Nikolaas G. Pierson Warned that a Communist Administration Will Have to Distinguish Gross Income from Net Income

Nikolaas G. Pierson was the most eminent Dutch economist of his day, and a sometime Prime Minister of Holland. His paper on ‘The Problem of Value in the Socialist Community’ was a direct reply to Kautsky’s celebrated speech at Delft in 1902, which Pierson had attended. Pierson’s paper, the first really clear exposition of the economic calculation problem, had very little influence until the 1920s, partly because it appeared in Dutch, and partly because its unassuming tone, its modest air of pointing out a few difficulties that would confront socialism, no doubt concealed from all the but the most attentive readers the possibility that these difficulties might be intractable. The true significance of the piece was probably further obscured by the fact that Pierson begins it (after a somewhat rambling introduction) by concentrating on the problem of how a socialist nation-state would conduct its foreign trade. There were still Marxists who denied that there could be such a thing as a socialist nation-state, or that there could be ‘foreign trade’ under socialism, but Pierson takes Kautsky’s recent concessions as his point of departure. A further contribution to the piece’s obscurity is that Pierson’s textbook on economics (1912) briefly discusses socialism but makes no mention of the economic calculation problem.

Pierson states that he will not pronounce on “whether socialism can be carried into practice”, but he challenges the socialist view that “value” will have no relevance in a socialist economy (Pierson 1935, 43). In order that trade between socialist nations will continue to be mutually beneficial, the national governments will have to find some way of valuing goods. Otherwise the movement of goods from one country to another will not be appropriately regulated according to the wants of the people in the various countries (55–67). Pierson suggests that under socialism trade between nations will have to be conducted on essentially the same principles as under capitalism: funds will still have to be borrowed, and interest paid on them; goods will be valued according to the services they render; and money and bills of exchange will still be employed.

He discusses national planning under socialism, assuming that “the division of income . . . is effected according to the most advanced method, that of communism” (70). A communist administration will have to distinguish gross income from net income. What Pierson means by this is that in order to ensure that there is net production—that more is yielded by the process of production than is destroyed therein, both in an individual project and in the totality of society’s production—the administration will have to be able to measure outputs and inputs in common units. For, “we cannot subtract cotton, coal, and the depreciation of machines from yarn and textiles, we cannot subtract fodder from beast” (70). Yet if people consume more than they produce, “society has been impoverished” (70–71). The communist administration must be able to arrange things so that the amount produced equals or exceeds the amount consumed.

—David Ramsay Steele, From Marx to Mises: Post-Capitalist Society and the Challenge of Economic Calculation (La Salle, IL: Open Court Publishing, 1992), e-book.

A Completely Socialized, Planned Economy Must Be a Natural (Moneyless) Economy

Like Mises, Weber was prompted to make his argument by Otto Neurath’s writings. Weber agrees with Neurath’s contention that a completely socialized, planned economy must be a natural (moneyless) economy. Technically or formally, says Weber, money is the most perfect means of economic calculation. Without money, calculation purely in physical units can be performed where wants “are strictly given” and “so long as the situation does not require a very precise estimate of the comparative utility to be gained from the allocation of the available resources to each of a large number of very heterogeneous modes of use.” Otherwise, scope for accurate calculation is limited, and even the simple, self-sufficient household faces problems, solved partly by tradition and partly by “very rough estimates.”

The problems become more difficult with changes in wants and production conditions, with growing complexity, and with the decline of purely traditional standards. Given monetary calculation, costs can be assessed in money terms, but with moneyless calculation, all the different ways of using all means of production have to be taken into account.

—David Ramsay Steele, From Marx to Mises: Post-Capitalist Society and the Challenge of Economic Calculation (La Salle, IL: Open Court Publishing, 1992), e-book.