Sweezy on MARX & MONOPOLY   By Abedian Hossep
Schumpter on efficiency of socialism and capitalism  by Stephen Simmons
Alec Nove's: "Marx, the market and feasible socialism"  by Michael Roemer

Updating Old Socialism  By Maria Suarez


Sweezy on


By Abedian Hossep



Marx was the first economist to recognize and theorize the monopolistic behavior of a firm as an industry. This process became to be very essential in the succeeding century. He determined clearly its roots in the greater profitability of a large structured productive unite compared to many small fringes. Marx, thus, made an excellent beginning in the analysis of monopolistic capitalism, illustrating how and why it was the inevitable out growth of capitalism in its competitive stage. The first generation of his followers, particularly Hilferding and Lenin, built their ideologies over this foundation (Sweezy 20).

In order to understand Marx's exposition of the theory as presented in his first volume of The Capital, for centralized economy, first we should focus upon the fundamental difference in between the Capitalist and Soviet planing economies. Marx accounted as following: In a simple, centralized, commodity production system, the producer goes to market with a commodity (C), exchanges it for money (M), and in return buys other commodities (C) that are required for the satisfaction of producers' families' needs. Therefor, this process can be represented by the formula (C-M-C), where the first (C) stands for a specific commodity produced by one firm, and being marketed by the centralized body, then (M) is the money which the producer gets in exchange, and the second (C) is for the bundle of useful commodities that he buys with the money. It is significant to mention that, this system is only a method of production for use. Though, the link is indirect: producers do not use their own products or at least by no means all of them, but all the same their purpose in producing is to satisfy their needs, not to add to their wealth (Sweezy 28).

Matters are radically different, when we come to capitalism as Marx noted. In a society which those who do the actual producing own no means of production, and hence must sell their labor power to the capitalists, who do own means of production and therefor control the processes of the output. Here, the defined formula (C-M-C) must be replaced by its opposite (M-C-M). This symbolizes that the capitalist, who initiates the process of production starts with money (M), then with this "capital" purchases commodities (C), consisting of means of production and labor power, which are transformed through a process of production in to the finished commodities ready for sale. Hence, when the sale has been completed, the capitalists left once again with money (M-C-M) (Sweezy29).

However, the capitalist who had a capital of (M) at the beginning of the first cycle, now gains a "surplus" of (M')and this turnover becomes, (M''), (M'''), (M''''), as he "invests" more and more in the production. Thereby, in successive years it will become "profitability" of the capitalist. This is what Marx meant when he characterized capital as " self-expanding value" (Sweezy 31). But this is not all. When there is only one producer, the larger the monopolies become the more profitable they are. Therefore they are able to accumulate capital rapidly, while at the same time they are afraid of spoiling their own market by over-investing. An addition, they set up whatever barriers they can to protect their monopolistic positions against outsiders invading their market. For example, by maintaining a considerable margin of used productive capacity that can be quickly activated in relation against unwanted new comers, which will rise the unnecessary output and cost of the production, for the single manufacturing firm, but will cause a barrier for the competitors. Thus, monopolies in the capitalist competitive market, act in two ways to intensify the contradiction of the accumulation process that, as we have already seen, are achieved by the formula (M-C-M'). On the one hand, it rises the potential rate of invested capital accumulation, and on the other hand it restricts the profitable outlets into which the accumulated "surplus value" can be over flooded, caused by competition. Hence, the result will be over accumulation of "Capital" by the monopolistic competition for its profitability and its matter of existence (Sweezy 43).

According to the Soviet Type economy school, which was based upon the Marxist central planning model, the monopolist is not obliged to gain a potential rate of over accumulation, since there is no competition or market anarchy. There by, additional production cost will be eliminated as the government intervention increases over the market, and this will result to a lower average cost, the value of the production declines, and as output increases price falls towards a new equilibrium between the labor value and market price (Sweezy 50).

However, the actual consideration the monopolistic competition largely exceeds the centralized Soviet Type economy, which Marxist analogues fail to recognize, is the significance of maximization of the consumer's utilities, given as demand. This would also open new territories, such as technological advancements and innovations. Marx, indeed rationalized: "The tendency to over accumulation of the capital that is inherent in the very nature of the capitalists". He truly manifested the monopolistic inefficiency a hundred years ago when such claims were doubtful and considered premature, but his error became apparent as he wrote: "The real barrier of capitalist production is capital itself." Further more, Marxists believed and argued that: "Monopoly capital makes that barrier even bigger and more formidable as individual capitalists struggle for existence." (Sweezy 73) However, the monopolistic capitalist's "barrier" for growth diminishes as capitalist investment in innovation or better allocation of resources increases (Sweezy 82).



Schumpter on comparative efficiency of socialism and capitalism

by Stephen Simmons


During the Second World War, the economist Joseph Schumpeter wrote a book on capitalism, socialism, and democracy. In this book, two sections discuss comparative efficiency of capitalism, and a "blueprint" of socialism. This "blueprint" is a model of how Schumpeter believed socialism would function. He states, "All we can do is to list such differences between the mechanisms of the economic engines of socialist and of commercialist society as we may nevertheless perceive, and to appraise their importance as best we can." (189-190) Even though he is only analyzing a proven system against a "blueprint", he believes his conclusions are relevant.

Schumpeter first lays down a number of assumptions for both systems. First, the socialist system has advanced beyond the transition phase from capitalism to socialism, and overcome any difficulties resulting from that process. To simplify his comparison, production efficiency is studied only. In addition, "the number, quality, tastes and age distribution of the population...be the same in both cases." (190) His definition of the more efficient system is the one which produces more consumer goods in the long run.

Schumpeter believes that the moves and countermoves made when production and prices are determined by the market, would not occur under a socialist system. In addition, there would be much less uncertainty, and as a result the optimal prices and production quantities would be determined more quickly and cheaply, by the central planners. As a result, there would be less waste produced. There would still be some excess capacity in a socialist system, but socialist management would identify this immediately and be able to eliminate it. The planners would also be in a position to redirect some wastes into useful commodities or inputs in other industries. In addition, a centralized system would eliminate economic warfare between firms, insuring stability and less waste.

Even more important are the constant fluctuations of the business cycle which plague capitalist system. While tools such as the interest rate and the supply of credit can be used to curb the excessive nature of these swings, socialism would exhibit a smooth, steady growth path, devoid of inflation and recessions. Economic forecasts and planning, which is often evident even in big business, would be reached by socialist managers, "with less disturbances and loss without necessarily incurring the disadvantages that would attend attempts at planning progress within the framework of capitalist institutions." (195) In regards to unemployment, the elimination by socialism of depressions and recessions would have a noticeable effect. He believes that most unemployment, if any, would be structural unemployment. Structural unemployment occurs as a result of technological improvements which causes the replacement of less skilled workers. Still, the socialist planners would have the means to reeducate or place these workers in other industries which could utilize their skills.

Another advantage of socialism also pertains to technological improvements. Whereas in a capitalist economy technological improvements are met with great opposition, especially be the workers, a socialist society could make the changes by law. Also, lower order managers and management would be able to operate more efficiently in a socialist system. In a capitalist system, managers are often given many responsibilities, some of which are bound to fall outside their expertise. In a socialist system, the planners could place managers in any industry and only give them responsibilities according to their abilities.

The last area Schumpeter studies is not related to his blueprints, but as he considers it "an advantage of prime importance." (197) I will also cover it. It relates to the friction in society which is created as a result of the division of commercial society between the public and private sectors. He believes that the capitalist society is increasingly being crippled by the public sector. First, the taxation of the private sector severely limits and sometimes halts the production and production efficiency of it. In addition, as more taxes are attempted to be collected, the more it costs to do so, because they must prosecute the increasing amount of evaders. The firms would also incur costs by defending itself legally. Schumpeter also identifies an interesting social cost which is incurred as a result of the resulting expansion of the legal profession. He believes that many good brains used up as lawyers, could be instead used to discover new technologies or in managing industries. He believes that much of the economic slowdown of his time could be attributed to this tug of war between a ever expanding public sector, and the private sector which unwillingly supported it.

Under socialism, with all revenue being directly owned by the government, all these wastes would be eliminated. The planners would take what was needed, and then redistribute it.

Schumpeter makes a good case for the superiority of production efficiency of socialism in his paradigm. I would like to study some of his conclusions set against the experience of Eastern Europe. While many of his assumptions are violated, and those countries did not follow a purely socialist system, I believe it is still interesting to match them up with one another. Some of Schumpeter's conclusions could be observed in Eastern Europe. There was a great degree of stability and certainty in their economies. Prices changed little, and everyone was employed. Unfortunately for the Eastern Bloc, these were some of the only advantages. First, due to the overemphasis on heavy industry, there was often excess capacity, when too many goods were produced for which there was no market. Also, technology transfer did not occur as Schumpeter predicted. At the fall of communism, some factories could be observed that had not been significantly changed since the end of the Second World War. In the management area, even worse results could be seen. Many managers earned their job not as a result of skill or merit, but rather their membership in the party. Many factories were run by people more interested in personal merit than in efficiency. The workers themselves were also very inefficient. The stability of their life, whether they worked hard or not, created huge disincentives to work, driving the marginal productivity of labor far below that of the West. While there were no "taxes", a phenomenon similar to tax evasion could be observed. This 'work evasion' resulted when managers would request the largest amount of inputs as possible, while trying to negotiate the least amount of output for their firm. Thus, even though huge amounts of investment were evident in those countries, the marginal productivity of capital was also very low. Lastly the public sector grew to huge proportions. This was a result of the centrality of the party, and the underestimated task of running a planned economy.

Schumpeter's conclusions do have merit, and these theories were written before the the communist explosion that at one point had significant control of Europe and Asia. But we cannot disprove Schumpeter's theories either, because as of yet, no economy has had the means to set up a socialist system like his "blueprint".

Schumpeter, Joseph. Capitalism, Socialism, and Democracy. New York: Harper and Brothers Publishers. pp. 188 - 199.

Alec Nove's: "Marx, the market and feasible socialism" by Michael Roemer

Through many discussions with Czech economist Ota Sik, Alec Nove came to the opinion that a new 'third way' of economic coordinating system must be developed. He viewed capitalism critically and pessimistically, and he believed that Laissez-faire is neither practical nor effective in an age of giant corporations and increasing instability. Nove also believed that "...inflation, unemployment, the breakdown of social consensus, indefensible extremes in the distribution of wealth within and between countries, promised trouble ahead" (Nove, p.49).

At the same time the economic ramifications of central planning were well known, and Nove thought its political-social implications to be deplorable. Anyone with an interest in socialism must actively seek alternatives. Nove states that this task, however, is impeded by certain aspects of the Marxian tradition. It became obvious that neither Marx nor Engels had the remotest conception of the complexities of the functioning of the modern industrial economy. It was believed that Marx failed to examine the mechanism of the functioning of the future society because he believed that "...the planned, purposeful development of communist society would make everything clear and understandable, in contrast with the spontaneously developing market mechanism of the capitalist society..." (Nove, pp.51-52).

In the opinion of Marx and Engels, future society would be based on the planning principle, and as such the need for spontaneous market exchange would be prevented. In the utopia developed by Marx and Engels, everything from people's individual goals to the availability of resources and the methods by which they would be transformed into consumer goods to meet the needs of the people would be completely obvious. It is hard to conceive of these aspects of Marxism, in which a virtual 'heaven on earth' is constructed. It becomes quite obvious why Alec Nove believes that these Marxist concepts could impede the search for a 'third way' of economic coordinating system that perpetuates socialism, because the aforementioned Marxian ideas do not allow for the existence of any type of political, social or economic problems. Marx's ideas on planning and organization of production and distribution are most assuredly linked to these 'utopian' aspects.

It may seem quite paradoxical, but Nove states:

...the most likely opportunity for Marx-inspired socialist planning will come under conditions not of abund.ance but of its opposite, a degree of scarcity with which market-type institutions and liberal political philosophy will be unable to cope...the present tendency for excessive sectional demands, generating inflation, and also unemployment... spell  trouble to come. (Nove, pp.53)

Strict economy and conservation measures (according to Nove the very opposite of Marxian 'abundance') would result from the exhaustion of natural resources or from their effective control by producers (i.e.-OPEC). This would eventually result in the calling for imposed social discipline and planning, for society's survival, with real sharing of sacrifice. Nove reasons that because of this, the condition of scarcity "...makes it plainly impossible to envisage the end of selfish acquisitiveness, and so this would have to be harnessed in the form of incentives" (Nove, p.53). I believe, however, that efficiency must still remain if for no other reason than it is necessary to the condition of 'abundance'.

Nove believes the main problem of the 'third way' to be the manner in which principles of the command and market economies are intergrated. He realized that the market can cause "...serious social and economic distortions, requires to be limited, and must coexist with important centrally exercised state planning functions" (Nove, p.60). He allows for the fact that tensions can arise between local or sectoral and the general interest, between plan and market and within the plan and market. Nove also believed that life without conflicts and tensions is not merely a utopian concept, it is also a very dull one. Equilibrium, as the admirable Hungarian economist Janos Kornai once reminded us, is not necessarily good; there is equilibrium between an impotent man and a frigid woman. Yet the search for the 'third way' must continue. It is not an easy matter to find a balance between centralization and decentralization, plan and market, freedom and discipline, short-term economic efficiency and other legitimate social objectives (i.e.- greater equality, conservation of exhaustible resources).

The logic of a modern industrial society and repeated technological revolutions are no doubt a basic cause of our troubles, along with a rising population, world poverty, limited natural resources, nations and classes. Is it conceivable to believe a 'third way' can be developed that would either reconcile or at the very least help alleviate some of the burden these problems create? As Alec Nove points out, we are far away from Marx's 'abundance' and its implications. But he also states that the role of planning is enhanced, both by the increase in the scale and complexity in production (with the vast corporations of capitalist countries being internally administered) and by the "...unfortunate effects of uncontrolled stimulation of greed" (Nove, p.61). Nove believes it is imperative that we be aware of the negative aspects of a wholly market-oriented society, and of the strength of the case that can be made for planning and for social-political control democratically exercised, that is, for a species of socialism.

However, it is obvious that every thing Nove states about the reconcilitiation of the previously mentioned problems that exist in intergrating the two economic systems into a 'third way' is presupposed on the open rejection of the utopian elements of Marxism. Nove makes us all aware of the fact that neither Marx, Engels, nor Lenin appreciated or understood the inherent complexities of the problem, in its economic efficiency, social, or political dimensions. For them, everything would be 'simple'. Yet Nove makes us realize that we have "...no excuse for being unaware that it is all immensely complicated" (Nove, p.61).


Nove, Alec. "Socialism, economics and Development: Marx, the market and feasible socialism". London : Allen & Unwin publishing, 1986.

Updating Old Socialism    

By Maria Suarez

During the 1970' economic growth in the Soviet Union slowed dramatically. When Mikahil Gorbachev came to power, the economy was stagnating and the standard of living was nearly compared to Western Europe and the United States. Gorbachev and a group scholars saw the necessity to update the old socialist view. They developed a body of thought which was given the name of perestroika.

During the 19th Party conference in 1988, Gorbachev described a new vision of the Soviet society. The new socialism should be one that combined the best elements of the ideas of its founders together with the new improvements of other social systems. " Such a socialism, Gorbachev explained, would be a system of true and tangible humanism in which man is really the measure of all things". For instance, the economy should be dynamic, modern and with high labor productivity in which there would be worker participation and different types of property. The new system (developing communism) would combine central planning with autonomy for individual enterprises. In the other hand, the idea of satisfying the basic needs for all its citizens was curtail. Gorbachev thought that by satisfying the basic needs for everyone, the society would achieve high levels of culture and moral values as well as a true people's rule, a true democracy. He also thought of a society of free working people. This society would be built on the principles of humanism, socialist democracy and social justice. The economic system would be self-regulated, therefore, the state would only play a coordinating role in the economy. People would have a whole range or rights and power. All Ethnic groups would have equal rights, free choice and equality.

This theoretical body was developed by a group of scholars including Fedor Burlatsky, Boris Kurashvili and Anatolii Butenko. They had different conceptions, for instance, Burlatsky supported decentralization and self-managed socialism. In order to achieve this, he proposed property reforms, decentralization of power. In the other hand, Kurashvili proposed that the future socialist society should be one in which state planning remained only for certain sectors. It would include property reforms and a considerable reduction of the size of the state. He shared Gorbachev's idea of a socialism that included the best of both capitalism and socialism. His ideas also included minority rights, separation of powers and a socialist multi-party system. Butenko's vision of the soviet's future was one of socialist popular self management. He saw the emancipation of labor as the main goal of socialism. What these ideas, wrapped up under the name of perestroika, liberated what had been caged under the strong government of the Soviet Union for years.

  • Colton, Timothy and Legvold, Robert. " After the Soviet Union: From Empire to Nations". W.W. Norton & Company: New York, 1992.

  • Fazio, Hugo. " Despues del Comunismo: La dificil transicion en Europa Central y Oriental". TM Editores, 1994.

  • Perestroika. www. perestroika.com




OK Economics was designed and it is maintained by Oldrich Kyn.
To send me a message, please use one of the following addresses:

okyn@bu.edu --- okyn@verizon.net

This website contains the following sections:

General  Economics:


Economic Systems:  


Money and Banking:


Past students:


Czech Republic


Kyn’s Publications


 American education


free hit counters
Nutrisystem Diet Coupons