Exchange Is an Economic Form That Relates Production to Consumption
Return to Fundamentals of Political Economy
19. Exchange Is an Economic Form That Relates Production to Consumption
Socialist Exchange and Currency Circulation 1
Most of the products of socialist labor enter the realm of production consumption and personal consumption only through exchange. What are the characteristics of socialist exchange? How is it realized? What are the objective laws governing it? In developing the socialist economy, these are the issues that must be clearly understood.
Socialist Exchange Possesses Brand-new Qualities and Characteristics
Socialist Exchange Is a New Type of Exchange in History
Exchange is determined by production. The fact that socialist production is a new type of production in the history of mankind determines that socialist exchange must also be a new type of exchange in the history of mankind. To recognize the qualities and characteristics of socialist exchange, first and foremost, one must see what essential exchange relations actually exist in socialist society.
For a considerable period of time, there have existed in socialist society the following major exchange relations: (1) the exchange relations among socialist state enterprises, the basis of which is the relative operational and managerial independence of state enterprises; (2) the exchange relations between the socialist state economy and the collective economy, the basis of which is the existence of two systems of socialist ownership; (3) the exchange relations within the socialist collective economy, the basis of which is that the means of production and the products belong to the different collective economies; (4) the exchange relations among peasants, as well as between peasants and the urban population and between peasants and the socialist commercial sector, the basis of which is the existence of family sideline production carried on by members of the rural people’s commune; and (5) the exchange relations between state enterprises and their staff and workers, the basis of which is the socialist state’s distribution of personal consumer goods to the staff and workers by means of money wages.
The above five types of exchange can be classified into three forms according to the economic relations they reflect.
The first exchange relationship represents one form. This is exchange within the socialist state ownership system. Through exchange, products pass from one state enterprise to another, but they are still state property; no transfer of ownership rights is involved. The only change is that these products are used by different enterprises. We know that the exchange of commodities is an exchange between different owners. Exchange between state enterprises is not exchange between different owners. Therefore, this type of exchange has lost the basic characteristic of commodity exchange. It begins to resemble the direct social distribution of products of the future communist society. However, because each state enterprise is still a relatively independent unit of operation, prices are still set in exchanges, and the principle of equivalent compensation is adopted. Thus, exchanges between state enterprises still possess certain characteristics of commodity exchange. 2 This form of exchange, because it has lost the basic property of commodity exchange, should be called product exchange to distinguish it from commodity exchange between different owners.
The second through fourth types of exchange relations represent another form. Even though there are big differences in these three types of exchange relations, some exchanges being based on the socialist public ownership system and others on family sideline production, reflecting the complex relations of labor exchange between workers and peasants and among peasants, these types of exchange are still exchanges between different ownership systems or different owners. Here, after an exchange, the ownership rights to the products have been transferred. Therefore, they still possess the basic features of general commodity exchange. This form of exchange should be called commodity exchange.
The fifth type of exchange relationship differs from the above two forms. The way in which the staff and workers of state enterprises use their labor compensation to buy consumer goods resembles Marx’s description: “He obtains a certificate from society, certifying that he provided a certain amount of labor (minus the labor he contributed to the social fund). He uses this certificate to get from the society’s accumulation an amount of consumer goods equal to the labor he provided. He provides society with one form of labor and takes back the whole amount in another form.” 3 This is also an exchange. The same principle is used to regulate commodity exchange. Namely, a certain amount of labor in one form is exchanged for an equal amount of labor in another form. However, this exchange has already assumed a new content. The staff and workers of the socialist society are the masters of the state and the enterprises. They do not sell their labor power. The exchange between the state and the staff and workers is a special type of exchange. It is actually a form of distribution of personal consumer goods among staff and workers in the socialist state. This type of exchange, because it involves a transfer of ownership rights and because the same principle used in the exchange of commodities of equal value applies here, will still be treated in the category of commodity exchange in our later analysis.
These five types of exchange relations which take three different forms can finally be grouped according to two aspects, product exchange and commodity exchange. These two types of exchange are different in nature and have their own characteristics.
Product exchanges between state enterprises are mainly exchanges of means of production. This type of exchange is a link between production and production consumption and is directly related to production; it is an act of production.
Because socialist product exchange is directly related to production and because socialist production develops in a planned and proportional way, the exchange of important means of production must be allocated by the state strictly according to the plan rather than through market transactions. Although socialist commodity exchange is also carried on under the guidance of state plans, it cannot be allocated through the plans because the objects of exchange, being mainly personal consumer goods, can only be exchanged through market transactions.
Since socialist product exchange is realized through state planned allocation, any contradictions in supply and demand can be resolved in a planned manner by the state by adjusting production or product circulation plans or by economizing and finding substitutes. Here, the law of value no longer has any regulatory significance; it merely has a little influence. The law of value, however, does have a certain regulatory function in socialist commodity exchange. Although the total amount and composition of consumer goods entering circulation are determined by the state plans and although the society’s purchasing power is also regulated by the state plans, state planning is for the purpose of guaranteeing people’s livelihood needs. Through a state circulation plan for consumer goods, personal consumer goods still go through the market. The socialist state cannot dictate what and how much the consumer should buy. Under normal circumstances, if the prices of some personal consumer goods are too high, their sales volume declines. If their prices are too low, their sales volume expands. Having recognized this law, the socialist state has to use this regulatory function under specified conditions to bring about an equilibrium between supply and demand. For example, some luxury commodities can be sold in definite amounts at prices higher than their value if demand exceeds supply. Conversely, to expand the market and satisfy people’s livelihood needs, daily necessities can be sold at prices equal to or below their values if they are produced in a sufficiently large quantity to meet all demand.
Product exchange in the socialist society is unprecedented in history. Commodity exchange in the socialist society is also different in principle from any historical commodity exchange. Commodity exchange from the slave society to the capitalist society is all based on the private ownership system. With the exception of those exchanges of family sideline products produced by members of rural people’s communes and inhabitants of cities and towns, commodity exchange in the socialist society is all based on the socialist public ownership system. Its purpose is to satisfy the needs of the state and the people. It is a new form of exchange. Under socialist product exchange and commodity exchange, there begin to emerge elements of direct social distribution of the means of production and consumer goods, unfolding the promising prospect of developing from a socialist to a communist society.
Exchange in Turn Promotes the Development of Production and the Improvement of People’s Livelihood
In the process of social reproduction, production plays a determining role. However, exchange directly and indirectly reacts with it. Engels said:
“The two functions [of production and exchange] are always mutually constrained and interdependent. They can be called the abscissa and the coordinate of the economic curve.” 4
This statement of Engels is applicable to commodity as well as to product exchange.
The development of socialist industrial and agricultural production is the material basis of socialist product and commodity exchanges. Chairman Mao pointed out as early as 1942 that to “develop the economy and guarantee supplies constitute the general policy of our economic and financial work.” 5 This is to say, only when agricultural production is developed can there be enough means of production to satisfy the needs for further developing production and expanding capital construction and can there be enough consumer goods to enliven the market and stabilize prices. Without the development of industrial and agricultural production, it is impossible to improve socialist product and commodity exchanges.
On the other hand, socialist exchange also plays an immense initiating role in the development of socialist industrial and agricultural production. Through socialist product exchange, the exchange of material resources among various regions of the country and among various state enterprises in different sectors of the national economy is realized. Through socialist commodity exchange, the economic relations between agriculture and industry, production and consumption, the economy under the state ownership system and that under the collective ownership system, and the urban and rural areas are achieved. State material resources departments in charge of socialist product exchange actively organize the exchange of the means of production among state enterprises. The socialist commercial departments responsible for socialist commodity exchange actively organize and purchase commodities at the appropriate time from the industrial and agricultural production sectors and sell them to the consumers in a planned and systematic manner. This plays an immense role in rapidly developing the national economy in a planned and proportional manner and in improving the livelihood of the urban and rural areas. It is also an important aspect of consolidating the worker-peasant alliance.
The promotional role of socialist exchange with respect to production and consumption can only be fully exercised through people’s correct handling of the various contradictions in the exchange process.
A very important link in actively promoting the development of production through socialist product exchange is whether the material resources departments can fully understand and correctly handle the contradictions between the supply of and the demand for the means of production within the state ownership system. In the process of high-speed development in the socialist national economy, on the one hand, the supply of the means of production generally increases at a higher speed than that of consumer goods. On the other hand, the quantity, quality, variety, and specifications of the means of production often do not fully satisfy the development requirements of socialist construction. These contradictions between the supply of and the demand for the means of production will objectively exist for a long time and will be manifested in the various departments of the national economy, various regions, and various state enterprises. Only through regular study and correct management, properly balancing plans and matching supply with demand, can a continuous relative balance between the production of, and the requirements for, means of production be maintained and rapid development of socialist production be achieved.
The process of socialist commodity exchange is even more complex. The objects of commodity exchange are mainly consumer goods, but they also include a certain amount of means of production. Relations between the state economy and the collective economy, within the state economy, and among the collective economies all exist in commodity exchange. In complex commodity exchanges, the contradictions between supply and demand will also exist for a long time. It is concretely manifested in the contradictions within the specialized commercial departments responsible for commodity exchange work, agriculture, industry, and consumers.
The contradictions between socialist commerce and agriculture are mainly manifested by the proportions of agricultural and sideline products that are purchased or retained, by purchasing prices, by the forms in which such products are purchased, and by the supply and prices of industrial products. Some part of agricultural and sideline production is commodity production for the satisfaction of social needs. The other part is self-sufficient production to satisfy the peasant’s own needs. In the process of purchasing, it is necessary to arrange suitably the proportions of agricultural and sideline products to be purchased or retained so that the state can obtain the required amount of agricultural and sideline products and so the peasant can also take care of his production and livelihood. At the same time, when socialist commerce purchases agricultural and sideline products, it must also be good at sending industrial products to the rural areas. It must strive to ensure the inflow and outflow of goods to satisfy fully the requirements of both socialist agricultural production and the peasants’ livelihood. The purchasing prices of agricultural and sideline products and the supply prices of industrial products directly affect the income of the peasant, the expansion of agricultural production, and state accumulation. It is necessary to determine reasonable purchasing prices for agricultural and sideline products and supply prices for industrial products so that an exchange relationship of equivalent values between industrial and agricultural products can be maintained. Handling the contradictions between commerce and agriculture according to correct principles makes it possible to do a good job in commodity exchanges between the urban and rural areas and is favorable to mobilizing the activism of the peasants in socialist production, promoting the development of industrial and agricultural production, and consolidating the worker peasant alliance.
The contradictions between socialist commerce and industry are mainly internal contradictions in the state economy. State industry is engaged in production. State commerce is engaged in marketing. The contradictions between industry and commerce are mainly contradictions involving the quantity, quality, variety, and price of industrial products on the one hand and market requirements on the other. There is a relative stability in industrial production. But market requirements change. The contradictions between relatively stable industrial production and variable market requirements often bring about contradictions between industry and commerce. Another contradiction is the lack of coordination between the production plan and the marketing plan, which results from inadequate investigation and research in the development, changes, and laws of production and the market. The influence of capitalist ideas of operation or the interference of the revisionist line further aggravates the contradictions between industry and commerce. To correctly handle the contradictions between industry and commerce, the commercial departments must follow the requirements of the basic economic law of socialism, strengthen investigation and research, duly report the consumers’ requirements to the industrial departments, bring about closer cooperation between industry and commerce, and actively help the industrial branches develop production, expand variety, and raise quality in order to together better satisfy the needs of the state and the people.
The contradictions between supply and demand in the commodity exchange process are ultimately manifested as contradictions between socialist commerce and the broad masses of consumers. With the rapid growth of industrial and agricultural development, the purchasing power of the people has been continuously raised. It is natural that they require socialist commerce to provide a better and greater variety of consumer goods. However, the growth of social production always lags behind the growth of social demand. Therefore, correctly handling the contradictions between commerce and agriculture and between commerce and industry is the precondition for 302 correctly handling the contradictions between commerce and the consumers. But this is not enough. To correctly resolve the contradictions between commerce and the consumers, those who work in commerce must further establish the concept of wholeheartedly serving the people. China’s commercial workers put it well: “The counter is limited to three feet high, but service to the workers, peasants, and soldiers is unlimited.” Only when this mental outlook is established can socialist commerce actively organize supplies of commodities, rationally allocate commodities, and properly arrange the socialist market according to the various requirements of the workers, peasants, and soldiers. At the same time, in organizing for the people’s livelihood, socialist commerce should not merely passively adapt to consumer demand; it should actively influence consumption, direct consumption, and do a better job of organizing for the people’s livelihood according to the development conditions of socialist industrial and agricultural production and the conditions of national resources.
The sphere of distribution is not merely a place where products and commodities are exchanged. It is also a battleground for class struggle between the proletariat and the bourgeoisie. This battleground is familiar to the bourgeoisie, but not as familiar to the proletariat. New and old bourgeois elements resort to bribery, speculation, and other illegal means and to inciting improper practices such as barter and backdoor deals to corrode people’s ideology and undermine socialism. 6 The agents of the bourgeoisie inside the Party try hard to push the revisionist line which aims at restoring capitalism in the circulation sphere. The clique of Liu Shaoch’i, that renegade, traitor, and scab, widely instituted the idea of putting “regulations in command” in product exchange, advocated “service to all the people” in commodity exchange, and encouraged the evil practice of backdoor deals. This is a betrayal of Marxism. To push back the frantic attack of the bourgeoisie, we must hold firmly to Chairman Mao’s proletarian revolutionary line, criticize the revisionist line, hold firmly to having proletarian politics in command, and observe and handle problems with the viewpoint of class struggle so that socialist exchange not only promotes production development and improves the people’s livelihood, but also consolidates the socialist economic base and proletarian dictatorship.
Socialist Exchange Must Have Appropriate Forms of Organization
Product Exchange Needs an Appropriate Supply System and Channels
The circulation process of the means of production from production-to-production consumption is very complex. Appropriate forms of exchange under the guidance of a central state plan are required so that the means of production can go from the production sphere to the production consumption sphere at the proper time, in the right amount, and with quality to promote the development of production.
The form of product exchange reflects the interrelations in product exchange among enterprises, among regions, and among departments within the state ownership system and between the central economic departments and the local economic departments. China’s socialist construction experience tells us that it is very significant to set up rationally a system of supply of material resources in handling these interrelations.
China’s material resources supply system adopts the principles of “unified leadership, control by level, and specialized operation” in line with Chairman Mao’s great strategic policy of “be prepared for war, be prepared for natural disasters, and do everything for the people” and his teaching “Let the local units do more things under a unified central plan.” As manifested in product exchange, the state classifies the means of production into three groups according to their significance and functions in the national economy. The first group is “material resources under unified allocation.” These resources are vital for developing the national economy. Examples are steel, copper, and important mechanical and electrical equipment. They are allocated centrally by the state planning departments to ensure the needs of the state’s important construction projects. The second category is “material resources which are under the control of a department [of the central government].” These are important resources in the national economy, such as tin, nickel, and those which are either highly specialized or are used as supplements to other products, such as metallurgical furnace materials. They are allocated by the responsible control departments in a balanced manner. The third group is “material resources under local control.” These are resources not included in the first and second groups which are controlled by provinces, municipalities, and autonomous regions. The material resources required for socialist construction are numerous and varied. If they were all centrally controlled by the state planning department, socialist construction could be adversely affected. “Unified leadership, managed by different levels and operated according to specialization, meets the need for building socialism with greater, faster, and better results at lower costs.”
At present, based on the above principle, China’s material resources supply system is selectively and systematically adopting the method of “regional balance, differential allocation, regulation of variety, and guaranteed delivery to the state under a unified state plan.” This requires that, with a unified state plan and guaranteed delivery to the state as preconditions, locally produced raw materials and equipment are balanced locally and complemented locally. This method supports the implementation of the great strategic policy of preparing for wars, preparing for natural disasters and 304 doing everything for the people. It encourages the gradual establishment of an industrial system among various cooperation regions or even among provinces, the mobilization of central and local activism, the proper handling of the interrelations between the central and local units as well as among regions and among enterprises, and the promotion of production growth.
After a proper material resources supply system is established, appropriate concrete forms of product exchange and channels for it are also required to expedite the flow of goods so that the means of production can be circulated from one state enterprise to another state enterprise more quickly and economically through rational circulation links. At present, there are basically three types of concrete forms and circulation channels in China’s product exchange.
The first is direct supply. This is a form of exchange in which raw materials and equipment produced by a state enterprise are directly delivered to the user without going through any middle link. However, it is arranged under a unified state plan and according to the supply contract among enterprises. This form of product exchange shortens the circulation time, reduces circulation expenses, stabilizes the supply and demand relations, and helps improve product equality. It is the direction of development for the form of product exchange. But, this form of exchange cannot be used under all circumstances. In general, it is suitable for circulation among those enterprises where supply and demand volumes are large and the supply-demand relation of products is stable.
The second is supply by material resources branches. This is also conducted under a unified state plan. Like the previous form of exchange, it is also within the scope of plan allocation. However, it must go through the material resources branches. In other words, according to the product supply contract, raw materials and equipment produced by a state enterprise must first be collected and sent to state material resources branches. After necessary processing and arrangement by the material resources branches, they are supplied to enterprises for consumption. Raw materials and equipment subject to this form of exchange are generally in great demand, but the demand from individual units is small. If they were all to be delivered directly by the producing enterprise to the consuming enterprises, the producing enterprise would have to have a vast supply organization in order to deliver goods on time. Consequently, although it seems slower and more expensive to use state material resources branches rather than direct supply, in fact, it means that storage charges and transportation fees can be reduced and the means of production can be supplied faster to the consuming enterprises. In addition, because the state needs to keep a reserve of some means of production and state enterprises may also have a sudden demand for some means of production because of changes in plan assignments, state material resources branches are needed to form a middle link for managing and organizing the supplies of the means of production.
The third is supply organized by commercial branches. These are products which can be used for production consumption or personal consumption. Some are small spare parts and small metal tools with assorted specifications and limited usage. It is more convenient to have these small and assorted means of production managed by commercial branches so that they can be bought by the user unit in the market at any time.
The Three Channels of Commodity Exchange
Socialist commodity exchange must also have appropriate channels in order to facilitate goods circulation and fully exercise its function. At the present stage, China’s socialist commodity exchange is conducted through the three channels of state commerce, commerce on the basis of collective ownership, and trade fairs. These three channels of commodity exchange constitute China’s unified socialist market. They perform different functions according to their different positions.
State commerce is the main body and leading force in the unified socialist market. It leads the commerce of the collective ownership system and rural trade fairs. Most of the commodities and all wholesale links are controlled by state commerce. Commodities are delivered to the consumer in a planned manner by state commerce according to the principle of overall design, appropriate arrangement, and guaranteeing key points.
Commerce taking place under the collective ownership system assists state commerce. Commerce under the collective ownership system refers mainly to rural supply and marketing cooperatives. Urban cooperative stores also belong in the category of commerce under the collective ownership system.
In China, after the proletariat seized political power, it was faced with an extremely broad rural market in which the individual economy was dominant. If this market were not occupied by socialism, it would be occupied by capitalism and become a hotbed for capitalism. While actively developing state commerce, the rural laboring people were mobilized to organize rural supply and marketing cooperatives to purchase agricultural and sideline products and to supply industrial products. It was extremely necessary to make the people assistants of state commerce in the rural areas in order to regulate supply and demand and control the market. Experience has shown that the establishment and development of the supply and marketing cooperative in China has played a very important role in strengthening socialist commerce, severing the relationship between the individual economy and the capitalist economy, and promoting the socialist transformation of the individual economy.
The cooperative stores were originally formed by individual workers in the urban areas. They were a transition from individual commerce to state 306 commerce. At the present stage, the existence of cooperative stores makes it convenient for the urban inhabitants to buy daily commodities.
Rural trade fairs are a supplement to socialist commerce. The small quantities of family sideline products produced by the collectives’ peasants, with the exception of those retained for their own consumption and those sold to the state, can be marketed at rural trade fairs according to state regulations. Trade fairs are places where peasants exchange what they have for what they want and where peasants exchange directly with urban people. No middlemen are allowed.
Rural trade fairs have a dual character. On the one hand, they promote the development of agricultural and sideline production, increase the team members’ income, and enliven the rural economy. On the other hand, rural trade fairs are an unplanned market. If they are allowed to develop without control, they will interfere with the socialist planned market and nurture capitalist power. Under the socialist system, if rural trade fairs are to be allowed to exist for a period of time, leadership and management over them must be strengthened in order to foster their positive role and restrict their negative role so that they better serve the socialist economy.
Money Must Be the Servant of Socialist Exchange Money under the Socialist System Begins to Acquire New Properties and Functions
In human history, money appeared as a medium of exchange when trade developed to a certain degree. Since commodity production and commodity exchange still exist in socialist society, money is still necessary.
In socialist society, money is not only related to socialist commodity production and commodity exchange; it is also related to socialist product production and product exchange. The economic conditions of socialism have changed the nature and functions of money.
Money, in its relation to commodity production and commodity exchange, is still an accounting unit under the socialist system, but it no longer reflects capitalist production relations. Capitalist commodity production and commodity exchange, which embody the exploitation of hired labor, are no longer associated with this money. It is associated instead with socialist commodity production and commodity exchange, which embody the exchange of labor between the worker and the peasant.
The means of production exchanged among state enterprises, so far as their leading aspect is concerned, are no longer commodities but products. However, in its planned leadership over the national economy, the socialist state must use money as a unified standard to measure social labor whether in the formulation of production targets, the allocation of material resources, or the distribution of the total social product. This means that money under the socialist system begins to have a new property, namely, a means to measure labor in national economic planning work. And the further we go, the more important this new property of money becomes. In the course of development, with the gradual elimination of commodity production and commodity exchange, money as an accounting unit will also gradually be eliminated. Even then, however, a means of measuring labor will still be necessary in national economic work.
In the distribution of personal consumer goods in socialist society, in addition to being an accounting unit, money also serves as labor coupons. The distribution of personal consumer goods in the departments under socialist state ownership is conducted this way: the state pays money wages to the staff and workers according to the principle of “from each according to his ability, to each according to his labor.” The staff and workers use the money to buy the consumer goods they need. Here, the role of money is similar to that of labor coupons. Marx once said: “Labor coupons only show the share of common labor contributed by the individual producer and the share of common products to which he is entitled.” 7
This change in the nature of money under the socialist system reflects the characteristics of socialist production relations. This change is embodied in the functions of money.
The first function of money is as a measure of value. This is true also in socialist society. In socialist society, money is used to measure both the social labor embodied in commodities and the social labor embodied in all products. The socialist state uses the function of money as a measure of value to set the prices of commodities and products and to fix targets of production, costs, and profits in value terms in order to exercise planned management of the national economy.
When money acts as a means of circulation in the socialist system, it serves not only as a medium of exchange for commodities but also as a medium of exchange for products. In socialist society, this function of money is carried out by paper currencies. Paper currencies have no intrinsic value. They are merely value symbols. In China, these value symbols are the renminbi issued by the People’s Bank of China. The function of money in the socialist state is as a means of circulation to promote the economic relations between industry and agriculture, between the urban and rural areas, and among state enterprises.
In socialist society, money performs as a means of payment. The socialist state enterprise uses this function of money to pay taxes and profits to the state and wages to the staff and workers and to repay loans from fraternal enterprises. The socialist state uses this function of money to centralize and distribute state budget funds and credit funds.
In socialist society, money also serves as a means of accumulation and savings. The net social income created by the laboring people becomes the socialist accumulation of the state in the form of money. The part of the labor compensation of the laboring people that is not yet spent is also deposited in the state bank in the form of money to be used to promote socialist construction.
In the foreign economic relations of the socialist state, gold serves as a universal currency. In the socialist state’s foreign aid and foreign trade, gold serves as a general means of payment and an embodiment of social wealth. Because China’s renminbi is a rare and stable money in the world, it has earned a good reputation. In China’s foreign trade, more and more countries are willing to use the renminbi as a means of calculating prices and for international accounting.
In socialist society, because the means of production are publicly owned, individuals cannot purchase them. Money, therefore, cannot generally be converted into capital. A decisive blow is thus dealt to the money fetishism popular under the capitalist system. However, since money still exists in an independent form as exchange value, money can be used to purchase almost all consumer goods. Therefore, remnants of money fetishism must still exist. Lin Piao publicly advocated the nonsense “Let us all get rich” with the intention of corroding people’s thought with money fetishism and undermining the socialist system. Therefore, it is an historical mission of the proletariat and the whole laboring people in the historical stage of socialism to repeatedly criticize and repudiate such ideas of the exploitative class as “money can bribe gods,” “money can persuade a ghost to work the grinding stone,” and “get promoted and make a fortune” and to wage an unending struggle against the criminal activities such as corruption, theft, bribery, speculation, and opening underground factories which are carried on by new and old bourgeois elements.
Use the Law of Money Circulation to Serve Socialist Construction
In the process of production, exchange, distribution, and consumption, there is a movement of money corresponding to the movement of commodities and products. In capitalist society, production and exchange are carried on blindly and spontaneously. Money circulation in the market is also carried on blindly and spontaneously. In socialist society, production, exchange, and distribution are all carried on according to plans. The socialist state can expand and contract the money supply in a planned way, achieving planning in money circulation in order to make it serve socialist construction. To achieve planning in money circulation, it is first necessary to understand the movement of money under the socialist system and to know the objective law of money circulation.
In socialist society, product exchange among state enterprises does not generally require actual money (cash) transactions. Price calculation in the product exchange process is performed by using the function of money as a measure of value. When money performs its function as a measure of value, no cash is required on hand. Only the concept of money is required. Payments in the product exchange process are affected through account clearings in the state bank, so no money transaction is required for this either.
In socialist society, there are four main channels for issuing and withdrawing money (money circulation channels).
First, state enterprises, business units, and state organs obtain money from the state bank to pay wages to staff and workers. Staff and workers use their wages to buy personal consumer goods or to pay for other labor expenses. This way, money flows back to the bank through the commercial sector and service industries. In addition, staff and workers can save by directly depositing money in the bank without any commodity exchange.
Second, the commercial branches obtain money from the state bank to purchase agricultural and sideline products from rural collective economies. A part of the money income from the sale of agricultural and sideline products is used by the collective economies to buy chemical fertilizers, insecticides, agricultural machines, and other means of production from the state. This way, this part of the money again returns to the bank. Another part of the money income of the collective economy is distributed to the peasants of the collectives according to their labor contributions. The peasants use it to buy industrial products from commercial branches or save it. This way, this part of the money also ultimately returns to the bank.
Third, through their purchases at trade fairs, a part of the money income of the urban people also circulates. However, it must also finally return to the bank through the peasants’ purchases of industrial products and savings deposits.
Fourth, economic transactions among state enterprises, business units, and state organs are basically conducted by transfers of credit. But some assorted and small payments also require cash. State enterprises, business units, and state organs can only retain the amount of cash specified by the state. Any amount over and above this limit must be deposited in the state bank. Therefore, the amount of money needed for such circulation is limited.
These money circulation channels are closely related to socialist commodity exchange. Money circulation is determined by commodity circulation. According to the law of money circulation explained by Marx, the formula for money circulation is:
This formula is still valid under the socialist system. This formula says that the amount of money needed for circulation in a given period of time is directly proportional to the total money value of commodities which require money to be realized and inversely proportional to the velocity of money circulation. Since paper currencies are only value symbols of money, the issue of paper currencies should correspond to the amount of money needed for circulation. Only in this way can the value of money be stable and its active role in socialist economic movement be fully exercised. If too little money is issued, commodities may pile up in the circulation sphere because the medium of exchange is lacking, and they will not reach the consumer in time. If too much money is issued, it will result in too much money chasing limited amounts of commodities. The prices of commodities will then rise in the trade fairs, and the value of the paper currency will fall. The socialist state consciously uses the law of money circulation to match money circulation with commodity circulation and promote the planned movements of socialist production, exchange, distribution, consumption, and other links through a planned regulation of the channels of money circulation.
China’s renminbi is a rare and stable money in the world. Mainly because under the guidance of Chairman Mao’s proletarian revolutionary line, China’s industry and agriculture continuously develop, fiscal revenues are plentiful, and international payments are balanced. A strong socialist economy lays a stable material foundation for China’s money and permits the state to release a large number of commodities continuously into the market at stable prices to match the demand from the increasing purchasing power of the people. The stable value of the renminbi is also a result of the state’s conscious use of the law of money circulation and the planned management of money circulation to realize a balance between income and cash payments. On the one hand, the state controls the release of money through a planned regulation of the number of staff and workers, the rate of wage increases, the purchasing power of state enterprises, business units, and state organs, and the regulation of the purchasing prices of agricultural products. On the other hand, the state organizes the withdrawal of money from circulation by duly and sufficiently supplying commodities required by the urban and rural people, by regulating planned prices, and by mobilizing the people to save. This way, the amount of renminbi in circulation is matched by the amount of circulation required, thus guaranteeing the stable value of the renminbi.
The planned regulation of money circulation in the socialist state is carried on through the state bank. In China, the People’s Bank is the state bank. The People’s Bank of China, which issues and withdraws renminbi and regulates money circulation in a planned way according to the development of production and the requirements of commodity circulation, becomes a nationwide cash income-out-go center. The People’s Bank of China also centrally organizes noncash account clearings among all the state economic branches, enterprises, and units. It is also a nationwide credit center that seeks to achieve a fuller use of idle money through its deposits and payments purchases. In summary, all money accounting and payment activities develop from the central point of the state bank. The socialist bank is not only an economic organization, but also a state bank in charge of managing the national economy in the proletarian state. It plays a very important role in socialist revolution and socialist construction.
Major Study References
Marx, Capital. Vol. 1, chapter 3.
Stalin, Socialist Economic Issues of the Soviet Union.
Review Problems
- What are the new features and characteristics of socialist exchange? What is the difference between socialist product exchange and commodity exchange?
- What are the forms of organizations and channels through which socialist product exchange and commodity exchange are realized?
- What are the characteristics of the nature and functions of money under the socialist system? How can the socialist state organize money circulation in a planned way?
7 Footnotes
