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Paul Baran’s Economic Study

Theodore Edwards, International Socialist Review

Fall 1957

From International Socialist Review, Fall 1957, from Tamiment Library microfilm archives
Transcribed & marked up by Andrew Pollack for the Encyclopaedia of Trotskyism On-Line (ETOL).

Review of THE POLITICAL ECONOMY OF GROWTH, by Paul A. Baran. Monthly Review Press, New York. 1957. 308 pp. $5.

Mr. Baran, professor of economics at Stanford University since 1949, is claimed by the publisher to be “probably the only Marxian social scientist teaching at a large American university.” His book develops the main ideas in Paul M. Sweezy’s book, The Theory of Capitalist Development, which deals with the chronic crisis of capitalism in its imperialist phase. Sweezy’s book, an expository presentation of orthodox Marxist economics, is a useful addition to the library of every student of Marxist economics. Baran’s book deserves a similar place.

Attacking the bourgeois apologists, Baran deals with the complexities of present-day imperialist relations in the backward areas and the mechanisms regulating decadent monopoly capitalism in the advanced countries. The inferential contrast between the growth of capitalism in its early “competitive” stages and its current stagnation in both the advanced countries and the backward areas is powerful.

Unfortunately, in his eagerness to meet the bourgeois apologists on their own ground. Baran sometimes disregards the fact that his book might be read by people who possess a good enough knowledge of Marxist economics but who have never explored the jungle of “neo-classic” economics. Thus some of his readers will have difficulty recognizing “aggregate net output” as “new value created,” “real income of labor” as “variable capital,” “economies of scale” as “primitive cooperation,” “amortization allowance” as “circulating constant capital, and so forth. I for one wish that someone as skilled in both Marxist and bourgeois economics as Baran had kept this in mind.

Defining economic growth as “increase over time in per capita output of material goods” (i.e., increase in labor productivity), Baran stresses the need for net investment (the capitalizing of surplus value). He outlines three types of economic surpluses: First, actual economic surplus (really accumulated surplus value). Secondly, potential economic surplus (accumulable surplus value) which can be produced if the following are eliminated: (a) excess consumption by the middle and upper layers of society; (b) unproductive workers; (c) irrationality and waste in the economy; and (d) unemployment. Thirdly, planned economic surplus (the surplus product of a nationalized and planned economy).

The distinction between potential and planned surplus seems tenuous. As Baran himself indicates, potential economic surplus “transcends the horizon of the existing social order.” However, what the author has in mind is the fact that in periods of exceptional stress, such as war, even present-day capitalism is able to meet some of the requirements for obtaining potential surplus. As Baran points out quite correctly, the demands of World War II, the costliest war in United States history, were met largely in this way.

Baran’s summary of the views of the classical economists on how to obtain and best utilize potential surplus is instructive. Adam Smith, Ricardo, and the others defended the advantages of capitalist methods of extracting greater economic surplus as against feudal methods. First, in their view, capitalism would utilize available productive resources as well as the continuous technological revolutions it engenders through competition among producers. Secondly, it would keep wages to a minimum (thus increasing surplus value and incidentally keeping up the rate of profit). Capitalism would also provide a rational utilization of this increased economic surplus. It would eliminate unproductive consumption of the surplus by ending feudal retinues, corrupt governments, and venal clergymen and replacing medieval opulence by capitalist frugality.

If capitalism in its “competitive” phase did indeed live up to the prescriptions of the classical economists, at least in part, modern monopoly capitalism fails miserably to meet the optimum conditions for economic growth. Baran presents a useful sketch of the practices of present-day monopolies that stagnate progress and squander surplus. Among the devices hindering growth that Baran deals with are “price leadership,” trade-marking and intense advertising rather than price cutting, monopolist investment policies, attitude towards research and technological innovations, marginal profit rates, stress on “services,” expense accounts, etc.

The development of “state-ism”—although Baran does not use this term—is well handled. The state attempts to counter the growing tendency to underconsumption that plagues monopoly capitalism. It fosters a “full-employment” policy through government investments hoping to avoid major crashes and prevent major depressions. It invests huge sums for both productive and unproductive purposes. It raises these sums through deficit financing or high taxes or “deficit without spending” or one or another combination of these policies.

Government spending alleviates the situation temporarily, giving monopoly capitalism a precarious transient “lability.” However, the economy becomes less and less sensitive to the stimulus of further spending.

As Baran puts it: “To be sure, systematic wastage of a sufficiently large proportion of the economic surplus on military purposes, on piling up redundant inventories, or multiplying unproductive workers, can provide the necessary ’outside impulse’ to the economy of monopoly capitalism, can serve as an immediate remedy against depressions, can ’kill the pain’ of rampant unemployment. But as with many other narcotics, the applicability of this shot in the arm is limited, and its effect is short-lived. What is worse, it frequently aggravates the long-run condition of the patient.”

Turning to the backward areas of the world, Baran shows how the systematic export of their economic surplus to the advanced areas of the world contributed to rapid accumulation in the West and resulted in so-called “underdevelopment” in the rest of the globe. His illustration of how Japan, in contrast to India, was able to escape this relation makes fascinating reading.

Likewise good is the treatment of what happens to the surplus in backward areas, how it is drained by the imperialists and wasted unproductively by the native compradors, landlords, capitalists, and puppet governments. Ranging from the oil royalties received by Saudi Arabia, and Venezuela to the Second Five-Year Plan of India, Baran spares no one in his exposure of present-day colonialism, including the counterrevolutionary role of the U.S. government. Nor does he spare its standard bearers from Nelson Rockefeller and associates to the neo-Malthusians.

Professors, politicians, business. tycoons, Wall Street economists—no one escapes Baran’s cutting polemic. Capitalism is the cause and continuer of the backwardness of most of the world; not “shortage of capital,” “lack of entrepreneurial talent,” or “over-population” of the colonial world.

Baran’s conclusion is final: “As Mr. Vogt put it at the conclusion of his book, ’the human race is caught in a situation as concrete as a pair of shoes two sizes too small.’ The image is exact. But the pair of shoes are monopoly capitalism and imperialism. The dilemma that the majority of mankind faces today is either to liberate itself from both or to be cut down by them to the size of the crippling clogs.”

Regrettably, Baran takes an altogether too uncritical approach to what he calls the “socialist” countries of the world. The last fifty pages of his book consist of a defense of bureaucratic policies in the Soviet Union, a defense studded with quotations from Stalin.

In arguing with the bourgeois professors in the opening sections of his study, Baran calls attention to the fact that what was important was not their good intentions but the objective class content of their activity: “In general it may well be said that for the appraisal of a group’s or an individual’s role in the historical process, subjective motivations (conscious or unconscious) are much less important than objective performances. In case of doubt, it is always useful to ask in all such matters: cui bono? The answer may not always be conclusive—it is never irrelevant.”

But Baran as an apologist for Stalin does not apply this materialist criterion to the “frequently exasperating inadequacies and mistakes of those who devotedly struggle,” to the “aberrations” of the “socialist order,” to the misdeeds of Stalin and his puppets.”

Is it enough to excuse these “errors” as being good-intentioned but flowing from an “inadequacy of knowledge and insight“? Or shall we ask, as Baran does of the bourgeois professors: for whose benefit?—a question which is indeed “never irrelevant.” Do these errors then not express “certain views of reality and certain interests in reality shared by a class or a stratum of society“?

Trotsky long ago pointed to the social and political forces that Stalin represented. Stalin personified the bureaucracy that usurped power in the Soviet Union during the ebb tide of the revolution.

Trotsky also long ago refuted theoretically Stalin’s theory of “socialism in one country”—which Baran still uses. Following in Sweezy’s footsteps (cf., op. cit., pp. 353-63), Baran thinks that each “socialist” country, although collaborating with and assisted by other similar “socialist” countries, builds its own “socialist” society. Only later, at some unspecified date in the future will this lead to a fully rational organization of world economy.

Marx’s view was different. He held that socialism will appear as an international structure based on the world economy built by capitalism. Sweezy, we note in passing, admits that such was the “traditional view” but carefully imitates Stalin in separating the “building” of socialism from the “triumph” of socialism: “In brief, socialism can be built up in one country, but its permanence is assured only when socialism has been victorious on an international scale.” (op. cit., p. 354)

Baran, writing after the revelations of the Twentieth Congress, is forced to admit that “socialism in backward and underdeveloped countries has a powerful tendency to become a backward and underdeveloped socialism.” He even goes so far as to say that “what has happened in the Soviet Union and the socialist countries of Eastern Europe confirms the fundamental Marxian proposition that it is the degree of maturity of society’s productive resources that determines ’the general character of social, political and intellectual life.’” Indeed it does. But then what becomes of the socialism-in-one-country theory refuted by life itself?

Anyone with Baran’s erudition would surely scoff at the idea that a feudal manor-village economy constitutes a “capitalist” economy after a local peasant revolt that abolishes feudal property relations. He would scoff still more, we would imagine, at the idea that a capitalist nation could then be built by adding together a number of such village economies. Yet, like Sweezy, Baran applies essentially the same type of reasoning to the building of socialism.

Baran fails to consider that each succeeding social system had to break through the too narrow and restrictive geographical limits that imprisoned the growing productive forces. As he illustrates so strikingly in the main portion of his book, world economy is not merely the sum of a number of separate capitalist countries but an international system based on the world market and the international division of labor. Rising capitalism had to break down the too narrow confines of manorial economy and the feudal barriers to commerce as well as establish national citizenship for the needed national labor pool. Socialism to a far greater degree requires not only the nationalization of the means of production and the introduction of planning but also the abolition of national boundaries and the introduction of world citizenship.

Viewed in this, the orthodox Marxist manner, the supposed necessity of Stalinist-type “complete” collectivizations, of break-neck industrializations, of “backward and underdeveloped socialism,” will appear in its true light as the reactionary and utopian ideology of the bureaucracy that rose in the Soviet Union as a result of the backwardness and prolonged isolation of the first workers state.

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