Chapter 3 Material Relations
Economic Utilities of Direct Democracy
Economics is not the exclusive purview of any particular ideology nor synony- mous with capitalism. Rather, economics is a field of study examining how a society can meet as many of our unlimited ‘wants’ in the most efficient manner with our limited resources resulting in utility maximization.1 Specifically, according to the law of declining marginal utility, the satisfaction derived from consuming an additional unit of a good or service yields less satisfaction from the consumption of the preceding unit. When you are very hungry, your first gyro sandwich will give you a lot of satisfaction but you may want more. The second gyro sandwich will give you satisfaction too but not as much as the first one when you were on an empty stomach (which is why retailers drop the price for the second item: ‘buy one at full price get the second at half off’). An efficient economy aims to maximize total societal utility. In general, for an eco- nomic system to be viable, economists believe that it must be capable of addressing the fundamental questions outlined in Table 3.1. As outlined in Table 3.1 capitalism is a system based on private ownership of the means of production, free markets, free prices set by supply and demand, and distribution based on capital ownership and unequal income. Credit and banks are private enterprises complimented by quasi-governmental institu- tions such as the Federal Reserve. Money represents debt in that it is issued by a central bank to the government with interest as part of the fractional reserve system. Investment decisions are also by and large private or governmentally driven by the private sector. The Soviet model, as a real-world example of Marxism/top-down socialism, was based on State ownership of productive resources, and central planning replacing free markets and prices, while it maintained a system of distribution based on unequal income. In Soviet econ- omies credit was State controlled with no banking system in the Western sense other than the State Bank (Gosbank) referred to in the West as Monobank.2 Monobank included Sperbank (Savings Bank) as a utility for household savings
1 It is assumed that a rational actor will try to obtain the greatest value, satisfaction, or utility possible from the least amount of expenditure in order to maximize the total value, satisfac- tion, or utility derived based on available resources. 2 Kennett and Lieberman, 1992: 134–136.
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Table 3.1 Fundamental questions for an economy.
System Capitalism Marxism-Socialism Direct democracy United States ussr
Ownership of Private State Societal productive resources Coordination Markets Central planning Utility markets Setting prices Markets State Utility markets Allocative efficiency Structural Structural Efficient misallocations misallocations Banking system Central bank/private State bank (Gosbank) Public utility Credit Decentralized/private Centralized/state Public utility Money Fractional reserve Bookkeeping money Utility currency Resource use Unsustainable Wasteful Sustainable What to produce Profitable goods Basic goods & Needed goods & & services services services first How to produce Economic efficiency Economic efficiency Socioeconomic efficiency Distribution Ownership of capital Political power & Equal labor & unequal wage labor unequal wage labor Can the system adapt Guiding function Central planning Guiding function of prices of relative prices
deposits, Stroibank (Investment Bank) used by central planners to allocate long-term investment funds, and Vneshortgbank (Foreign Trade Bank) for international transactions.3 Money was strictly controlled by the State Bank and was mostly bookkeeping money.4 It is difficult to sketch-out and evaluate basic principles of numerous non- market models as these are prefigurative, therefore open to their characteriza- tion as utopian. They have some similarities and differences but in general most utopian non-market socialists such as Albert and Hahnel (who do not consider their model utopian) reject markets for various reasons including the view that they undercut solidarity, but they also reject central planning as do most contemporary utopians.5 Albert and Hahnel’s parecon is a post-capitalist
3 Ibid. 4 Ibid. 5 Albert and Hahnel, 1991.