Principles of a Postcapitalist Economy

Capitalist market economy is a chaotic process in which individual producers compete against each other without collaborative planning. Capitalism brings about a highly unequal society; but the lack of coordination also leads to economic crises, inefficiencies and environmental degradation. Individual enterprises aim to maximise individual profit, while human interests are completely ignored if they are in conflict with this overarching objective. While elsewhere we discuss the capitalist economic system in more detail, we now want to dedicate ourselves to the search for an alternative form of economic organisation. Social democratic, anarchist and communist movements of the past have only ever thought socialism as something completely different and alluded to a more just system. We at ADH want to demonstrate how socialism might work in practice, without bringing about economic inefficiencies or breadlines.

Systematic Foundations

In the social economy, society as a whole is in control of productive resources, their use and yields. This is what defines the social economy. Production and other forms of economic activity are organised through social institutions that are under democratic control. As long as robots and AI do not allow for complete automation, we will continue to depend on the workforce of individuals to produce social wealth. In return, individuals will get access to a portion of the social product, either in form of goods for individual consumption or through access to public services.

A socialised organisation of the economy does not necessarily reduce the degree of individual choice. In the socialist society envisioned by us, individuals will decide in what form they want to contribute to social production and in what form they want to share in the product. The task of social planning lies in aggregating individual needs and preferences to a common plan, and to ensure that the needs of all are taken into account as much as possible.

Labour and Pay

Unlike the market economy, the social economy does not rest on the principles of private property and exchange. There can therefore be no money, which serves as a universal medium of exchange under capitalism. But it is not feasible to simply allow each individual to consume as they please and without limit. This would lead to massive waste. For this reason, we propose the introduction of an alternative unit which we call “Credits“. Credits represent a claim to a certain portion of the social product and can be used to acquire personal consumption goods. Unlike money, these credits are not exchanged for the consumption goods, but are redeemed and deleted, much like a voucher or a theatre ticket is. Society gives out a number of credits and then proceeds to delete them again once they have been used. For the acquisition of which consumption goods, individuals choose to use their credits is in principle up to them.

People that are too old, too young or too sick to work will of course receive credits without further conditions. It is, however, necessary to tie the issuing of credits to the participation in the workforce for those that are able to work. Only in this way a sufficient provision of labour can be ensured, beyond utopian fantasies. The provision of this labour is necessary for the production of social wealth and its burden should be as evenly divided between all as possible. The more labour saving technology can be introduced, the further working hours can be reduced for all.

In order to allow people a free choice of their profession within the limits of their abilities, but at the same time ensure that all necessary tasks are executed, it is necessary to create incentives. Less pleasant but necessary forms of work have to become more attractive in order to make sure that they are being done. This does not necessarily require the promise of a higher share in material wealth; instead working hours for undesired jobs can be reduced to make them more appealing. If the overall number of necessary hours to be worked in a certain profession is known, then this time (T) must be set equal to the labour time per worker (t) multiplied by the workers in the profession (n): T=t×n.

Should free choice of profession lead to T>t×n, then an obvious possibility would be to increase the compensation in order to motivate more labourers to pick up this profession, and thus increase n. But a decrease of t, might have a similar effect. The numbers of workers n that has to be attracted will be increased due to the lower hours worked per person. But shorter hours will also lead to more people being willing to provide their labour for this particular kind of work, rather than for another. Should this be a sufficient way to persuade enough workers, then an unequal distribution of consumption goods becomes unnecessary.

This principle does not only ensure that necessary work is being done, it also allows for a fair distribution of the labour burden. After all, this burden isn’t just determined by the length of time worked, but also by the kind of activity undertaken. According to our proposal, it might be that some workers have more unpleasant jobs, but this is compensated for by shorter hours.

Individual Consumption

In the previous section we introduced the idea of credits which can be redeemed for goods of individual consumption. The question now is what the “price” of these consumption goods ought to be. How many credits have to be redeemed for an apple? How many for a PC? Intuition tells us that a computer should cost more than a single apple, since its production takes significantly more effort. But how much more? Since prices, as will be explained further below, have a highly significant feedback control function within our mode, they cannot just be determined at random.

First of all, we must realise that the sum of all prices of individual consumption goods must be equal to the sum of credits issued for their purchase, otherwise either consumption goods or credits will remain unused. If the level of prices is too high, then consumers will not be able to afford all goods. Some products will remain unused for no good reason. If the level of prices is too low, then other unnecessary problems arise. Consumers might have credits left over, yet there are no more products to redeem them for. As under “real-existing socialism”, consumers would be faced with empty shelves. Credits would lose their function in determining the distribution of products and other principles, for example rationing, would have to take their place.

To avoid both waste and shortages of consumption goods in general, as well as particular consumption goods, the principle of market clearing prices ought to be used. The market clearing price of a product is the price at which all products are purchased and all consumers willing to redeem this number of vouchers for the product are able to do so. The market clearing price will constantly be redetermined in a dynamic process, by constantly comparing the rate of consumption with the rate of production. Should it be found that shelves empty faster than they can be restocked at the current level of production, then the price must be increased. If products remain in the shelves unused, then prices must be lowered to lower the barrier to consumption. The use of market clearing prices ensures that products go towards those consumers that through their willingness to pay the highest price demonstrate the largest interest in the product. Unlike under capitalism, purchasing power in the social economy is distributed more or less equal. For this reason, we can assume that “demand” more accurately reflects the actual needs of people. Under an unequal distribution, it is often the case that the needs of some people are urgent, but they are not taken into account at all because they have little or no money.

Market clearing prices also indicate whether production of a certain good should be increased or decreased. If many people are willing to redeem a large amount of credits for a product, this indicates that an expansion of production is warranted. But if prices are low, then this means that not enough people can be found which are prepared to redeem their credits for this particular product, meaning the current extent of production is unjustified. Resources should rather be used elsewhere, or the necessary labour can be saved, meaning working hours for all people can be reduced. This raises the question of what it means for the price of a product to be “high” or “low”. What price should the market clearing price be compared with when determining whether the level of production is too high or too low? In the terminology of control theory, the market clearing price is the “actual value”, since it is the value at which products are actually given away at this time. What we have not determined is the “set-point” or “target value”, towards which market clearing prices are to be regulated by adjusting the level of production.

The target value must certainly be a different one for a computer than for an apple. The reason is that producing a computer makes use of more of society’s productive capacities than the production of an individual apple. On the one hand, a computer and an apple require unequal amounts of labour to produce; on the other hand, their production requires varying amounts of limitedly available resources. These include naturally scarce resources such as fertile land, but also machines or components that take a long time to produce and the availability of which is then limited for the near future. Conscious limitations of certain production procedures, for example for environmental reasons, must also be taken into account. For example, goods whose production leads to more carbon emissions should carry a higher price to encourage consumers to instead use their credits to purchase products less environmentally damaging. Our task is then to determine a unit which appropriately reflects all these factors that limit the expansion of production, based on current circumstances. The existence and computability of such a unit was successfully demonstrated by the mathematician and economist Leonid Kantorovich, who was awarded the 1975 Nobel prize in economics for his contributions to mathematical economics. These objectively determined valuations are closely linked to the determination of an optimal production plan and will thus be discussed further below. At this point we shall simply note that these objectively determined valuations can be used as our “set-point” or “target value”. In this way prices of products are regulated in such a way that those that require more limited resources, more labour and more environmental degradation are costed higher. Consumption of these products will be limited to those cases that serve the biggest uses. Only those cases justify the associated use of resources and labour. Consumers will be incentivised to switch to other products which require less productive resources.

Social Consumption

The presented draft of an alternative economy is not just distinguished by a social organisation of production, but also by a central role of public or social consumption. So far, we have only considered individual consumption, but in many areas of life a social organisation of final consumption is more desirable for economic, political or environmental reasons. Costs will be carried by society, while the use is freely available to all or proportioned according to need. There are many areas where this makes sense: public transportation, health care, education and access to art and reproducible digital products. To make such products possible, the individually issued credits cannot correspond to the entire social product. Part of it must be maintained by society as a kind of tax, so that resources and labour can be used for these public expenses.

How many resources will come to benefit the various sectors, such as education or health care is a political decision that will have to be made democratically. However, in some cases it makes sense that decisions are not made by majority decree, but in proportion to peoples interests. Every person might have a certain number of credits in their name which are not available for personal consumption, but can be assigned to a public project of ones choice. This would be a form of institutionalised crowd-funding. If in a given region 60% of the population enjoy football, while 40% of the population prefer water sports, then not all public funds would go towards supporting football as a majority vote might lead to. Instead, 40% of people would use their “public” credits for the development of communal water sports facilities, meaning that the interests of this minority will not be ignored altogether. Whether any individual dedicated their public credits to football grounds or swimming pools is not relevant for access which will be granted to all people for free.

There are various reasons why access to various public facilities and services should be free. One case is the treatment of the sick and injured. Another case is public transportation. There is a public interest in ensuring that people make use of means of transportation that do not overly congest roads and airspace, and negatively impact the environment. Economically speaking, facilities and services are often not used at full capacity, so that additional use does not increase cost. Take a bus that travels along its route with half of the seats empty. From a social perspective, there is little reason to deny access to people unwilling to pay a certain price for a ticket.

This argument is particularly strong in the case of digital products like software, films and music. Additional downloads do not translate into additional cost. Economists speak of the marginal cost of production being zero. In a social economy it is possible to provide resources for the initial development of these products through public means, for example, through institutionalised crowd funding, and to then make the download of these products available for free. For the crowd-funding part of this there could be an online portal, analogous to the website Kickstarter. On this portal various projects can be presented and everyone can freely decide which project they want to support with their public credits. Other than Kickstarter, projects would not have to rely on selfless charity: a certain part of the credits of every person are from the beginning only to be used for such public projects. The outlined model would allow artists and developers to get access to the necessary resources for their projects; at the same time the finished product would be available to all, free at the point of use. Additionally, it is guaranteed that resources for development are distributed in correspondence with the needs and interests of the population.

Rational Planning of the Social Economy

So far, we have mainly considered goods of consumption. A significant portion of products is however not meant for consumption, but for the production of other products. This includes intermediate products, machinery, raw materials for further processing and so on. Behind the production of consumption goods at which the needs-oriented social economy aims is a giant network of production steps. Many of the goods within this network may have uses in the manufacturing of a wide range of products. For some there is more than one production method and each one requires different kinds and amounts of machinery or raw materials. How can this complex and integrated production process be organised without the use of money and markets?

A range of methods from input-output economics can be considered to determine the optimal use of available resources. Input-output economics do not deal with the monetary value of products, but with the physical inputs and outputs of the material production process. One of the methods available for the establishment of a universal production plan for the entire economy is (computer-assisted) linear optimisation. Under consideration of the necessary inputs of various feasible production processes and additional constrains, which might for example represent the limited availability of resources, the production plan which maximises a specified production function can be calculated. This production function describes the amount of end products which will be produced under the plan.

Final products are produced at predetermined proportions. For example, it might be specified that four times as many chairs as tables ought to be produced. The optimal plan is the plan which maximises total production output for these proportions.

An optimal production plan corresponds to certain objectively determined valuations for all products. These objectively determined valuations are defined so that each enterprise maximises its “Profit”, i.e. the difference in value between production outputs and inputs, by adhering to the optimal plan. The values thus reflect the extent to which various products constitute a limitation of the further expansion of production; either because they contain a significant amount of labour, or because they contain resources whose use is either limited naturally or intentionally (for example for environmental reasons). On the one hand the generated value can be used as set-point or target value for the above described control mechanism, on the other it might also be used as guidance for engineers, architects or managers which are tasked with minimising the cost of some design or economic process.

At which proportions the various products will be produced is decided by the price-mechanism which we have discussed above. If the proportion of market clearing prices of chairs to their objectively determined valuation is larger than the corresponding proportion for tables, the target proportions have to be adjusted so that more chairs will be produced. The method of linear optimisation can then again be used to ensure that the maximum product is generated at the given proportions and the production capacities are not used ineffectively. If it turns out that with an optimal use of resources more is produced than is needed, the side constraints of the optimisation problem can be tightened. This might imply stricter environmental constraints or shorter working hours, so that everyone will be able to enjoy more free time.

Our Position

We strive towards a social economy organised according to socialist principles, in which the economic process is controlled rationally and in the interests of humanity. Labour burdens are to be avoided as much as possible and material wealth for all should be guaranteed. The environmental and social impact of economic activity will no longer be accepted blindly but put under conscious and democratic control. Like any form of social organisation, such a computer-assisted socialist economy brings with it a variety of problems relating to the distribution of resources and planning of production. The approach we have presented here is meant to demonstrate the possibility of finding rational solutions to these problems. Our ideas should thus be seen as providing a very rough blueprint for a socialist society, which has to be developed further through public discussion and critical analysis.