Excerpt: Karl Polanyi, Socialist Accounting

Full article here.

A form of accounting, in which the sums were not expressible in common units, would of course not yield anything rationally intelligible. Now, a socialist economy, as we have defined it earlier in terms of its goals, in no way presumes a purely administrative economy, which unilaterally sets the prices for all goods (fixed prices), yielding figures that can be readily added. Instead, such a socialist economy also allows for these prices to arise through agreement (negotiated prices). Since we thus do not want to make any presuppositions about price formation, we must consider the theoretically most general––and, from the viewpoint of accounting, practically most unfavorable—case. We therefore assume that the economy for which we seek a quantitative overview has all types of price formation, from price formation in a market through the free play of supply and demand to administratively set prices. Whether such an assumption is theoretically valid, or even practically conceivable, remains to be seen. […]

But here begins the actual difficulty, which we wish to designate the quantitative difficulty. Fixed prices can affect negotiated prices at a minimum in two fundamentally different ways, according to whether their effect propagates “downstream,” […] meaning the same direction that the production process runs (towards the final product)—or in the opposite direction (towards the raw materials). The cost principle in accounting implies, however, that only those cost figures arising from the “downstream” effect of a fixed price may be added to one another. […] A fixed price and all the negotiated prices that arise from its “upstream” effect may be added neither to that fixed price itself nor to the negotiated prices arising from its “downstream” effect […]

Natural costs express the sacrifices that the natural process of material production requires, according to the character of the production task involved. Social costs, on the other hand, are that extra sacrifice that society’s will imposes on us via the effort both to ensure just distribution in every instance and to secure production with higher social utility. It is evident that separate quantitative recording of these cost groups (natural and social costs) is the main, practical task of socialist accounting. Without the recording of natural costs, production would have no reliable, infinitesimally precise guidelines, operating instead on intuition and approximation. We wish to point out here with particular emphasis that without the recording of social costs, the political-moral side of socialism would be no more realizable than the technical side would be without the recording of natural costs. Humanity will only be free when it understands what it must pay for its ideals. Only then will humanity come to recognize that the realization of these ideals depends exclusively on humanity itself. Then too, however, humanity will find the strength to realize its ideals.

“Sozialistische Rechnungslegung” [“Socialist Accounting”], 1922; trans. Johanna Bockman, Ariane Fischer, & David Woodruff 2016.


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