Dictatorship and Property

Few concepts in the history of ideas illustrate so well the conflict of forces that determine whether an idea is to live or die, as the Marxist concept of surplus value. For half a century now any economist has been able to prove, with neatness and dispatch, that Marx was wrong in maintaining that goods exchanged for one another in proportion to the quantity of labor embodied in them. Indeed, the economist could demonstrate that the whole labor theory of value was untenable. And if labor was not the cause and measure of value, how could there be a surplus value consisting of the difference between the cost of labor to the business man and the value of the goods produced by labor?

Yet this theory which the economists blasted, and the ruins of which they consigned to the museum of historical fallacies, continued to live on in the world of ideas and to furnish one of the most dynamic elements in the socialist movement. The sword of logic had indeed destroyed surplus value as part of a theory of market price, but had left surplus value as a revolutionary slogan quite unscathed. From the standpoint of revolutionary dynamics, it makes little difference that the labor theory of value is untenable as an explanation of market price. What matters is that surplus value as an explanation of the structure of income distribution remains, for practical purposes, a robust and virile idea. Viewed from this angle, surplus value is roughly synonymous with income from property. Just as Marx conceived of rent, interest, and profit as comprehended in surplus value, so many quite orthodox economists recognize these incomes as property incomes distinct from labor income.

It is quite true that it is not always easy to distinguish between property income and income from personal effort. The fees received by a successful lawyer and the bonuses of a corporation executive are certainly a mixture of property income and labor income. It has been further argued that from an ethical point of view the inequality of income produced as the result of inherited differences in ability can no more be justified than inequality of income which has its source in property. From this point of view the income which Joe Louis receives on account of his ability in the ring is ethically on all fours with the income which Mr. Rockefeller receives from stocks and bonds.

The concept of property income as surplus value does, however, afford a technique for resolving some of these apparently border-line cases. According to the measuring rod of surplus value, any income which is not founded upon the need of the recipient and which is greater than that required to bring forth socially necessary exertion would be a property income. In other words, whatever superior incomes Mr. Rockefeller, Joe Louis, the lawyer, and the corporation executive received, above the amount necessary to enable them to perform socially required services, would be surplus value.

Thus understood, it becomes evident that the existence of surplus value is the most characteristic element in a capitalistic economy, and consequently is an effective touchstone for determining the extent to which a particular economic order is capitalistic. We have capitalism in its purest form when the right to receive income from property is absolute and unconditioned. From a legal point of view, capitalism probably attained its most complete form in the United States, where the Fifth and Fourteenth Amendments to the Constitution, the doctrine of the finality of judicial review, and the trend of development of the Common Law all reinforced the principle that the owner of property is under no personal obligation whatever to justify, by the performance of any service, his right to receive income from property. This absolutism of property rights distinguishes capitalism as sharply from the feudal system as it does from the various forms of the modern totalitarian state.

Until the recent widening of the gulf between the followers of Stalin and of Trotsky, the apologists of Soviet Russia have all maintained that, even if the political system of Russia is in some respects similar to that of Fascist Italy and National Socialist Germany, the most basic economic differences remain. This difference, they say, consists in the fact that in Russia surplus value has disappeared, while in Germany and Italy, by contrast, property income has received the most assiduous protection from the state. The bitter struggle between Stalin and Trotsky, in which the followers of Trotsky charge that surplus value is appearing again in Russia, raises sharply the question, not only of the facts in the case, but of the meaning of surplus value in the totalitarian state. Let us apply the test of surplus value to the three systems.

II

There has never been any doubt about the intention of the Communist Party under the leadership of Lenin and his associates to abolish capitalism in Russia and to substitute socialism in its place. During the period of War Communism in Russia from 1918 to 1921, surplus value disappeared as private property was abolished and the state took over the operation of industry and commerce. In 1921, with the introduction of the New Economic Policy, the restoration of private trade was tolerated, and peasants were allowed to sell their grain on the private market after they had paid a fixed tax to the state. In consequence, rudimentary forms of property income reappeared. Only a limited development of income from private property took place, however, since all industry of any consequence remained in the hands of the state. Even this limited revival of capitalistic elements in the economy gave widespread currency to the belief that Soviet Russia was gradually evolving a system of capitalism like that of Western Europe and the United States. Actually, the capitalistic elements in the economy were never of great significance. By 1929, private merchants had been once more dispossessed, and collectivization of agriculture had brought about an extension of the socialized sector in the economy even greater than that which had existed during the period of War Communism. It is not too much to say that during the period of the first Five-Year Plan property income in Soviet Russia had practically disappeared.

But if surplus value had disappeared, where had it gone? During this period it could fairly be stated that the property income which had formerly accrued to the benefit of the privileged classes had not been seized for the personal advantage of the Communist leaders. Differences in salaries and wages were not great. Soviet officials, with the exception of a very small number of the very highest, had real incomes not very much above that of the average laborer. Most of the highest officials, even, were far from living in luxury. There was relatively little graft and corruption. On the other hand, the average worker or peasant had a standard of living not nearly so high as it would have been if the surplus value which had formerly gone to the privileged classes had been distributed among the proletariat. To repeat—where then had the surplus value gone?

Partly, no doubt, the share of the national income which had formerly gone to the recipients of surplus value was actually nonexistent. The World War, the Revolution, and the Civil War had greatly depleted the capital resources and skilled personnel of Russia. It was only gradually that these losses were made good. Furthermore, it was a difficult matter to develop the technique and skill required for operating a socialized economy. Consequently, for a time, a part of the national income which had gone into surplus value was simply not produced.

As production increased, however, the national income did increase, but still without a commensurate increase in the average standard of living. The proletariat and the peasantry were not getting the part of the national income which had formerly taken the form of surplus value, even though the capitalist had been destroyed. The state was retaining this share of the national income and was using it for the purposes which the rulers of the Soviet State thought most desirable. Stalin and his associates considered it essential that Russia should be industrialized and made self-sufficient. Capital was obtained for this purpose by withholding consumption goods from the consuming public. There can be no doubt that, if the consumers had been able to decide by majority vote what should be done with the portion of the national income which formerly was in the form of surplus value, they would have voted to use it in the form of consumption goods. Instead, Stalin—no doubt in large degree wisely—decided that it was better to use this fund for capital investment.

Thus it can be seen that, even though the private receipt of surplus value may be eliminated, it does not automatically follow that the workers will receive the former surplus value. This can be seen the more readily during the period of the second Five-Year Plan. It had been the original intention that a much larger share of the national income of Soviet Russia should be realized in the form of consumers’ goods than had been the case during the first Five-Year Plan. It is very likely that this would have actually been the case had it not been for the triumph of Hitler in Germany. It soon became evident, if there ever had been any doubt, that Hitler was determined to destroy the Soviet regime in Russia. The Soviet government has been feverishly arming ever since. A tremendous proportion of the national income is being diverted from consumptive uses to preparations for defense and attack. The day when the proletariat and peasantry might hope to have for themselves the expropriated surplus value has been pushed once more into the indefinite future.

Another aspect of the diversion of surplus value from the workers in Soviet Russia remains to be dealt with. Max Eastman, in his brilliant article in Harper’s of February of this year, comes to the conclusion that socialism in Russia is dead. Among other reasons for this conclusion, he finds that the private receipt of surplus value has reappeared in Soviet Russia in a form even more exaggerated than that in a typically capitalistic country.

He sees the evidence for this conclusion in the re-establishment of considerable differentials between the wages of the ordinary laborers and the wages of the Stakhanov speeders-up, industrial engineers, and popular authors. He argues further that the recipients of these larger returns may invest their higher earnings in government bonds bearing a high rate of interest. He consequently points out the possibility of the development of a class of rentiers, with guaranteed returns from government industry—a sort of riskless capitalism with a dictator-dominated state playing the role of the capitalistic entrepreneur.

The permanency of these differentials in earnings cannot of course be determined with any certainty. There have been shifts in trends before in Soviet Russia, and there may be more again. It is a striking thing that for a decade after the close of the Civil War the Soviet system was able to maintain so nearly a dead level in the standard of living between the mass of its citizens and the responsible personnel of the economic and political apparatus. The Spartan simplicity enforced by the Communist Party was breached surprisingly seldom. With the inauguration of the first Five-Year Plan, the introduction of ration cards still further reduced the importance of differences in ruble payments. There was a great sweep of sentiment during this period for equality in compensation. In some factories there were even instances in which wages and salaries were pooled and division made according to the need of the participants.

The year 1930 represented the high-water mark of the movement toward leveling of compensation. The pendulum began to swing rapidly in the other direction. Pooling of wages was forbidden. Differentiation in salaries was recognized as desirable. The limitation on the annual earnings of Communists was revised upward. Eventually the rationing system was largely abolished. Henceforth the amount of food and clothing and other goods which could be bought did not depend upon a common quota for all set by a ration card, but upon the size of the earnings of the individual.

I left Soviet Russia in the early summer of 1930. I returned for a short time during the first months of 1933. I noticed at once that a change had taken place. At the opera during the intermissions the crowds which made the rounds in the foyer of the Bolshoi Theatre had begun to have, however faintly, a suggestion of the air of the jeunessc doree of the post-revolutionary epoch in France. There were far more well-dressed women than there had been in 1930. There were more natty uniforms of aviators and army and police officers. Even the male civilians were much better dressed than they had been three years earlier. In part this was due to a slight improvement in the clothing supply for the whole urban population, but it was evidence, far more, of the passing of the Spartan cult of the October Revolution.

I noticed the same change in the larger number of people dining well in the hotels. This was the more remarkable since 1933 was the famine year, when food was scarcer in Russia than at any time since the famine of 1921. Cynics might say that it was inevitable that human nature should have surrendered to the craving for the fleshpots after so many years of denial, yet it was striking to see such a sharp reversal of trend in such a short time. The very shortage of food had apparently served to break down the egalitarian-ism of Soviet officialdom. They had indeed denied themselves a superior standard of living for years, although they possessed the power to assure it to themselves. They had always assumed that times would steadily improve. When, in 1932 and 1933, the food situation became so very bad; when there was not enough food for everybody anyhow, resistance to the demands of the flesh gave way. If the machinery of the state was to keep functioning, the officials of the state had to be better fed than the peasants. In practice this meant that some peasants must starve. If some peasants had to starve in order that officials of the state might have bread, it was only a step to permitting a few more to starve in order that officials might have an occasional piece of cake.

It has to be recognized, then, that in Soviet Russia the private receipt of surplus value has in some degree returned, Soviet theorists explain the situation by claiming that at this time they are only trying to set up socialism, and that communism must await a later day. During the period of socialism, they say, the principle of distribution cannot be the ideal one of “From each according to his ability, to each according to his need.” It can only be “From each according to his ability, to each according to his performance.” To those who answer that this is supposed to be the principle of distribution under capitalism, Soviet theorists retort that this is fictitious, since under capitalism the receipt of income from property prevents the principle from operating.

There can hardly be any denial, however, that the Soviet state has revived essentially the same sort of differentials in income which are enjoyed by Joe Louis and the corporation executive in a capitalistic economy. Factually, it is difficult to say whether or not there is substance to Max Eastman’s charge that a rentier class is likewise being developed. Up to very recent times bond issues in the Soviet Union were certainly not so much a device for investment by which one lived from surplus, as they were a device for lowering incomes for everyone. Everybody had a fixed amount deducted monthly from his wage or salary, which amount went in theory to buy a bond. The worker who bought the bond was not allowed to sell it. The money which was paid to the worker in interest in succeeding years merely meant that wages were that much lower than they would have been if it had not been necessary to pay interest out of the current product of industry. It would have made little difference if the Soviet government had in the beginning simply paid wages and salaries in an amount low enough to leave a surplus equal to the sums raised by the bond issues. It is perfectly true that the device of guaranteed returns on state bonds might be the means by which a rentier class could develop, but time alone will tell whether this is going to happen. I do not believe that it has occurred to an important degree as yet.

What has happened has been that the ideal of distribution according to need has at least temporarily been abandoned. The individual’s income now depends upon service to the state. To speak more realistically, if a person occupies an important enough position in the political or economic apparatus, his income depends upon his own estimate of the value of his services to the state. Otherwise it depends upon his superior official’s judgment of his value to the state. In the making of such decisions it is inevitable that service to the state comes to be, in some degree at least, service to the particular kind of state which the superior official favors. At the worst, service to the state actually means servility to the superior official.

III

The status of property, and consequently of surplus value, in the National Socialist and Fascist states is in contrast not only to the status of property in Soviet Russia, but also to the status of property in such non-totalitarian and capitalistic countries as the United States, Great Britain, and France. In Germany, in spite of the basic principle of the Nazi party that “The public interest must come before private interest,” there has been no significant expropriation of property, in the narrow meaning of the term, by the state. There have been, of course, some cases of confiscation of the property of Emigres, and there have been numerous instances of the virtual confiscation of the property of Jews in industries considered by the Nazis to have a peculiar public interest. Even in these cases, however, with a very few exceptions, the property taken from the Jews has been disposed of by the state to private interests.

The National Socialists have even disposed of some of the shares of industries which had been purchased by the government during the Chancellorship of Bruning. These shares, notably those of the Steel Trust, had been purchased in the pursuance of a policy of preventing financial collapse during the depression, very much as our own Reconstruction Finance Corporation did. The sale of these shares was a demonstration that the National Socialists did not intend either crudely to expropriate private or corporate property, or to extend direct government ownership of such property by purchase.

On the other hand, at the same time that the German government has actually been withdrawing in some degree from the outright ownership of industrial concerns, it has been very rapidly extending its control over private enterprise. This has not only taken the familiar forms of governmental regulation as they have been generally known, but has also taken the form of governmental and Party influence in the election of the directorates of corporations. In addition, there has been rigid control over the investment of the profits of industry, and what is yet more interesting, the control of the uses to which earnings from private property can be put. All these forms of governmental control and intervention are worth examining.

It has been quite justly observed that the control of industry by government is a very different matter from public ownership. The private receipt of income from property may be very little curtailed by governmental regulation. For example, if the late N.R.A. had been administered wholly in the interests of the corporations covered by the codes, without the slightest concern for the interests of consumers or workers, the immediate effect, at least, would have been advantageous to the owners of corporations equities. To the extent that the Bankhead Act increased farm income, and to the extent that it was administered in the interests of land owners, holders of property in land had their incomes increased by the operation of the Act, even though their liberty in the management of their property was curtailed.

In other words, we can at least theoretically conceive of the existence of “Monopoly Capitalism” combined with what might be called “Monopsony Capitalism,” in which industrialists used the apparatus of government to give them the opportunity both to sell their products and to buy their raw materials and labor without competition. Such a fantastic situation might even be imagined as that in which the managements of corporations might also be given not only freedom but governmental assistance in exploiting their stockholders and bondholders. Under such a nightmarish circumstance, farmers, laborers, consumers, and investors alike would be exploited. It is quite likely, of course, that such a weird economic system would collapse of its own weakness, or if it did not, that the net return of the universal exploiters would be less than is the income of industrialists under our present quasi-competitive system.

Orthodox Communists consider National Socialism and Fascism in effect such a system. National Socialism and Fascism, they would say, are both simply laissez-faire capitalism from which the decayed remnants of laissez-faire have been cut out, and monopoly in its most extreme form grafted on. It is possible, in some degree at least, to test whether or not National Socialism and Fascism are simply Monopoly Capitalism by examining, just as was done in the case of the Soviet State, the problem of the receipt of surplus value.

In Germany, during the depression, all incomes shrank sharply, whether they were from labor or from property. The National Socialist regime came to power just at the upturn from the lowest point in the depression. Since that time, industrial production has surpassed the level of 1929, and in consequence the national income has increased very greatly also. It is important, however, to define what is meant by national income. The total national income has increased primarily because the production of armament, munitions, and similar products has increased. In terms of food, the German populace as a whole probably has somewhat less to eat than it had during the period just before the Nazis came into power. Probably the same thing is true of clothing. This reduction in the quantity and quality of food and clothing has resulted from the curtailment of imports of these commodities and the recent poor crops in Germany. The shortage of grain, of which the world has learned during the last few months, has also been affected by the badly planned efforts of the Cattle Monopoly to compel peasants to feed cattle and hogs to heavier weights.

There has been, however, a marked change in the distribution of the existing food and clothing supply. Those who were unemployed in pre-Nazi days are probably better fed and dressed now than then, for the greater part of the then unemployed are now employed. On the other hand, those who were employed previously and those who lived from property income, are now able to get less and poorer food and clothing, partly on account of increased prices and partly because of the various forms of rationing and restriction of production which are in effect. Money-wages and salaries have remained practically stationary.

Consider the position of the owner of property while these changes have taken place. There is no slightest doubt that at least the nominal earnings of industry have very greatly increased. Stockholders have by no means been permitted, however, to realize all these gains. Out of these earnings increased taxes must be paid. Industries producing munitions or other materials for government account must take their pay in bills of credit. The assumption is that these will be paid when due, and no doubt they will be paid. If a still larger issue has to be accepted when an original issue is liquidated, the day when receipts from government contracts can be realized by stockholders is pushed into the unpredictable future. From such earnings as are realized by the corporation must be paid contributions to the huge fund for export subsidies by which Schacht manages to finance German exports without formally devaluing the mark. Contributions to the Party treasury and to Winterhilfe must be paid. Finally, the resources of the corporation must be used to construct new industrial plants for producing goods formerly imported from abroad but now, according to the Four-Year Plan, to be produced in Germany. If there are any sums left available for dividends, they may be paid out at a rate not to exceed eight per cent (in some cases six per cent). All dividends in excess of this amount must be invested in government bonds to assist in financing rearmament.

Associated with this control of investment and of distribution of earnings is a great system of price fixing. The prices which can be charged are not those which earn the highest profit for the business enterprise, but those which the economic authority decides are the most advantageous to the national economy. This system of fixing prices has pressed very sharply on the retailer, ground down between fixed prices to farmers for food products and fixed prices at which sales must be made to consumers. The peasant was for some time the principal beneficiary of this system of fixed prices, for agricultural prices were established at a higher level than they formerly had been. Nevertheless, the peasant is not allowed to sell his produce wherever he likes, but must deliver quotas to designated collectors at fixed prices. It has been very striking to note the curious similarity in the exhortations and threats of the Nazi officials, as they try to induce the peasants to deliver their quotas of agricultural products at fixed prices, to the exhortations and threats of the Soviet grain collectors when they were confronted by a similar failure of the peasants to meet the quotas set.

Moreover, the hand of the state is not withdrawn after dividends have been paid out. The authoritative direction of the economy has already set within limits the purposes for which personal expenditures can be made. Unless by evasion of the ration system, the recipient of dividend payments could not use them to buy, for example, more than the limited amount of butter which is allowed per capita. Great difficulty would be found in purchasing foreign manufactured cloth, if this could be done at all, and the clothing which is purchased very likely will contain a mixture of artificial fibres. If the recipient wished to spend the winter on the Riviera or elsewhere abroad, he would probably find it impossible to obtain the foreign exchange with which to pay the costs of travel. He could, however, employ more servants, if he wished, and the government would even encourage him to do so by special allowances on his income tax. Substantial proportions of his income would have to be given in contributions to the maintenance of the Party and for all sorts of special charities and projects sponsored by the Party. Ostensibly these contributions are purely voluntary. It would be interesting to know whether individuals would rather pay increased taxes or give by compulsion to such purposes. It is quite possible that most people would prefer “giving” even though practically compulsory, for the sake of the feeling of self-commendation which indeed rarely accompanies the payment of taxes.

The general pattern of the economy of Italian Fascism is the same as that of National Socialism, with individual differences. The structure of the Corporative State has been much further developed in Italy than in Germany. It is impossible to tell the extent to which Mussolini’s announced nationalization of large industries has progressed. Apparently state control of investment in industry has been more formally organized than in Germany, as the result of the inability of industry to obtain funds from private investors except through the state acting as intermediary and guarantor.

What then must we conclude is the fate of surplus value under the National Socialist and Fascist regimes? The amount of income which is permitted to go to the owners of property is determined largely by the state. In one form or another and by one device or another, a large proportion of surplus value has been diverted from private purposes to state purposes. The most important of these state purposes has been rearmament and other kinds of preparation for war. The expenditures of income by private persons has been curtailed and directed. The net result has been a return which in real purchasing power is much less than the owner of property in Italy received in pre-Fascist days. In Germany it is possible that the amount of property income received by private persons is not much below what it was in pre-Nazi days, although dependable data are lacking. Nevertheless, the increase in German income which has resulted from greatly increased industrial production, has gone to the state.

We must conclude, then, that the National Socialist and Fascist regimes have greatly restricted the rights of property and have diverted to the purposes of the state a great part of what might be designated as surplus value, in contrast with the situation which exists in non-totalitarian capitalistic countries. This differs only in degree from the situation in the Soviet State, where substantially all income which in a capitalistic economy would accrue to property owners is retained by the state.

IV

In the Fascist, National Socialist, and Soviet totalitarian states the receipt of mixed forms of income, that is, incomes above the average wage income or incomes above need, depend to varying degrees upon service to the state, or to the officials who direct and manipulate the state power. In Soviet Russia this dependence is almost complete. In Germany and in Italy, there is a nominal responsibility to serve the nation as a prerequisite to the receipt of income, but this is honored in the breach as far as many holders of property are concerned.

The less extreme attitude of the National Socialist and the Fascist types of the totalitarian state towards property income, is, of course, due in large measure to the difference in the economic classes which gave support to the movements which established these states. There was no crystallized sentiment for the abolition of property represented in the National Socialist and Fascist parties. There was mass sentiment against the private receipt of large unearned incomes. This found expression, vaguely enough, in official propaganda. Certainly the outright expropriation of prop-erty would never have been sanctioned by the supporters of either movement.

Private property has survived in Germany and Italy for another reason also. Private property, in its corporate form, provides a degree of autonomy in the operation of industry and commerce which is almost impossible under outright ownership and operation by the state. Even Soviet Russia found it necessary to set up huge trusts which imitate in some degree the administrative form of the capitalistic corporation. In Italy and in Germany, the state attempts to operate the economy primarily through the medium of the nominally privately-owned corporations which were already in existence when the new regimes came into existence. Since the trend of development of the modern corporation is away from control by the stockholders anyhow, it has been relatively easy for the state to substitute internal control of the corporation, through influencing the election of the directorate, for the type of external control employed in governmental regulation of industry in non-totalitarian states.

It is uncertain whether or not Italy and Germany will move constantly towards a greater and greater absorption by the state of the managerial functions in industry, and towards the progressive elimination, under the pressure of war and preparation for war, of property incomes. It is just as uncertain whether or not the Soviet regime will develop further and further away from the concept of a state run by and for the workers towards a state run by and for the officials who control the state power of coercion.

Just now the most striking circumstance is the degree to which income in all three states, which would under other circumstances have been available for payment as income on property, is now used for military purposes. It is true that, at the moment, the expenditures of the Soviet Union are obviously for purposes more defensive in nature than is true of similar expenditures by Italy and Germany. Nevertheless, it is still a question whether this difference is a fundamental one. It seems very likely that in the totalitarian state, whatever its origin, evolution is towards the sequestration of property income for state purposes. Such purposes may be to build factories, canals, or pyramids, to prepare for war, or to suppress a potential or actual rebellion against the state power. In every case it is the state that determines the disposition of surplus value.