Money — not workers — will be redundant (1978)

From the March 1978 issue of the Socialist Standard

At first sight it may seem inconceivable that any advanced economic system could function efficiently without the use of money. Money has existed as far back as the history books go and the economists endorse the supposed advantages of a money system. Indeed, some economists go even further than this, as R. G. Lipsey does in a widely used introductory textbook on economics where he says,

It is not without justification that money has been called one of the great inventions contributing to human freedom. (An Introduction to Positive Economics).

Lipsey here overlooks the fact that money is ‘liberating’ only for those who have money. For those who have no money, or insufficient of it, money is the form of bondage and oppression, not liberation. Thus, in praising a system that is ‘liberating’ for only a few, Lipsey is here, quite accidentally, revealing the class nature of economics as it is generally taught, and is showing that it constitutes mere apologetics for the capitalist system.

On the question of the functions of money in an economic system, the one generally regarded as the most important is that of a medium of exchange. In discussing the function of money as a medium of exchange Lipsey says,

Without money, our complicated economic system, which is based on specialisation and the division of labour, would be impossible, and we would have to return to a very primitive form of production and exchange.

Lipsey is right in saying that without money “our complicated economic system,” i.e. capitalism, would not be possible, but he is wrong to say that only a primitive form of production would be possible in the absence of money. Lipsey’s mistake lies in his thinking that exchange is a necessary characteristic of all societies, and that therefore in a moneyless world exchange would have to be carried out by the cumbersome method of individual barter. This fault is common to all bourgeois economists, notably to Adam Smith with his idea of man’s innate “propensity to truck, barter, and exchange one thing for another”. (The Wealth of Nations). This notion is typical of the way the bourgeois economists take the specific features of a particular society either as given eternal truths that must exist at all times or as emanations of an unchanging human nature (or both).

Exchange is possible only where the product of labour is privately owned. For example, in petty commodity production the product is directly owned by the individual who makes it and it is sold to acquire goods for his immediate use, while in capitalism the product is owned by the capitalist who then sells it in order to realise a profit. We can see from these examples nor only that exchange of products derives from property in these products, but also that the form of exchange is determined by the general nature of production in society. Contemporary capitalist exchange processes are characterised by the presence of large stores with an international range of commodities for sale, credit facilities of various sorts and extensive advertising, in order to increase the volume of sales and reduce the period of turnover of the commodities. These forms of exchange would have been quite inappropriate, say, in a feudal economy where output was on a smaller scale and intended primarily either for immediate use or for the local market.

But in a socialist society there will be no property in the means of production — the land, machinery, raw materials and power sources. The concept of property will have become redundant. Hence the product of society will be available for everyone to take from it freely what they require. Thus as property relations become redundant, so will the accompanying exchange relations and so too will money. In capitalist society we exchange the one commodity that we possess, our labour-power, for a wage or salary (if we’re lucky enough not to be unemployed), and then exchange this money for commodities. In socialist society we will participate directly in the process of production and then will take what we require from the common store of goods.

Thus to some extent Lipsey is correct in seeing a link between production and exchange. With the primitive form of exchange, i.e. barter, that he envisages in a moneyless world, the only form of production that would be possible would be a very unspecialised one where each domestic unit would try to produce for as many of their needs as possible in order to minimise their dependence on barter. In this situation overall production would be low and Lipsey is right to regard this as a retrogressive step. But what Lipsey doesn’t see is that in a world which has freed itself from property and exchange relations, production will also be free to develop without the fetters imposed on it by property society. It will be free to expand production without the fear of insufficient money demand, it will be free to develop the best possible products rather than having to minimise costs as is the case under capitalism, and it will be freed from having to produce the waste of capitalism such as armaments.

Redundant

Clearly then, money will be redundant in Socialism. But perhaps there are other functions that money performs apart from that of exchange that will still be required in socialism and will therefore necessitate the use of money in socialist society? Lipsey basically lists three functions of money. In addition to that of a medium of exchange, he also lists the functions of a store of wealth and a unit of account. By a store of wealth he is basically referring to a future claim on someone else’s goods, in other words, a medium of exchange with a time dimension attached to it. An exchange will have no meaning in Socialism, similarly future exchanges will have no meaning either. Just as we won’t need money to get the goods we need in the present, so we won’t need to save money to get goods for the future. (Which of course is not to say that society as a whole will not have to “save” for its future requirements.)

The notion of a unit of account is more complicated. Fundamentally it is related to the need of the capitalist to be able to quantify the production process in such a way that he can calculate the profits from any given investment. Secondarily it is related to the need for governments to have some overall idea of the movement of the economy in that it allows the government statisticians to aggregate over a range of commodities and compare different sectors of the economy. But in order for people to have some way of measuring productive activities, it is not necessary to have an actual system of money prices. Statisticians can invent any method they like of measuring or evaluating goods, e.g. in terms of labour input, energy used up, social usefulness, and these values can then be imputed to the goods in question for purely accounting purposes without using these imputed values as actual prices or exchange-ratios. Thus the need for a unit of account does not necessitate the use of money. In addition, the type of accounting done in a socialist society will be quite different from that in a capitalist society, and it may even be found that it is not necessary to have a universal unit of account of this sort.

Price System

Apart from listing the various functions of money in a capitalist society, the bourgeois economists advance another defence for a money system. They argue that a price system serves to allocate goods in a decentralized system to the areas where they are most required. This allocation takes the form of a production decision, viz what, how much and how to produce, and a distribution decision, viz for whom should these goods be produced. The price system solves these problems by ensuring that only the most profitable goods are produced in the most profitable manner, and that only those people who can afford to buy these goods should have the use of them. Some economists are less enthusiastic about the virtues of such a system than they used to be, but most endorse this form of organisation to a greater or lesser extent. Socialists, however, criticise an economic system organised on these lines and argue that a socialist society would in fact be far more efficient. In Socialism production would be regulated by people’s needs and distribution secured by free access. The necessary information for this could be secured from surveys, and the ‘take-up rate’ for the various items, to mention only the most obvious. This information could be processed on computers and passed on to those responsible for production. This system of communicating information could in fact be far more efficient than the price system which even the bourgeois economists have to admit is far from perfect in achieving the objective they ascribe to it.

The one function that the price mechanism does fulfil and which the economists do not understand properly, is that of a rationing device. Apart from the other problems that capitalism produces, it also produces scarcity, in spite of its tremendous potential for abundance. In a situation of scarcity, the price system serves as a rationing device where a £1 note serves the same function as a ration coupon with only the difference that a person can choose his rations (but not whether he/she is rationed). This rationing device allows the working class to receive only a fraction of what it has produced. This situation will not exist in socialist society. Without the fetters of capitalist profit-making and the concomitant wastefulness of capitalist production, there is no reason to suppose that social production will be inadequate to the task of satisfying people's needs. Hence there will be no rationing of the world’s wealth. And there will be no need for money.

B.