Front Page Titles (by Subject) 4: The Process of Distribution - Socialism: An Economic and Sociological Analysis
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4: The Process of Distribution - Ludwig von Mises, Socialism: An Economic and Sociological Analysis 
Socialism: An Economic and Sociological Analysis, trans. J. Kahane, Foreword by F.A. Hayek (Indianapolis: Liberty Fund, 1981).
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The Process of Distribution
It is not necessary that each individual should himself consume the whole share allotted to him. He can let some go to waste, give some away, or, as far as the commodity permits, put some aside for later consumption. Some, however, he can exchange. The beer drinker will readily forgo his share of non-alcoholic drink to obtain more beer. The abstainer will be prepared to forgo his claim to spirits if he can acquire other commodities instead. The aesthete will surrender a visit to the cinema for the sake of more opportunities to hear good music; the lowbrow will willingly exchange tickets to art galleries for more congenial pleasures. Everyone will be ready to exchange, but the exchange will be confined to consumers’ goods. Producers’ goods will be res extra commercium (things beyond commerce).
Such exchange need not be confined to direct barter: it can also take place indirectly within certain narrow limits. The same reasons which have led to indirect exchange in other types of society will make it advantageous to those exchanging in the socialistic community. It follows that even here there will be opportunity for the use of a general medium of exchange—money.
The role of money in the socialist economy will be fundamentally the same as in a free economic system—that of a general facilitator of exchange. But the significance of this role will be quite different. In a society based on the collective ownership of the means of production, the significance of the role of money will be incomparably narrower than in a society based on private property in the means of production. For in the socialist commonwealth, exchange itself has a much narrower significance, since it is confined to consumers’ goods only. There cannot be money prices of producers’ goods since these do not enter into exchange. The accounting function which money exercises in production in a free economic order will no longer exist in a socialist community. Money calculations of value will be impossible.
Nevertheless the central administration of production and distribution cannot leave out of consideration the exchange relations which arise in this sort of traffic. Clearly it would have to take them into account if it desired to make different commodities mutually substitutable when assessing the distribution of the social dividend.
Thus if in the process of exchange the relation of one cigar to five cigarettes was established, the administration could not arbitrarily lay it down that one cigar equalled three cigarettes, so that it might be able on this basis to give one individual only cigars and another only cigarettes. If the tobacco allowance has not been equally distributed, partly in cigars and partly in cigarettes, that is to say, if some—either according to their wishes or by order of the government—received only cigars and others only cigarettes, the exchange relations already established could not be ignored. Otherwise all those who received cigarettes would be unfairly treated, compared with those receiving cigars, since the person who had received a cigar could exchange it for five cigarettes whilst he had obtained it as the equivalent of three cigarettes.
Alterations of exchange relationships in this traffic among the citizens would consequently compel the administration to make corresponding changes in the substitution ratios of the various commodities. Every such change will indicate that the relations between the various needs of the citizens and their satisfaction had altered, that people now wanted some commodities more than before, others less. The economic administration would presumably endeavor to adjust production to this change. It would endeavour to produce more of the more desired commodity and less of the less desired. But one thing, however, it would not be able to do: it would not be able to permit the individual citizens to redeem their tobacco tickets arbitrarily in cigars or cigarettes. If individuals were allowed free choice of cigars or cigarettes they might demand more cigars or more cigarettes than had been produced, or, on the other hand, cigars or cigarettes might be left on hand at the distributing centers because no one demanded them.
The labour theory of value appears to offer a simple solution of this problem. For an hour of labour a citizen receives a token which entitles him to the product of one hour of labour, with a deduction to defray the general obligation of the community, e.g. support of the disabled, expenditure on cultural purposes. Allowing for this deduction to cover the expenditure borne by the community as a whole, every worker who has worked one hour will have the right to obtain products on which one hour of labour has been expended. Any one who is ready to pay by giving to the community his own working time corresponding to the working time used to produce them can draw from the supply centers consumers’ goods and services and apply them to his own use.
But such a principle of distribution would not work, since labour is not uniform or homogeneous. There are qualitative differences between the different forms of labour which, taken in conjunction with variations in the supply and demand of the resulting products, lead to different values. Ceteris paribus the supply of pictures cannot be increased without the quality of the work suffering. The worker who has supplied an hour of simple labour cannot be granted the right to consume the product of an hour of work of a higher quality: and it would be impossible in a socialist community to establish any connection between the importance of work done for the community and the share in the yield of communal production given for the work. Payment for work would be quite arbitrary. For the methods of calculating value used in a free economic society based on private ownership of the means of production would be inaccessible to it since, as we have seen, such imputation is impossible in a socialistic society. Economic facts would clearly limit the power of society to reward the labourer arbitrarily; in the long run the wage total can in no circumstances exceed the income of society. Within this limit, however, the community is free to act. It can decide to pay all work equally, regardless of quality; it can just as easily make a distinction between the various hours of work, according to the quality of the work rendered. But in both cases it must reserve the right to decide the particular distribution of the products.
Even if we abstract from differences in the quality of labour and its product and accept the possibility of determining how much labour inheres in any product, the community would never allow the individual who had rendered an hour of labour to consume the product of an hour’s labour. For all economic goods entail material costs apart from labour. A product for which more raw material is required must not be made equivalent to a product requiring less raw material.