Xue Muqiao (1905-2005) was a veteran economist of the Communist Party of China.
What follows is the concluding chapter of his fantastic book China’s Socialist Economy (1986).
- 1. Marxist Theory on the Building of Socialism
- 2. Economic Laws of Socialism
- 3. Economic Laws and Man’s Initiative
In his “Preface to the First German Edition” of the first volume of Capital, Marx wrote: “It is the ultimate aim of this work to lay bare the economic law of motion of modern society.”  Marx devoted his whole life to the study of capitalist economy, which had by then lasted two or three hundred years, and discovered the objective laws governing its development. But he lived in times of free capitalist competition, and since monopoly capitalism was only in its budding stage at the time of his death, he could not have acquired a systematic understanding of the laws of its development. In Imperialism, the Highest Stage of Capitalism, Lenin analysed the new situation in the period of monopoly capitalism and developed Marxism by elucidating the laws of capitalist economic growth in this new era. More than sixty years have gone by since Lenin wrote his book. The capitalist world has made fresh advances and many new situations and problems have appeared, which we should study and solve in order to make necessary additions to Marxist theory. As capitalist society has not yet run its course, we cannot say that we have arrived at a complete understanding of the laws of capitalist economic growth.
Socialism is a new social system with a brief history. It has only been thirty years since the socialist revolution began in China and we have not accumulated sufficient experience in our social practice. Since we had an extremely backward economy to start with and our present socialist relations of production are far from mature, we have many difficulties in studying the laws of socialist economic development. On the whole, the building of socialism remains an unknown “realm of necessity” for us, to use the words of Engels. Whatever we know about this “realm of necessity” is far from complete or profound. We have a long way to go before we get to know the laws governing socialist economic development. But knowledge of the laws of socialist economic development will come as neither a gift from heaven nor a revelation of a “genius” or “prophet.” We can discover the intrinsic laws of such a development only through systematic and careful research on socio-economic conditions and the practical experience of millions of people in the building of socialism, and an elevation of perceptual knowledge to the level of rational knowledge, i.e., to theory. We cannot complete our understanding of objective laws by a single move. We must test to see if our knowledge, as manifest in our line, principles, policies and plans, brings anticipated results, is accurate and corresponds to objective reality. Practice, knowledge, practice again, and knowledge again — this is the inevitable process by which we come to know objective laws. As history advances, our knowledge of objective things may fall behind their evolution and will need to be amended in the light of new circumstances. The history of socialist development is far from complete. We of course cannot refrain from looking into the laws of socialist development until after its completion. We must review our experience in the course of practice so that our knowledge grows with the progress of history.
In the Manifesto of the Communist Party published in 1848, Marx and Engels analysed the innate contradictions of capitalism and predicted its inevitable doom and its replacement by a communist society free from all class exploitation. Later, in the light of historical experience, they gradually realized that communism would also develop from a lower to a higher stage. After the failure of the Paris Commune in 1871, Marx reviewed the new experience it had provided and, in his 1875 manuscript, Critique of the Gotha Programme, advanced for the first time the thesis that “between capitalist and communist society lies the period of the revolutionary transformation of the one into the other” as well as the theory of the two stages of development of communist society. According to this theory, at the lower stage of communism, i.e., the stage of socialism, public ownership of the means of production by the whole of society would be established and classes abolished, but the traditions and birthmarks of the old society would have to be retained and the principle of “to each according to his work” followed in the distribution of the means of subsistence. Marx assumed that such a distribution would be conducted by means of labour certificates issued in direct proportion to the amount of labour provided by the producers and not through the market or the commodity-money relationship. Only at the higher stage of communism could payment for labour be abolished and the principle of “from each according to his ability, to each according to his needs” carried out. Marx lived in times when nobody had any practical experience with socialism. Thus he could not have elaborated on the laws of socialist economic development. Nevertheless, he applied “the theory of development — in its most consistent, complete, considered and pithy form — to modern capitalism. Naturally, Marx was faced with the problem of applying the theory both to the forthcoming collapse of capitalism and to the future development of future communism.”  On the basis of his overall understanding of the law of social development, Marx criticized Lassalle’s theory of undiminished, fair distribution of the proceeds of labour and made the above scientific prediction about future socialism and communism. A systematic exposition of these ideas of Marx was provided by Lenin in The State and Revolution.
The victory of the October Socialist Revolution translated socialism from an ideal into a reality. Russia was a country with a medium level of capitalist development where industrialization had not been completed nationally and a small-scale peasant economy was predominant. Building socialism in such a country was much more difficult and complicated than it would be after the victory of the revolution in a developed capitalist country where industrialization had been completed and the small-scale peasant economy was insignificant. This required a series of special methods for carrying out a transition. The first question was how to deal with the small-scale peasant economy. Marx and Engels said that it should be guided onto the course of co-operatives. But how should this be done? There was no precedent. In the period of civil war and armed foreign intervention which followed the October Revolution, “War Communism” was enforced out of necessity and it was assumed that the commodity-money relationship could be abolished fairly soon — an assumption which resulted in a detour in Soviet economic development. The sharp drop in agricultural production, caused mainly by war, also had to do with some aspects of the economic policy which violated the objective laws of economic development. Being good at drawing lessons and rectifying mistakes, Lenin shifted to the New Economic Policy right after victory in the war, which meant allowing the peasants freedom to sell their surplus grain on the market after payment of the tax in kind and restoring the commodity-money relationship. This policy rehabilitated agricultural production speedily. (In China no “War Communism” was imposed on the peasants in the years of revolutionary war, during which a rural policy close to the NEP was carried out.) Lenin deemed it necessary to preserve the commodity-money relationship for a fairly long time after the proletarian seizure of power so as to maintain the economic ties between the socialist state economy and the small producers. This was a fresh contribution to Marxism.
Socialism cannot be built upon a small-scale peasant economy. In line with Marxist principles, Lenin put forward a “co-operative plan” for the socialist transformation of the small-scale peasant economy and the rehabilitation and expansion of big industry. In his seven years of practical experience with socialism, Lenin gave a series of pithy instructions on all aspects of socialist construction, leaving a valuable legacy to us. Unfortunately, he died too early and, by the time of his death, the transformation of the small-scale peasant economy through the establishment of co-operatives had only been tried out in a few places and socialist construction was just beginning. He was naturally unable to offer a systematic elucidation of the laws of socialist economic development.
To fulfill Lenin’s behests, Stalin led the Soviet people in accomplishing agricultural collectivization and national industrialization and establishing a socialist economic system. In Economic Problems of Socialism in the U.S.S.R., which he wrote about a year before his death, he emphasized the question of the laws of economic development under socialism, chiefly the law that the relations of production must conform to the character of the productive forces, the basic economic law of socialism, the law of balanced, proportionate development of the national economy and the law of value. Observing the two types of socialist public ownership existing side by side in the U.S.S.R., he elucidated many important questions concerning the use of objective economic laws in the interests of socialism. This was Stalin’s new contribution to Marxism-Leninism. In retrospect, some of his arguments seem weak. But this was inevitable and, compared with previous attainments, they marked a big advance in man’s knowledge of socialist economic development.
In his Economic Problems of Socialism in the U.S.S.R., Stalin stressed the objective nature of economic laws under socialism and pointed out that men, including the Soviet state and its leaders, could not abolish, create or change these laws, but might discover and grasp them and utilize them in the interests of socialist construction. Of course this did not mean they had acquired a full understanding of these laws or were acting in full conformity with them. Acting in accordance with objective laws, the Soviet state achieved tremendous successes in socialist construction. But it was also punished many times for going against these laws. By raising in his last years the question of economic laws under socialism and their objective nature, Stalin drew an important lesson from more than thirty years’ experience in national construction in the U.S.S.R., teaching people to study and apply objective laws conscientiously, correct mistakes in theory and practical work, avoid blindness wherever possible, sharpen their foresight and push forward the cause of socialism.
China is a big country with a population of one billion. We began building socialism on the ruins of semi-colonialism and semi-feudalism and not on those of developed capitalism; we are striving to accomplish the country’s four modernizations despite a huge population and a poor foundation. This is a colossal task never attempted by our forefathers. Thus we must answer well the question of the method to be adopted and the course to be followed in building up the country. We will of course take Marxism-Leninism as the guide to our thinking. But this does not mean to copy mechanically the formula on the first stage of communism advanced by Marx in the Critique of the Gotha Programme or by Lenin in The State and Revolution. We should learn from the experience in the building of socialism in the Soviet Union under Lenin and Stalin and from all that is good in other countries. When we embarked on socialist construction in the early 1950s, we benefited much from our study of Stalin’s Economic Problems of Socialism in the U.S.S.R. and the experience in the Soviet Union. But our understanding must not stop there. Copying the experience of others does not solve our problem. We must base ourselves on practice, try to find China’s own way of building socialism and work out a whole set of methods in order to build a socialist society which suits the present level of productive forces and other conditions in China. In his “Talk at an Enlarged Working Conference Convened by the Central Committee of the Communist Party of China” in 1962, Mao Zedong pointed out, “Getting to know the laws governing the building of socialism necessarily involves a process. We must take practice as the starting-point and move from having no experience to having some experience, from having little experience to having more experience....” He also said, “As for our Party as a whole, our knowledge of socialist construction is very inadequate. In the forthcoming period we should accumulate experience and study hard, and in the course of practice gradually deepen our understanding and become clearer on the laws of socialist construction.”  His teachings still have a practical significance today.
Historical experience shows that objective laws are at once omnipresent and non-present. When you do not contravene them, they seem to be non-existent. When you do, they will have you punished. A summary of successful experiences can of course clarify for us the objective laws of economic development, but a review of lessons of failure can be even more instructive and convince us that objective laws are not to be violated. Men often correct their mistakes by drawing lessons from failures, enabling themselves to know the objective laws governing the development of things and turn failure into success. Thus there is only one way for us to know the objective laws governing socialist economic development, that is, to act upon the fundamental tenets of Marxism-Leninism, analyse our successful and unsuccessful experience in socialist revolution and construction, deduce from it the laws governing the development of China’s socialist economy, and take them as a guide to action. Generally speaking, if our line, principles, policies and plans turn out to be successful, they are correct and prove the relative accuracy of our knowledge of the laws of socialist economic development. If they end in failure, they show that our knowledge is inaccurate or our method is wrong, and that we must draw lessons from them and rectify our mistakes. Even if we have acquired a relatively accurate knowledge of the laws of socialist economic development, we will still have to replenish and advance it continually by studying new circumstances and experience.
Some comrades were not sufficiently aware of the importance of studying and observing objective laws and were confused about the relationship between the Party line and objective laws. According to them, the line is the key link and the accuracy of our knowledge of objective laws should be judged by its conformity with the Party line. This was an inversion of cause and effect. It is the laws that determine the line, principles and policies, not vice versa. The Party’s line, principles, and policies should all be formulated in light of the requirements of objective laws, and their correctness should be judged by their conformity with these laws. Some other comrades fear that observing objective economic laws would mean an abandonment of politics. This is a misconception. Politics is the concentrated expression of economics; violation of objective laws of economic development hinders the growth of productive forces and may even undermine these forces, doing serious harm to the fundamental interests of the labouring people as a whole. How could we have such politics? We should have a correct understanding of the relationship between politics and economics, and we should act according to objective economic laws while paying adequate attention to politics.
There are different formulations about the economic laws of socialism. Marx pointed out in his Critique of the Gotha Programme that a socialist society must carry out the principle of “to each according to his work,” and that this is an objective law independent of man’s will. In his Economic Problems of Socialism in the U.S.S.R., Stalin referred to the law that the relations of production must conform with the character of the productive forces, the basic economic law of socialism, the law of balanced, proportionate development of the national economy, the law of value, and so on. (He stressed that the law of value still plays a role in socialist society. This is a significant addition to Marxism-Leninism.) These are all important economic laws in a socialist society. They arise from different circumstances and may be classified into the following types:
1. A common law that runs through all stages of the development of human society, i.e., the law that the relations of production must conform with the level of the growth of productive forces. This law has operated in all stages of human society but is of particular importance to socialist society. All socio-economic formations in human history came into being spontaneously in correspondence with this economic law. The case is different with the socialist relations of production, which emerge and develop gradually through the application of the principles and policies set by the proletariat which has consciously grasped the same objective law. Before liberation, the Communist Party of China formulated a political programme for a transition to a socialist revolution via a democratic revolution. After the birth of New China, the Party announced in 1953 the general line for the period of transition from capitalism to socialism, which provided for the socialist transformation of the ownership of the means of production. This led to the belief that the rise and gradual reform of the socialist relations of production may be determined by the subjective will of the Party without following the objective laws of socialist economic development. This view led to serious mistakes. Even today, many of our comrades underestimate the difficulties involved in the building of socialism in our country where the level of productive forces is very low, particularly in agriculture. They are apt to make a rash advance whenever the economic situation is good. Taking advantage of people’s inadequate knowledge of this law, the Lin Biao and Jiang Qing counter-revolutionary cliques dished out many ultra-Left slogans to make trouble, bringing enormous losses to our national economy. We must take warning from this.
When Marx spoke of the contradiction between the relations of production and the productive forces, he often referred to cases where the relations of production lagged behind the requirements of the growing productive forces. That was because he was analysing mainly the capitalist system which had become an obstacle to the development of productive forces. But he also pointed out in clear-cut terms:
A social order never perishes before all the productive forces for which it is broadly sufficient have been developed, and new superior relations of production never replace older ones before the material conditions for their existence have matured within the womb of the old society. Mankind thus inevitably sets itself only such tasks as it can solve, since closer examination will always show that the task itself arises only when the material conditions for its solution are already present or at least in the process of formation. 
Over the past thirty years, people appear to have unanimously acknowledged this objective law — the relations of production must conform with the level of the growth of productive forces. In practice, however, they have differed in their understanding of the dialectical relationship between the socialist relations of production and the developing productive forces. For a time, we overemphasized how backward relations of production would fetter productive forces and hastened to change the relations of production in the absence of a significant growth in productive forces. We failed to see that a change in the relations of production that was too radical for the actual growth of productive forces would likewise hamper such a growth. The rise of new relations of production opened broad vistas for the growth of productive forces. But we were not fully aware of the need to stabilize these new relations of production and concentrate on raising the level of productive forces. These misconceptions accounted for the lasting dominance of the idea that a “Left” mistake was more justifiable than a Right one and it was better to be too much to the left than too much to the right. As a result we took rash steps to change the relations of production, a mistake which was repeated over and again in some regions, causing heavy losses to industrial and agricultural production. In view of all this, when we study questions of China’s socialist economy, we must grasp this most important economic law of human history by applying the vital principle that practice is the sole criterion of truth. Instead of reciting the law as a dogma, we must be clear on its specific content and dialectics by examining the practical experience in China’s socialist revolution and construction.
2. The economic laws common to socialism and communism. These may be regarded as the economic laws of communism from the standpoint of Marx’s thesis that socialism is a lower stage of communism. As a lower stage of communism, socialism is naturally governed by the general economic laws of communism, though they operate in forms different from those in the higher stage. In his Economic Problems of Socialism in the U.S.S.R., Stalin set forth two economic laws of socialism, namely, the basic economic law of socialism and the law of balanced, proportionate development of the national economy. These two economic laws are actually economic laws of communism because they not only operate at the lower stage of communism, i.e., the stage of socialism, but will play a fuller role at the higher stage of communism. At the stage of socialism, the operation of these two laws is somewhat restricted. The basic economic law of socialism is, in Stalin’s words, the securing of the maximum satisfaction of the constantly rising material and cultural requirements of the whole of society through the continuous expansion and perfection of socialist production on the basis of higher techniques. Clearly, we cannot as yet develop the socialist economy “on the basis of higher techniques” everywhere, nor secure “the maximum satisfaction” of the needs of the whole nation. As for the law of balanced, proportionate development of the national economy, it cannot operate fully in the economic sector under collective ownership, and not even in the economic sector under ownership by the whole people unless it is aided by the law of value.
The basic economic law of socialism came into being as an antithesis to the basic economic law of capitalism, i.e., the law of surplus value. The aim of capitalist production is to secure surplus value for the bourgeoisie whereas the aim of socialist production is to satisfy the needs in the material and cultural life of the whole people. Furthermore, the method used to achieve the socialist aim is fundamentally different from that used to achieve the capitalist aim. Stalin’s formulation contained a succinct statement of the aim of production and the method to achieve it under socialism as distinguished from those under capitalism, providing important guidance for the exercise of leadership in socialist economic construction. As pointed out by the Party’s Central Committee, “After socialist transformation was fundamentally completed, the principal contradiction our country has had to resolve is that between the growing material and cultural needs of the people and the backwardness of social production. It was imperative that the focus of Party and government work be shifted to socialist modernization centring on economic construction and that the people’s material and cultural life be gradually improved by means of an immense expansion of the productive forces.”  This passage reflects the basic economic law of socialism.
A socialist country develops production to better the life of the people, but this is easier said than done. To satisfy the needs of the people sooner and better, we must conduct extended reproduction at high speed. This makes it necessary to set aside a bigger accumulation fund from the national income. But in a given period of time, higher accumulation means lower consumption or a restriction on the improvement of the people’s present conditions, which implies a contradiction with the satisfaction of the people’s needs. A socialist state must handle this contradiction correctly, taking into consideration and making overall arrangements for both the development of production and the satisfaction of consumer needs. It is all the more important to handle this contradiction well in a country like China, which is both populous and poor. We have not handled this contradiction well in the past twenty years. Quite a few of our comrades did not understand that the ultimate aim of production and construction is to improve the life of the people. Preoccupied with achieving speedy results, they paid exclusive attention to the development of production but neglected to raise, and sometimes even lowered, the people’s living standard in their attempt to accelerate production and construction. This line of action ran counter to objective laws, with the result that the people’s life remained unimproved for a long time, the superiority of the socialist system could not be brought into play, the enthusiasm of the people was dampened, the rational proportions of the national economy were upset and, consequently, production and construction were slowed down. This erroneous tendency of “production for production’s sake” must be prevented. State plans must give prominence to proper arrangements for the people’s life, balance national construction with the people’s life, and balance national construction with the people’s welfare. Every enterprise must constantly raise productivity, reduce production costs, base its production on the needs of society and pay attention to the quality, variety and specifications of products instead of working blindly for meaningless figures of output or output value, i.e., expending much manpower and material on the production of goods not needed by the state or the people. It is all the more important for economic units under collective ownership to handle correctly the relationship between expanding production and improving the life of their members. The living standard of the urban and rural people will be able to improve constantly when production develops.
The socialist economy must develop in a planned and proportionate way. A proportionate development of the various departments of the national economy is necessary for any socialized mass production, whether socialist or capitalist. The difference lies in that the proportions of a capitalist economy take shape mainly through spontaneous regulation by the law of value and the law of surplus value (including the law of the equalization of profit) and often through periodic economic crises, while those in a socialist economy take shape mainly through state planning. Thus socialist economic development is not only a proportionate, but also a planned development. This law, as defined by Stalin, also appeared as an antithesis to the capitalist law of anarchy in production. It is an objective law that shows the special features and requirements of reproduction in a socialist society.
Without studying this law seriously, many of our comrades blindly pushed up the targets, thinking that it was unconditionally better to have a higher production rate and more construction. As a result, serious disproportions appeared between accumulation and consumption and between agriculture, light industry and heavy industry, and production and construction showed little progress. Our experience in the past three decades has taught us that to develop production at a high speed, we must always make a conscious effort to maintain the proper proportions, particularly those between accumulation and consumption and between agriculture, light industry and heavy industry. The rate of accumulation should not be too high. In drawing up the national economic plan, we must put agriculture first and keep to the order of priority of agriculture, light industry and heavy industry. Only thus can we maintain the balance between the various departments of the national economy and create favourable conditions for a sustained high-speed development.
3. The law of value which has existed under several socio-economic formations and which continues to play an important role in a socialist economy. As discussed earlier, the law of value is bound to operate in a socialist society because of the continuance of the production and exchange of commodities. The socialist state must conduct commodity exchange, i.e., the exchange of industrial goods for farm produce, between industry under ownership by the whole people and agriculture under collective ownership. It must also use the exchange of commodities through money as a means of distributing consumer goods among labourers on the principle of compensating an equal amount of labour with an equal amount of products. Obviously, the law of value continues to play an important role in these spheres. As for the exchange of products between state enterprises under ownership by the whole people, we have always calculated their profits and losses on a unified basis or, as the metaphor goes, by letting everybody “eat the rice cooked in the same big pot.” Experience over the past three decades shows that this practice seriously weakens the initiative and self-reliance of the enterprises in improving business operations. It should be admitted that exchange between state enterprises has the nature of commodity exchange. Each enterprise should conduct independent business accounting and properly combine the interests of the state with its own. In short, the state must use the law of value as a means of fulfilling its economic plan.
Some comrades used to set the law of planned, proportionate development of the national economy against the law of value, maintaining that the one does not operate where the other does. The fact is, the two laws operate simultaneously, but in a given case the one may play the leading role and the other an auxiliary one. On the whole, the law of planned, proportionate development of the national economy plays the leading role in a socialist economy while the law of value plays an auxiliary role. But it does not mean that we can do without the law of value in some of our economic activities. On the contrary, we must apply it in all our economic activities whether they are covered by plans or not, whether they are covered by the mandatory or the guidance plans. The only difference is whether we apply the law of value consciously or let it operate spontaneously. The socialist state cannot possibly include the production and exchange of all products in its planning. By its planning, it can only exercise more control over the state economy and less on the collective economy, more over the major products and less over the minor ones. While it has to utilize the role of the law of value in handling the products included in its plan, it must do so to a fuller extent in dealing with those not included in the plan, that is, those subject to market regulation. Our business administrators must be good at utilizing the law of value in the interests of socialist economic construction. Our knowledge of the law of value has been inadequate, resulting in its contravention through wide gaps between the prices of many products and their values. We should remedy these through a series of readjustments.
In the past twenty years or so, we have not been good at maintaining a proportionate development of the different departments of the national economy by a rational readjustment of prices. Many important farm products were priced too low, affecting extended reproduction in agriculture. We did not make full use of the role of the law of value to resolve the contradiction between supply and demand through timely price readjustment. Instead, we resorted to administrative means and overused such methods as state monopoly purchase, purchase on a requisition basis or by assigned quotas, and rationing of consumer goods. Such measures may be used for a brief period under unusual circumstances created by war or serious natural calamities. They may also be necessary for regulating within a certain period the supply and demand on important products essential for the national economy and the people’s livelihood. But they must not be used indefinitely or applied extensively, and it would be a bigger mistake to claim, as some comrades have, that they were “indispensable for a planned socialist economy” and a concrete manifestation of the “superiority of the socialist system.” While reforming the structure of economic management and extending the decision-making power of grassroots enterprises, including communes, brigades and teams, the state must strictly observe the law of value and make intelligent use of it so as to ensure a planned, proportionate development of the national economy.
4. Economic laws peculiar to the period of socialism. One of these laws is “to each according to his work.” This law exists neither in capitalist society nor in the higher stage of communism. The wage system in a socialist society is different from that in a capitalist society. The social products produced by the working people in a socialist society are distributed, after the necessary social deductions, to individuals according to the quantity and quality of each one’s work and his contribution to society, not according to his needs in life as will be the practice in the higher stage of communism. In a socialist society, social products are not yet abundant enough to meet all the needs of the whole poeple; the working people are not yet accustomed to working conscientiously for society without payment. In such circumstances, only by implementing the principle of “to each according to his work” can the enthusiasm of all workers be brought into full play. This law, which should have been unquestionable since Marx and Lenin mentioned it long ago, has not been implemented conscientiously in our New China since its founding due to the influence of the “supply system” of the war years and petty-bourgeois egalitarianism.
This “supply system” was not abolished until 1954, when a wage system was introduced in government organizations, state enterprises and public institutions. But in 1958, Zhang Chunqiao advocated restoring the “supply system” and abolishing the wage system. This touched off a debate. By the latter stage of the “Cultural Revolution,” the Gang of Four openly opposed, under the guise of criticizing “bourgeois right,” the principle of “to each according to his work.” Others suggested that a “generally equal but slightly different” wage system be implemented, causing serious ideological confusion. Though the principle of “to each according to his work” was re-established after the overthrow of the Gang of Four, its implementation is by no means easy because egalitarianism still has a market among many people. The current wage system practised in China is rather confusing. After the Third Plenary Session of its Eleventh Central Committee, the Party proposed various measures to carry out the principle of “to each according to his work,” pointing out that wages should depend not only on the quantity and quality of each person’s work—labour time, labour intensity and the degrees of labour proficiency and complexity — but also on the contribution each person makes to the state, that is, the economic results of his labour. The method of putting into practice the Party’s proposal is still under experiment. The problem of labour remuneration to workers in units either under state or collective ownership is rather complicated and needs careful study in both theory and practice. It is necessary for our theoreticians to pay special attention to the law of “to each according to his work,” and to discuss how to reform our wage system in the light of the prevailing conditions and how to work out an appropriate policy regarding labour remuneration in units of collective ownership.
In a country where small-scale peasant economy is predominant, individual economy can pass over to economy under ownership by the whole people only through collective economy. This objective law of socialist economic development is in fact a specific manifestation, in the period of socialism, of the law that the relations of production must conform with the growth level of the productive forces. As the growth level of the productive forces in China is rather low, not only will collective economy exist for a fairly long time but it is necessary to arouse the initiative of those engaged in individual undertakings in the sector under collective economy. It is also necessary for the tens of thousands of small- and medium-sized enterprises under ownership by the whole people to assimilate some of the principles followed by units under collective ownership and to link, to a certain extent, labour remuneration with the enterprises’ profits. Long ignorant of this economic law, we often stressed “large size and a high degree of public ownership” in agriculture and were overanxious for transition to a higher level, bringing heavy losses to farm production. At present, handicrafts still exist in the cities and manual operations still exist extensively in certain trades. There is the need to develop a number of units in the collective and individual sectors of the economy. It is wrong to think that collective ownership can be allowed to exist only in rural areas but not in urban areas, or that this economic sector can never be allowed to re-emerge. Also wrong is the idea that, except for the economic sectors under ownership by the whole people and collective ownership, no idividual economy — even a small portion of it — can be allowed to exist either in cities or the countryside. Neither idea conforms to the law of our socialist economic development.
At the higher stage of communism, the laws peculiar to the period of socialism will cease to function. Having accomplished their historical tasks, they will disappear from the scene of history. But then the law of securing the maximum satisfaction of the ever growing requirements in the life of the whole people through expanded production on the basis of higher scientific and technological standards will operate on a full scale. The needs of the people will grow with expanded production, never to be fully satisfied. Thus the contradiction between social production and social demand will exist forever and become the motive force of the progress of communist society. At the same time, the communist economy will show a much higher degree of planning than we have today. Under a single system of communist ownership by the whole poeple, it will be relatively easy to use the new computation techniques to control production in the various departments of the national economy and adjust in good time the contradiction between the production of all kinds of social products and the demand for them. The law of planned, proportionate development of the national economy will operate fully on a higher basis than now. Engels said, “It is only from this point that man will himself make his own history fully consciously. It is only from this point that the social causes he sets in motion will preponderantly and ever increasingly have the effects he wills. It is humanity’s leap from the realm of necessity into the realm of freedom.”  Socialism marks the beginning of such a leap; it will be completed under communism.
As mentioned before, objective laws of economic development exist in a socialist society just as they do in other societies. All our economic activities are governed by objective economic laws. Unlike the objective laws of economic development in previous societies, which effected all kinds of changes spontaneously, those in a socialist society are brought into play through the conscious, planned and clearly-aimed activities of the people under the leadership of the Communist Party. If we acquire an accurate understanding of the objective laws of economic development and apply them intelligently, our initiative will play a tremendous role in promoting socio-economic developments. Conversely, if our activities contravene objective laws, we will be punished and will be forced to adapt our activities to the requirements of these laws.
The socialist transformation of agriculture, handicrafts and capitalist industry and commerce after the founding of New China was carried out in a planned way under the leadership of the Communist Party and the People’s Government. We achieved tremendous successes by correctly applying the objective economic laws of socialism and those of capitalism. In transforming capitalist industry and commerce, we relied on the might of the socialist state sector of the economy, controlled the circulation of money, seized leadership over the market through a struggle to stabilize prices and, having taken the supply of raw and semi-finished materials and the sales of commodities into our hands, directed the capitalist enterprises into the orbit of state capitalism by making them work on government orders. In the relations between the state and private sectors, while giving full play to the leading role of the state sector, we correctly applied the economic laws of capitalism and guaranteed the profits due the capitalists. The state sector was highly concentrated whereas the private sector was scattered. The workers and staff in state enterprises displayed much higher enthusiasm than those in private ones. Giving full play to the socialist state sector, we were able to triumph over capitalism through competition. Our work proceeded smoothly on this front.
In transforming agriculture and the handicrafts, we made full use of the role of the law of value and the market, placing the individual peasants and handicraftsmen under the leadership of the state sector of the economy and gearing most of their production to the state plan. As for the small-scale peasant economy, we first mobilized the peasants for land reform, thoroughly destroying the rule of the landlords and rich peasants, abolishing feudal land ownership, and distributing land among the peasants. Through the establishment of agricultural co-operatives, we helped peasants overcome the difficulties resulting from the scattered nature of the small-scale peasant economy. With peasants accustomed to being small producers, we persevered in the principle of voluntary participation and mutual benefit in the course of setting up co-operatives, proceeding step by step from mutual aid teams to elementary co-operatives and then to advanced co-operatives. Thus our work on this front went on fairly smoothly. After the co-operatives were established universally, however, many of our comrades overlooked the law that the relations of production must conform with the growth of productive forces and made the mistake of making rash advances in setting up rural people’s communes in 1958. Only after readjustments were the relations of production basically brought into conformity with the productive forces and agricultural production rehabilitated and expanded. The advances and retreats were both effected through the policies and decrees of the Party and the government, but it was the objective laws of economic development that played a decisive role behind these policies and decrees.
In 1953, China launched its First Five-Year Plan of socialist economic construction. The ratio between accumulation and consumption and the proportions between the various departments of the national economy worked out at the time were relatively correct. We undertook 156 key projects and laid an initial basis for industrialization. During the period of the 1st FYP, as we basically observed the law of planned, proportionate development of the national economy, our work proceeded fairly smoothly. From 1958 to 1960, however, we set excessive targets for the growth of industrial and agricultural production. In particular, it was unrealistic to demand that steel output be doubled in a year and some branches of heavy industry be developed at a corresponding rate. Consequently, agriculture and light industry were relegated to a secondary position. Between 1959 and 1961, farm output dropped year after year, disproportions surfaced in the national economy and the people had to cope with hard times. The Central Committee of the Party advanced a policy of “readjustment, consolidation, filling-out and raising the standards.” Drastic steps were taken to curtail capital construction and heavy industrial production. In the next three years, the proportions between agriculture, light industry and heavy industry were readjusted, and so was the ratio between accumulation and consumption, leading to an all-round turn for the better in the national economy. Experience shows that only when we respect objective economic laws can we achieve positive results through initiative.
In a socialist country, the distribution and exchange of social products are also conducted largely through national economic planning. The state sets the ratio between the accumulation fund and the consumption fund, works out the wage scales for the workers and staff in state offices and enterprises, formulates the policies of distribution within the collective sector of the economy and among the collective peasants, and sees to it that the life of workers and peasants improves step by step on the basis of rising production. In the final analysis, both distribution and the people’s life depend on production. On the other hand, a distribution policy also reacts on production. The first eight years after the founding of New China saw a steady improvement in the life of workers and peasants amidst the rapid growth of industrial and agricultural production. Beginning in 1958, violation of objective laws of economic development in some years, and the interference and sabotage by the Lin Biao and Jiang Qing counter-revolutionary cliques in the “Cultural Revolution” accounted for the slumps in industrial and agricultural production and the negligible rise in living standards for workers and peasants. In distribution, we contradicted the principle of “to each according to his work,” used too much rural manpower without compensation, and purchased too much farm produce from the peasants. All this caused a drop in the labour enthusiasm of the workers and peasants and put brakes on industrial and agricultural development. Facts show that we do not know enough about the law of “developing production and satisfying the people’s needs,” which is essentially the “basic economic law of socialism” defined by Stalin, nor about the law of “to each according to his work.” This problem was not gradually solved until after the Third Plenary Session of the Party’s Eleventh Central Committee, when the “Left” errors long existing in our economic work were corrected and the principle of “readjusting, restructuring, consolidating and improving” the national economy was implemented.
In the past twenty years or so, we have acted with too little knowledge about the law of value. We laid stress on the role of the law of planned, proportionate development of the national economy but attached little importance to the role of the law of value. We failed to see that in a socialist society, particularly in one like our own where the level of productive forces remains low, we have to seek the help of the law of value in our national economic planning. But we exercised a rigid control over the national economy and failed to make good use of the law of value. Thus the prices of many products vary far from their values. Important products badly needed by the state are tightly controlled and priced low, while secondary products beyond state control are priced high and yield much profit. This affects a proportionate development of the various departments of the national economy. The remedy is to be found in a readjustment of prices through a full utilization of the role of the law of value, which will facilitate a balanced economic development, and not in an extension of compulsory state purchases and of rationing, which means a further restriction of the role of the law of value.
The above shows that our knowledge of the economic laws of socialism is far from adequate and we often act against objective laws, which makes it impossible to bring the superiority of the socialist system into full play. The economic laws of socialism operate in a way different from those of capitalism. Instead of functioning spontaneously beyond man’s will, they operate through man’s conscious activity. Precisely because of this, it is all the more necessary for us to study the objective laws governing socialist economic development and learn to act in accordance with them.
Here it may be added that, when we speak of the spontaneous manner in which economic activities in capitalist countries are regulated by objective economic laws, we are contrasting it to its role in socialist countries. In the stage of non-monopoly capitalism in the 18th and 19th centuries, bourgeois economists advocated laissez-faire and opposed intervention by the state and all economic activities were regulated spontaneously by the economic laws of capitalism. In the era of monopoly capitalism, the basic contradiction of capitalism sharpened and led to the unprecedented economic crisis in the 1930s, which proclaimed the bankruptcy of laissez-faire. The monopoly bourgeoisie began to advocate state intervention in economic activities. To compete with one another and avert or cushion economic crises, the monopoly capitalists not only made use of market forecasts on a wide scale but also appealed to the state for “regulation” of the economy. Since the Second World War, the capitalist countries have used taxation as a means of adjusting commodity prices. In particular, they have been guiding the orientation of investment by monopoly capitalist groups through the credit policies of the banks. Thus state intervention is playing an increasingly important role in these countries. Of course, the capitalist countries can never free themselves from the basic contradiction of capitalism, eliminate the polarization between the bourgeoisie and the proletariat, or get rid of the cyclical economic crises, because the means of production are privately owned and all the economic activities of monopoly capital are designed to grab the maximum profit.
In China, much importance was attached to the study of the economic laws of socialism following the publication of Stalin’s Economic Problems of Socialism in the U.S.S.R. But we were more or less influenced by certain metaphysical views and oversimplified the socialist relations of production, believing that all economic activities in the country could be controlled through state planning, and that the role of the law of value was confined to business accounting and the marketing of consumer goods, playing no regulatory role in production. During the “Cultural Revolution,” the Lin Biao and Jiang Qing counter-revolutionary cliques went all out to push “politics” which disrupted the economy and a “revolution” which rejected production. They negated the principle of “to each according to his work” and the law of value. In those days it was taboo to discuss the economic laws of socialism, and research in this field dropped from its original level. In the meantime, our economic management also deviated from the economic laws of socialism by varying degrees. At one time, it was believed that anything could be accomplished at the will of those in authority.
Our task is to acquire an accurate knowledge of the objective laws governing socialist economic development towards accelerating the socialist modernization of our national economy and consolidating and developing our socialist relations of production. This is a question to which our economic theoreticians and administrators should devote much attention. To solve this question, we must study Marxism-Leninism assiduously, analyse the positive and negative experience in socialist revolution and construction in China and other socialist countries, integrate theory with practice and particularly with the new tasks in China’s new historical period, do much investigation and research, and further study and deepen our understanding of the socialist economic laws and how they operate under the historical conditions in China. Only thus can we contribute our share to the accelerated realization of the four modernizations and to the consolidation and further development of the socialist relations of production.
Karl Marx, Capital, FLPH, Moscow, 1958, Vol. I, p. 10. ↩
V. I. Lenin, The State and Revolution, FLP, Beijing, 1976, pp. 102-03. ↩
Mao Zedong, Talk at an Enlarged Working Conference Convened by the Central Committee of the Communist Party of China, FLP, Beijing, 1978, pp. 18 and 22. ↩
Karl Marx, Preface and Introduction to “A Contribution to the Critique of Political Economy,” FLP, Beijing, 1976, p. 4. ↩
“Resolution on Certain Questions in the History of Our Party Since the Founding of the People’s Republic of China.” Resolution on CPC History (1949-81), FLP, Beijing, 1981, p.76. ↩
Friedrich Engels, Anti-Dühring, FLP, Beijing, 1976, p. 367. ↩