Production for use

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Production for use is a phrase referring to the principle of economic organization and production taken as a defining criterion for a socialist economy. It is held in contrast to production for profit. This criterion is used to distinguish communism from capitalism, and is one of the fundamental defining characteristics of communism. [1]

Contents

This principle is broad and can refer to an array of different configurations that vary based on the underlying theory of economics employed. In its classic definition, production for use implied an economic system whereby the law of value and law of accumulation no longer directed economic activity, whereby a direct measure of utility and value is used in place of the abstractions of the price system, money, and capital. [2] Alternative conceptions of socialism that do not use the profit system such as the Lange model, use instead a price system and monetary calculation. [3]

The main socialist critique of the capitalist profit is that the accumulation of capital ("making money") becomes increasingly detached from the process of producing economic value, leading to waste, inefficiency, and social problems. Essentially, it[ clarification needed ] is a distortion of proper accounting, based on the assertion of the law of value instead of the "real" costs of production, objectively determined outside of social relations.

Exposition

Production for use refers to an arrangement whereby the production of goods and services is carried out ex ante (directly) for their utility (also called "use-value"). The implication is that the value of economic output would be based on use-value or a direct measure of utility as opposed to exchange-value; because economic activity would be undertaken to directly satisfy economic demands and human needs, the productive apparatus would directly serve individual and social needs. This is contrasted with production for exchange of the produced good or service in order to profit, where production is subjected to the perpetual accumulation of capital, a condition where production is only undertaken if it generates profit, implying an ex post or indirect means of satisfying economic demand. The profits system is oriented toward generating a profit to be reinvested into the economy (and the constant continuation of this process), the result being that society is structured around the need for a perpetual accumulation of capital. [4] In contrast, production for use means that the accumulation of capital is not a compulsory driving force in the economy, and by extension, the core process which society and culture revolves around. Production for profit, in contrast, is the dominant mode of production in the modern world system, equivocates "profitability" and "productivity" and presumes that the former always equates to the latter. [5]

Some thinkers, including the Austrian philosopher and political economist Otto Neurath, have used the phrase "socialization" to refer to the same concept of "production for use". In Neurath's phraseology, "total socialization" involves calculation in kind in place of financial calculation and a system of planning in place of market-based allocation of economic goods. [6] Alternative conceptions exist in the form of market socialism.

Usage

Description

Proponents of socialism argue that production for profit (i.e., capitalism) does not always satisfy the economic needs of people, especially the working-class, because capital only invests in production when it is profitable. This fails to satisfy demand, that is the needs of people who lack basic necessities but have insufficient purchasing power to acquire these needs in a manner that would be profitable for businesses. This results in a number of inefficiencies: unsold items are rarely given away to people who need but can’t afford them, unemployed workers are not utilized to produce such services, and resources are expended on occupations that serve no other purpose than to support the accumulation of profit instead of being utilized to provide useful goods and services. [12] For example, the United States housing bubble resulted in an overproduction of housing units that could not be sold at a profit, despite there being sufficient demand and need for housing units.

Production for use in some form was the historically dominant modality until the initial primitive accumulation of capital [ citation needed ].

Economic planning is not synonymous with production for use. Planning is essential in modern globalised production both within enterprises and within states. Planning to maximize profitability (i.e., within industries and private corporations) or to improve the efficiency of capital accumulation in the capitalist macro-economy (i.e. monetary policy, fiscal policy and industrial policy) does not change the fundamental criteria and need to generate a financial profit to be reinvested into the economy. A more recent critique of production for profit is that it fails spectacularly to address issues such as externalities which the board and management of a for profit enterprise are often under a fiduciary responsibility to ignore if they harm or conflict with the shareholders' profit motives [ citation needed ].

Criticisms of production for profit

Some socialists suggest a number of irrational outcomes occur from capitalism and the need to accumulate capital when capitalist economies reach a point in development whereby investment accumulates at a greater rate than growth of profitable investment opportunities. Many theories, such as the Buddhist Economics, the Appropriate technology, and the Jevons Paradox, have demonstrated that the accumulation of capital due to maximization of profit, detaches Society from the process of producing social and economic value, leading to waste, inefficiency and underlying social issues. [13] [14] [15]

Planned obsolescence is a strategy used by businesses to generate demand for the continual consumption required for capitalism to sustain itself. The negative effect planned obsolescence has to environment (mainly), is due to constantly increasing natural material extraction to produce the goods and services to satisfy a never ending added demand, linked with a non-caring disposal of end products. [16]

The creation of industries, projects and services comes about for no other purpose than generating profit, economic growth or maintaining employment. The drive to create such industries arises from the need to absorb the savings in the economy, and thus, to maintain the accumulation of capital. This can take the form of corporatization and commercialization of public services, i.e., transforming them into profit-generating industries to absorb investment, or the creation and expansion of sectors of the economy that do not produce any economic value by themselves because they deal only with exchange-related activities, sectors such as financial services. This can contribute to the formation of economic bubbles, crises and recessions. [17]

For socialists, the solution to these problems entails a reorientation of the economic system from production for profit and the need to accumulate capital to a system where production is adjusted to meet individual and social demands directly.

Contrasted with state capitalism

As an objective criterion for socialism, production for use can be used to evaluate the socialistic content of the composition of former and existing economic systems. For example, an economic system that is dominated by nationalized firms organized around the production of profit, whether this profit is retained by the firm or paid to the government as a dividend payment, would be a state capitalist economy. In such a system, the organizational structure of the firm remains similar to a private-sector firm; non-financial costs are externalized because profitability is the criterion for production, so that the majority of the economy remains essentially capitalist despite the formal title of public ownership. This has led many socialists to categorize the current Chinese economic system as party-state capitalism. [18] [19]

The economy of the Soviet Union was based upon capital accumulation for reinvestment and production for profit; the difference between it and Western capitalism was that the USSR achieved this through nationalized industry and state-directed investment, with the eventual goal of building a socialist society based upon production for use and self-management. Vladimir Lenin described the USSR economy as "state-monopoly capitalism" [20] and did not consider it to be socialism. During the 1965 Liberman Reforms, the USSR re-introduced profitability as a criterion for industrial enterprises. Other views argue the USSR evolved into a non-capitalist and non-socialist system characterized by control and subordination of society by party and government officials who coordinated the economy; this can be called bureaucratic collectivism.

Social production and peer-to-peer processes

Michel Bauwens identifies the emergence of the open software movement and peer-to-peer production as an emergent alternative mode of production to the capitalist economy that is based on collaborative self-management, common ownership of resources, and the (direct) production of use-values through the free cooperation of producers who have access to distributed capital. [21]

Commons-based peer production generally involves developers who produce goods and services with no aim to profit directly, but freely contribute to a project relying upon an open common pool of resources and software code. In both cases, production is carried out directly for use - software is produced solely for their use-value.

Valuation and calculation

Multiple forms of valuation have been proposed to govern production in a socialist economy, to serve as a unit of account and to quantify the usefulness of an object in socialism. These include valuations based on labor-time, the expenditure of energy in production, or disaggregated units of physical quantities. [22]

Physical quantities

The classic formulation of socialism involved replacing the criteria of value from money (exchange-value) to physical utility (use-value), to be quantified in terms of physical quantities (Calculation in kind and Input-Output analysis) or some natural unit of accounting, such as energy accounting. [23]

Input-output model analysis is based upon directly determining the physical quantities of goods and services to be produced and allocating economic inputs accordingly; thus production targets are pre-planned. [24] Soviet economic planning was overwhelmingly focused on material balances - balancing the supply of economic inputs with planned output targets.

Marginal cost

Oskar Lange formulated a mechanism for the direct allocation of capital goods in a socialist economy that was based on the marginal cost of production. Under a capitalist economy, managers of firms are ordered and legally required to base production around profitability, and in theory, competitive pressure creates a downward pressure on profits and forces private businesses to be responsive to demands of consumers, indirectly approximating production for use. In the Lange Model, the firms would be publicly owned and the managers would be tasked with setting the price of output to its marginal cost, thereby achieving pareto efficiency through direct allocation.

Cybernetics

Cybernetics, the use of computers to coordinate production in an optimal fashion, has been suggested for socialist economies. Oskar Lange, rejecting his earlier proposals for market socialism, argued that the computer is more efficient than the market process at solving the multitude of simultaneous equations required for allocating economic inputs efficiently (either in terms of physical quantities or monetary prices). [25]

Salvador Allende's socialist-led government developed Project Cybersyn, a form of decentralized economic planning though the experimental computer-led viable system model of computed organisational structure of autonomous operative units though an algedonic feedback setting and bottom-up participative decision-making by the Cyberfolk component. The project was disbanded after the 1973 Chilean coup d'état. [26]

Free market

Based on the perspective that the law of value would continue to operate in a socialist economy, it is argued that a market purged of "parasitical and wasteful elements" in the form of private ownership of the means of production and the distortions that arise from the concentration of power and wealth in a class of capitalists would enable the market to operate efficiently without distortions. Simply replacing the antagonistic interests between capitalists and workers in enterprises would alter the orientation of the economy from private profit to meeting the demands of the community as firms would seek to maximize the benefits to the member-workers, who would as a whole comprise society. Cooperative economist Jaroslav Vanek suggests that worker self-management and collective ownership of enterprises operating in a free-market would allow for a genuine free-market economy free of the market-distorting, monopolistic tendencies and antagonistic interests that emerge from private ownership over production. [27]

In the Howard Hawks-directed 1940 film His Girl Friday , written by Charles Lederer based on the 1928 Broadway play The Front Page by Ben Hecht and Charles MacArthur, reporter Hildy Johnson (Rosalind Russell) interviews accused killer Earl Williams (John Qualen) in jail to write his story for her newspaper. Williams is despondent and confused, and easily accepts it when Johnson leads him into an account of the events preceding the killing, which revolves around the desperate out-of-work man's hearing the expression "production for use" and transferring the concept in his mind to the gun he had: it was made for use, and he used it. This is the story about Williams that Johnson writes up, to the admiration of the other reporters covering the case. This version of Earl Williams' motivations differs significantly from that presented in the original stage play and the first film adaptation of it from 1931. In those scripts, the killer was a committed anarchist who had definite political reasons for the shooting, and did not need to be influenced by a stronger personality into a false narrative. [28]

See also

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Capitalism is an economic system based on the private ownership of the means of production and their operation for profit. Central characteristics of capitalism include capital accumulation, competitive markets, price system, private property, property rights recognition, voluntary exchange, and wage labor. In a capitalist market economy, decision-making and investments are determined by owners of wealth, property, or ability to maneuver capital or production ability in capital and financial markets—whereas prices and the distribution of goods and services are mainly determined by competition in goods and services markets.

The economic calculation problem is a criticism of using economic planning as a substitute for market-based allocation of the factors of production. It was first proposed by Ludwig von Mises in his 1920 article "Economic Calculation in the Socialist Commonwealth" and later expanded upon by Friedrich Hayek.

Anti-capitalism Political ideology and movement opposed to capitalism

Anti-capitalism is a political ideology and movement encompassing a variety of attitudes and ideas that oppose capitalism. In this sense, anti-capitalists are those who wish to replace capitalism with another type of economic system, like socialism or communism.

Market economy Type of economic system

A market economy is an economic system in which the decisions regarding investment, production and distribution to the consumers are guided by the price signals created by the forces of supply and demand, where all suppliers and consumers are unimpeded by price controls or restrictions on contract freedom. The major characteristic of a market economy is the existence of factor markets that play a dominant role in the allocation of capital and the factors of production.

<span class="mw-page-title-main">Economic system</span> System of ownership, production and exchange

An economic system, or economic order, is a system of production, resource allocation and distribution of goods and services within a society or a given geographic area. It includes the combination of the various institutions, agencies, entities, decision-making processes and patterns of consumption that comprise the economic structure of a given community.

Capital accumulation is the dynamic that motivates the pursuit of profit, involving the investment of money or any financial asset with the goal of increasing the initial monetary value of said asset as a financial return whether in the form of profit, rent, interest, royalties or capital gains. The aim of capital accumulation is to create new fixed and working capitals, broaden and modernize the existing ones, grow the material basis of social-cultural activities, as well as constituting the necessary resource for reserve and insurance. The process of capital accumulation forms the basis of capitalism, and is one of the defining characteristics of a capitalist economic system.

In economics, a price system is a system through which the valuations of any forms of property are determined. All societies use price systems in the allocation and exchange of resources as a consequence of scarcity. Even in a barter system with no money, price systems are still utilized in the determination of exchange ratios between the properties being exchanged.

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Post-capitalism is a state in which the economic systems of the world can no longer be described as forms of capitalism. Various individuals and political ideologies have speculated on what would define such a world. According to classical Marxist and social evolutionary theories, post-capitalist societies may come about as a result of spontaneous evolution as capitalism becomes obsolete. Others propose models to intentionally replace capitalism. The most notable among them are socialism, anarchism, and degrowth.

The Lange model is a neoclassical economic model for a hypothetical socialist economy based on public ownership of the means of production and a trial-and-error approach to determining output targets and achieving economic equilibrium and Pareto efficiency. In this model, the state owns non-labor factors of production, and markets allocate final goods and consumer goods. The Lange model states that if all production is performed by a public body such as the state, and there is a functioning price mechanism, this economy will be Pareto-efficient, like a hypothetical market economy under perfect competition. Unlike models of capitalism, the Lange model is based on direct allocation, by directing enterprise managers to set price equal to marginal cost in order to achieve Pareto efficiency. By contrast, in a capitalist economy, private owners seek to maximize profits, while competitive pressures are relied on to indirectly lower the price, this discourages production with high marginal cost and encourages economies of scale.

Economic planning is a resource allocation mechanism based on a computational procedure for solving a constrained maximization problem with an iterative process for obtaining its solution. Planning is a mechanism for the allocation of resources between and within organizations contrasted with the market mechanism. As an allocation mechanism for socialism, economic planning replaces factor markets with a procedure for direct allocations of resources within an interconnected group of socially owned organizations which together comprise the productive apparatus of the economy.

Calculation in kind or calculation in-natura is a way of valuating resources and a system of accounting that uses disaggregated physical magnitudes as opposed to a common unit of calculation. As the basis for a socialist economy, it was proposed to replace money and financial calculation. Calculation in kind would value each commodity based only on its use value, for purposes of economic accounting. By contrast, in money-based economies, a commodity's value includes an exchange value.

The social dividend is the return on the capital assets and natural resources owned by society in a socialist economy. The concept notably appears as a key characteristic of market socialism, where it takes the form of a dividend payment to each citizen derived from the property income generated by publicly owned enterprises, representing the individual's share of the capital and natural resources owned by society.

State socialism is a political and economic ideology, theorised by Ferdinand Lassalle, within the socialist movement which is against private ownership and advocating state ownership of the means of production, either as a temporary measure or as a characteristic of socialism in the transition from the capitalist to the socialist mode of production or communist society. It refers to the theory, doctrine and movement that advocates a planned economy controlled by the state in which all industries and natural resources are state owned.

In Karl Marx's critique of political economy and subsequent Marxian analyses, the capitalist mode of production refers to the systems of organizing production and distribution within capitalist societies. Private money-making in various forms preceded the development of the capitalist mode of production as such. The capitalist mode of production proper, based on wage-labour and private ownership of the means of production and on industrial technology, began to grow rapidly in Western Europe from the Industrial Revolution, later extending to most of the world.

Socialist mode of production Marxian economy centered around use value, planning and contribution-based distribution

The socialist mode of production, sometimes referred to as the communist mode of production, or simply (Marxian) socialism or communism as Karl Marx and Friedrich Engels used the terms communism and socialism interchangeably, is a specific historical phase of economic development and its corresponding set of social relations that emerge from capitalism in the schema of historical materialism within Marxist theory. The Marxist definition of socialism is that of production for use-value, therefore the law of value no longer directs economic activity. Marxist production for use is coordinated through conscious economic planning. According to Marx, distribution of products is based on the principle of "to each according to his needs", however soviet models have often distributed products based on the principle of "to each according to his contribution". The social relations of socialism are characterized by the proletariat effectively controlling the means of production, either through cooperative enterprises or by public ownership or private artisanal tools and self-management. Surplus value goes to the working class and hence society as a whole.

Social ownership is the appropriation of the surplus product, produced by the means of production, to society as a whole. It is the defining characteristic of a socialist economic system. It can take the form of community ownership, state ownership, common ownership, employee ownership, cooperative ownership, and citizen ownership of equity. Traditionally, social ownership implied that capital and factor markets would cease to exist under the assumption that market exchanges within the production process would be made redundant if capital goods were owned and integrated by a single entity or network of entities representing society; but the articulation of models of market socialism where factor markets are utilized for allocating capital goods between socially owned enterprises broadened the definition to include autonomous entities within a market economy. Social ownership of the means of production is the common defining characteristic of all the various forms of socialism.

Market socialism is a type of economic system involving the public, cooperative, or social ownership of the means of production in the framework of a market economy, or one that contains a mix of worker-owned, nationalized, and privately owned enterprises. The central idea is that, as in capitalism, businesses compete for profits, however they will be "owned, or at least governed," by those who work in them. Market socialism differs from non-market socialism in that the market mechanism is utilized for the allocation of capital goods and the means of production. Depending on the specific model of market socialism, profits generated by socially owned firms may variously be used to directly remunerate employees, accrue to society at large as the source of public finance, or be distributed amongst the population in a social dividend.

Socialist economics comprises the economic theories, practices and norms of hypothetical and existing socialist economic systems. A socialist economic system is characterized by social ownership and operation of the means of production that may take the form of autonomous cooperatives or direct public ownership wherein production is carried out directly for use rather than for profit. Socialist systems that utilize markets for allocating capital goods and factors of production among economic units are designated market socialism. When planning is utilized, the economic system is designated as a socialist planned economy. Non-market forms of socialism usually include a system of accounting based on calculation-in-kind to value resources and goods.

The socialist calculation debate, sometimes known as the economic calculation debate, was a discourse on the subject of how a socialist economy would perform economic calculation given the absence of the law of value, money, financial prices for capital goods and private ownership of the means of production. More specifically, the debate was centered on the application of economic planning for the allocation of the means of production as a substitute for capital markets and whether or not such an arrangement would be superior to capitalism in terms of efficiency and productivity.

References

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Further reading