell those goods. They could not, because there was no change of ownership involved. Yet the Economic Council argued in a report from December 29, 1957 that state firms should relate to each other as if they were independently owned, precisely so that they could adopt accounting methods based on commodity pricing. This would enable a shift in accounting methodology, based on the microeconomic act of exchange instead of macroeconomic assessments of social needs. The Council declared that “price is the foundational element of economic calculation, and thus it is a factor codetermining the foundation of economic choice on all levels of economic activity.”Footnote ⁵² Brus, in his speech to the Economists Convention in 1956, had referred to this as a “quasi-market,” acknowledging that the novel property relationship prevented it from being a true market exchange. But he proceeded to argue that the valuations emerging from such exchanges were subject to “objective laws” that applied equally and identically in capitalism and socialism.Footnote ⁵³

Once value and price were collapsed together, “equilibrium” became much more than an accounting mechanism—it became, as Lipiński put it, an “immanent law” (prawo immanentne) mandating that whenever a price diverged from its ideal equilibrium price, some sort of disorder or disturbance (zaburzenia) must follow. Pricing under socialism, he wrote, should regulate production in exactly the same way as it did under capitalism.Footnote ⁵⁴ Brus went so far as to argue that “a price that does not balance supply and demand is not, fundamentally, an economically justified price. If the price is lower than the equilibrium price, it can only be sustained with the help of administrative means (a rationing system) or at the cost of such phenomena as hoarding commodities and lines outside of stores.” Footnote ⁵⁵In this case, the manner of framing the issue made all the difference. Instead of entertaining the possibility that under specific circumstances different paths to equilibrium might be justified, he simply announced (again, by definition) that any method other than pricing was illegitimate. All alternatives were “administrative methods” rather than the proper “economic means,” or as he put it more sharply, the “command principle” instead of the “economic principle.”Footnote ⁵⁶ Within this reasoning, allocation of goods by rationing was inherently problematic—perhaps acceptable as an emergency measure, but always to be viewed as a temporary deviation from proper, market based pricing.

In that very same speech from 1956, however, Brus ran up against the limits of his faith in the market, reassuring the audience that “sustaining some temporarily unprofitable or less profitable firms and branches for the sake of the entire national economy and for a properly understood long-term benefit constitutes on of the basic elements of the superiority of socialism over capitalism, one of the factors enabling considerably more rational management on the basis of the social ownership of the means of production, rather than on the basis of private ownership.” Footnote ⁵⁷Socialism, he believed (though he would renounce this view later), was superior because it permitted a wide variety of factors to be discussed when making economic decisions, even though he insisted that the “economic” aspect of each question should always be at the forefront.Footnote ⁵⁸ The tensions within Brus's worldview were typical of those years. One Economic Council report re-affirmed that “when it comes to pricing policies, the principle of market equilibrium must be respected both in the means of consumption and in the means of production,” yet in that same document we learn that “equilibrium is not and cannot be, however, treated as the goal of state pricing policies, since the state of equilibrium can be attained with various combinations of the three factors that constitute it: supply, demand, and price.”Footnote ⁵⁹ The risk of positing price equilibrium as a goal, this document explained, was that it would create a temptation to respond to every imbalance by raising prices in order to suppress demand. Instead, the authors wanted state policies to focus on increasing production, or altering production to better meet the needs of the citizens. “Only after exhausting all possibilities of attaining a state of equilibrium in the aforementioned ways,” they concluded, “can one consider either a price change or the introduction of rationing.”Footnote ⁶⁰

Bronisław Minc was an outspoken opponent of this new direction. He repeated his observation that a firm could not compete with itself, so supply-and-demand pricing was nonsensical when everything had one owner. For purposes of management, he said, it was not price that mattered, but value. “Price, as a rule, must deviate from value,” he wrote later, “so for this reason it cannot be a perfect tool for economic accounting. . . . Unavoidable changes in the system of prices must necessarily emerge from a socialist economy and take into account objective conditions, and it is neither possible nor desirable to apply artificial constructs borrowed from bourgeois political economy.”Footnote ⁶¹ The cost to the firm that produced a particular part or raw material had to be reimbursed when the finished product was allocated somewhere else. Otherwise serious imbalances would ensue, and the first enterprise would be unable to cover its costs in the future. All of this was an accounting problem: a way of ensuring that every firm would continue to be allocated the resources it needed to do its job. Sales based on supply and demand could not determine how to cover those needs—that had been the fundamental theoretical error of neoclassical economists, whom he called (with a nod to Marx) “vulgar capitalists.”Footnote ⁶²

This argument was echoed by Maksymilian Pohorille, who was not invited to give a presentation at the 1956 Convention, but who managed to speak from the floor at such length that his remarks became a chapter in a book titled Economists Discuss the Law of Value. “There are two paths for adapting production to consumer need,” Pohorille said. “First, the spontaneous method of a capitalist economy; second, the conscious adaptation of a planned, socialist economy.”Footnote ⁶³ It really was an either/or decision, because in a socialist system the whole premise of supply-and-demand pricing collapsed. As Pohorille put it, the reformers were proposing a system that would be at most “pseudo-competitive.” But there was an even deeper problem, he continued: “we must not fetishize prices or price equilibrium, because we must carry out a specific social policy. If we continued to treat price equilibrium as a fetish, then the only means of resolving difficulties in meat supply would be to raise its price. Lines are unfortunate, but in some situations they are the only option, if there is not enough meat. Raising the price of meat is not a solution for those who cannot buy the meat at a higher price.”Footnote ⁶⁴ A world in which prices were based on supply and demand, he said, would be a world in which commodification returned, and in its wake would come the whole logic of capitalism. If profit was the goal and if price was treated as an “objective” reality, then incentives would be aimed at lowering costs and maximizing prices.

Even Brus had set labor apart as an area where supply-and-demand pricing should not be applied: he said that they must never allow firms to compete for profits by lowering pay, even as he told firms that their fundamental goal should be the maximization of profit.Footnote ⁶⁵ Similarly, he wanted firms to set their own prices, yet he also wanted to believe that “there exists in general a concept of the economic interest of the nation as a whole, which is not entirely covered by the interests of specific firms or directly by the interests of citizens, as consumers.”Footnote ⁶⁶ Lipiński also agreed that scale mattered: “in a socialist economy, the decisive factor is social profit, that is, the socio-economic effects of a particular investment, an effect that is not at all limited to a particular factory of even one branch of production.” Once we understand the concept of “social profit,” he continued, we can also see that “the superiority of socialism depends on the fact that it creates the possibility of suspending or limiting the functioning of the law of value.”Footnote ⁶⁷ Writing a couple years later, Zofia Morecka argued that despite the importance of the law of value, it must never be allowed to extend to labor. Yes, the accounting within firms would have to determine a “cost of labor” denominated in money, yet “‘socialist’ pay is not constituted by the price of labor power, because the latter ceases to be a commodity.”Footnote ⁶⁸

It is certainly understandable that these economists, as socialists, wanted to draw lines around worker compensation, but on what grounds could they do so? One certainly could make ad hoc determinations that market pricing should apply here, but not there. Yet if the goal was to turn economics into a science and avoid subjective political judgments, the whole project was undermined by the inescapable politics involved in determining how far commodification would go. Moreover, if commodity pricing did not apply everywhere, then what use was it? If labor costs were not priced according to the same valuation system as everything else, then the largest single expense on most firms’ ledgers was excluded. What sort of equilibrium would result from that? This is the dilemma that the PRL's economists faced, and none of them solved it.

In 1958 the co-chair of the Economic Council, Czesław Bobrowski, cautioned that commodity pricing was just “a certain tendency, and not a misleading hope of solving the broad problems of planning and management through the direct application of the law of value.”Footnote ⁶⁹ And yet, by that time nearly all of his peers agreed that it was necessary to introduce “economic accounting” and “rational calculations.” In later years, the reformists would complain that their calls for a more rational type of socialism—market socialism—were ignored by policymakers.Footnote ⁷⁰ Whether or not that was indeed the case would be the topic for another article, but even before we could consider those policy debates, we would have to grapple with an even more fundamental problem: their proposals were built on an irresolvable inconsistency. They wanted to employ the microeconomic methodologies of neoclassical economics, in which the forces of supply and demand set prices, and in which those prices both established production incentives and measured the efficiency of each firm. Yet as socialists they realized that they could not allow labor to be commodified in this way, nor could they ignore the social or political implications of microeconomic decisions. They wanted to be recognized as mainstream economic scientists standing above ideological disputes, yet they pushed for an accounting system that could only conceptualize exchange value, thus rendering invisible almost everything else that socialists were supposed to want. If we took this story forward we would encounter plenty of intransigent Party apparatchiks and bungling policymakers, but we do not even need to introduce those characters to see where this tale is headed.