Introduction

1Mikhail Ivanovich Tugan-Baranovsky (1865-1919) [hereafter Tugan] was one of a pléiade of Russian (Ukrainian) fin-de-siècle economists who left a significant trace not only in Russian, but in world economic and social thought2.

2In the late 1890s, Tugan elaborated a personal vision of the development of capitalism, the diversity of economic forms, and a personal model of socialism3. Seeking the theoretical basis of specific economic forms, he constructed a theoretical system which strove to marry labour theory with the theory of marginal utility (marginal utility as a determinant of value). It should be mentioned that similar syntheses were attempted many times in the late 19th and early 20th centuries both in Europe and Russia4, Tugan was not an exception.

3This marriage was far removed from the purely mechanical eclecticism which Lenin and Bukharin ascribed to it, being rather an original and logical synthesis, of course with its shortcomings and inconsistencies, like most syntheses of this kind display. This synthesis of Tugan’s was no technical exercise for its own sake, but a facet of the efforts of early 20th century Russian economists to find the ethical and religious roots of economic phenomena, as brightly reflected in the works of Sergei Bulgakov, Nikolai Berdyaev, Semen Frank and, to an extent, Peter Struve. Setting out as Marxists well-acquainted with the historical and classical schools of political economy, these researchers evolved in the directions of neo-Kantianism and Christian idealism, accepting to varying degrees the principles of the then-emergent theory of marginal utility.

4Aged 25, Tugan was possibly the first Russian economist to elaborate the principles of marginalism5. Alongside this, he relinquished neither the basic postulate of Marxism that was the leading role of labour in human society, nor Marx’s sociological approach6. For Tugan, labour was one manifestation of the human personality which in turn represented an ethical supreme value (here Tugan follows Kant and the neo-Kantians, Rickert in particular7) from which supreme value ought to stem all categories of the economy. Labour can not be separated from man, or as Tugan put it: «Our labour—that is we are ourselves»8. His entire subsequent work represented an attempt to combine within a single model of human activity matters ethical and economic, materialism and idealism9, objective and subjective, cost and value, producer and consumer. Having found their bases in the synthesis of cost and value, these combinations assumed concrete economic forms, be they cooperatives, syndicates, trades associations, or others. For instance, Tugan views the cooperative system as an epitome of an ideal social organisation of humankind. The cooperative idea also underlies his analyses of socialism and the specific mechanisms of its functioning, as well as his evaluation of the Russian intelligentsia as being inclined towards socialism, etc.

5In Western literature, Tugan is mostly known for his theory of endogenous economic cycles10 and less so for his historical analyses of Russian factories, of the cooperative movement, or recently for his theory of money. The methodological grounds of Tugan’s work have rarely been subjected to analysis, the recent review article by Barnett (2004)11 being an exception in which that author presents Tugan as an original representative of the historical and institutional direction in economic science. Barnett does not cover Tugan’s synthesis of cost and value, yet this is precisely the aspect which I consider the leading technical principle informing his entire theoretical construct. The book of the German scholar Joachim Zweynert12 dedicated one entire chapter on Tugan (p. 322-347) where the author considers all Tugan’s contributions including some methodological issues.

6The tasks I have set to myself in this paper are in general as follows: Firstly, to present Tugan’s synthesis and the proofs offered by him because although often cited, his synthesis, as far as I know, has never been presented in detail. Secondly, to show the underlying role of the synthesis for Tugan’s general theoretical construct down to its concrete offshoots. For instance, cooperatives (like within the Russian mir in the past) are considered by Tugan as concrete manifestations of synthesis between utility and labour theory that overcame the contradictions between labour and capital. A number of insights which may be discovered in his book on cooperatives13 are broadly accepted by contemporary economic theory, such as those on information asymmetry, transaction cost, and a number of ideas on institutions and on the mechanisms of their evolution. My third task is to assess Tugan’s model while revealing some of its internal inconsistencies. To the criticism made in the past (such as Bukharin’s) I will add some of my reasoning, as well stressing the potential opportunities of future research on Tugan’s works.

Labour and Marginal Utility as Factors of Value: the Tugan Theorem

7Following the neo-Kantian methodology (that of Rickert), Tugan divides every theoretical research into two phases: the first—description, and the second—explanation. We may visualise these stages as the steps of a pyramid, with description being uppermost, explanation below it, and the most concrete level below that occupied by specific historical fact. At the first stage, that of ethical and theological propositions, the nucleus is the supreme value [vischayia cennost] of the human personality (the idea of the «man as an objective not mean» of every action). As distinct from the first stage, the second stage, that of explanation, is replete with functional and causal dependencies and laws among which ethical and theological explanations are inadmissible. Here we see utilised the classical methods of induction and, most of all, deduction14. According to Tugan’s methodology, value [cennost], cost [stoymost], utility [poleznost], and expenditure [razhody], dwell within the second stage of economic knowledge, that of explanation.

8The first methodological stage of description represents the link or «silken thread» which unites the entire theoretical construct. According to Tugan-Baranovsky (who follows strictly Kant), the ethical principle was linked with «the supreme value and equality of the human personality», which principle, if accepted by all men, offered the possibility for the very existence of economic science and, indeed, of the social sciences as a whole. This was so, for it was precisely through such an acceptance that science was elevated above the interests of individual groups and classes (it was no accident that Tugan-Baranovsky noted that theory changed according to the points of view of groupings; thus, wages represented income from the standpoint of workers and expenditure from that of capitalists).

9Once the principle of the «supreme value of the human personality» was set (thus removing one value from the scope of explanation), we descend to the second stage: that of the direct formal and logical synthesis of the marginal utility theory of value with the labour theory of value15. Tugan’s first attempt at such a synthesis dates back to as early as 1890 in the article «Ученiе о предельной полезности хозяственныхъ благъ какъ причине их ценности» [«A Treatise on the marginal Utility of economic Goods as a Factor in their Value»], in offering proof that emergent TMU did not contradict the postulates of labour theory: a «non-rejection» if the reader likes16.

10Tugan also pinpoints another reason for confusion in value theory, viz.: «Scientific economic terminology has not only failed to improve the terminology of everyday speech (citing Wieser reflections), but has worsened it significantly, introducing a confusion which is injuring everyday speech. Among a number of Russian economists (especially Marxist ones), it has become customary to employ the terms “value” [cennost] and “cost” [stoymost] not as opposites, but rather as mutually tautological, synonymous ones»17

11Subsequently, Tugan stressed the «equality» of the marginal utility theory of value with the labour theory of value ever more often. the labour theory of value in the «crude and radically objective» form it was assuming in Russia18 impelled Tugan to seek alternatives to Socialism, be they in the models of utopian Socialists, in diverse forms of collective enterprise, and foremost in cooperatives. Subsequently, this synthesis appeared many times over: in Tugan’s studies devoted to the Austrian School (1901), in his seminal textbook of political economy (1909, 1911, 1915, and 1924) and in his work addressing Socialism (1918). At almost the same time, between 1901 and 1904, Vladimir Dmitriev (Дмитриев (1904) and Nikolai Stolyarov in 190219 presented this synthesis in mathematical forms, that of Dmitriev being particularly successful and in many ways approaching or even preceding Sraffa’s neo-Ricardian models. Tugan points-out that, in Struve’s German publication in Das Archiv für sociale Gesetzgebung, this author (Struve) also puts forward similar views, as expressed in the 1890 article20. Tugan reveals that Stolyarov gives a general proof in support of his thesis with the help of «higher mathematics (differential calculation)» and that a less strictly mathematical proof is supported by Guirshfeld (1909)21.

12With Dmitriev, however, things appear somewhat more complex and, without going into details, I would nevertheless like to make the following digression22: In his book of political economy23 Tugan mentions Dmitriev’s analysis twice, the first on p. 57, where he says that Dmitriev presents analysis «similar» to his own in his interesting book, and a second time critically on p. 425 (saying that Dmitriev, followed by Struve, accuse him unjustly). It is my belief that in most general terms the difference between Dmitriev’s and Tugan’s «syntheses» lies in that the first, being a mathematician and a positivist, is much closer to the Ricardian models of production costs, (Dmitriev was also influenced by the theory of general equilibrium, Walras), and looks for the source of value and price within the economic system. While Tugan is exceptionally complex in terms of methodology and, as we have already noted, looks for the ultimate source of value outside the economic system in the system of ethics. Tugan is neither a positivist, nor a rationalist; his theory of distribution for instance is sociologically and historically determined unlike that of Dmitriev who tries to determine wages and profit within the framework of the general equilibrium (stepping on the so-called «Iron Law of Wages»). For example, Tugan brings an example of wages and profits both increasing in parallel with growing labour productivity, which Dmitriev believes impossible—a zero sum game—wages and profit move in opposite directions. In this, Tugan is closer to Bem-Baverk’s ideas on profit, while Dmitriev—to Ricardo’s.

13But let us return to our main topic—Tugan’s synthesis. According to him, each economic activity («the principle of economic activity, hozyaistvo»24, [princip hozyaistvennoi deyatelnosti]) entailed two categories: those of cost [stoymost] and value [cennost]. Cost [stoymost] was a means, whereas value [cennost] was the purpose of economic activity, regardless of the concrete form of an enterprise, such as whether it was capitalist or Socialist. While value was the attitude of the subject, the consumer, to a given good, cost always pertained to labour; it was a relationship of the producer to the good (in capitalism, from the point of view of capitalists, it was seen as expenditure). In «Основы политической экономiи» [«The Fundamentals of Political Economy»], Tugan’s textbook dedicated to Quesney, Gossen and Marx, we read the synthesis of Tugan proposal:

The basic logical categories of an economy are value [cennost] and cost [stoymost]. Both categories stem from the nature of the economic process which, on the one hand, always pursues the external end of adapting external nature to our needs, while on the other, attains this end solely through expenditure [zatraty] which thus comprises the means of attaining the end. And so, the means and the end, expenditure and attainment (or benefit), are the twin poles between which is locked all economic activity. In accord with this, the economic principle has also a dualistic character: to attain the greatest economic utility [polza] with the least expenditure [zatrata]. Each economic activity strives to be in concert with these twin requirements of the economic [hozyaistvo] principle; requirements in which find expression the two basic logical categories of an economy: cost [stoymost] (expenditure [zatraty]) and value [cennost] (attainment [polutchka]). The entirety of economic [hozyaistvo] activity, regardless of its exceptional complexity, is included within these two basic categories of the economy, in the same way in which the operations of each economic undertaking, whatever its nature, are exhausted within the mere two accounting categories of assets and liabilities.25

14According to Tugan, the marginal utility theory of value (Carl Menger) underestimated the objective factors of production and most of all, of labour, while the labour theory of value (David Ricardo) underestimated the subjective aspects of valuation. The two were taken to be mutually exclusive, yet this was a «great misunderstanding», and Tugan was convinced that «the theories of marginal utility and of labour theory, while undoubtedly opposed, are in no sense mutually contradictory»26. Hence, the problem in the way of researchers into value is formulated as looking for utility maximization under the best distribution of labour:

We know that the specific utility of an economic object falls along with the increase of its output. To satisfy our needs, we require products of differing labour cost [stoymost]. In what proportion ought we to distribute labour between producing these products so as to attain the greatest utility?27

15The answer to this optimization problem gives us Tugan’s Theorem, which looked like this in its original form:

...the utility of the ultimate units of freely reproducible products of each type—their marginal utility—must be in inverse proportion to the relative quantity of such products produced per unit of labour time. Putting it otherwise, it must be directly proportional to the labour cost [stoymost] of such products.28

16Thus, before proving the theorem, we can present Tugan’s model of value with the help of the two Charts below. It could be interpreted in most general terms in the following way: the supreme value (i.e. man) determines the cost (man as producer and object) and utility (as consumer and subject) as the basic determinants of the value of goods. The difference between the two models, which we will discuss further below, lies in the different configurations of the cause-and-effect nexus between cost and utility, which are found in Tugan’s text and which yield criticism.

Tugan’s Proofs

17Tugan offers two proofs of his theorem, one being theoretical and logical, and the other—formal and mathematical. I will present them here in detail as they have been rarely presented in literature. The first, logical proof, was as follows:

Marginal utility—the utility of the last units of any type of product—varies in accordance with the extent of output. We may increase or reduce marginal utility through increasing or curtailing output. And the reverse: the labour cost of a unit of product is an objective attribute independent of our will. Hence, it follows that in comparing economic plans, labour cost ought to become the determining aspect, while the determined aspect ought to be marginal utility. Speaking mathematically, marginal utility ought to be a function of labour cost.

If we were to produce at once several products with different labour costs, then the economic principle would call for the marginal utility extracted from the labour of the last units of time to be equal for all output lines; for, were it not so, if the last unit of labour in line A yielded more utility than that in line B, then it would be reasonable to increase production of line A and curtail that of line B. The greatest utility would be attained when the last unit of labour in producing any type of product yields marginal utility…29

18The mathematical proof of the theorem using «simple arithmetic, basic mathematics» was performed by Tugan himself (while his aforementioned contemporary Stolyarov offered it in a significantly improved form). Tugan’s reasoning took the route shown below30

19Let us take the two notional product lines A and B with identical marginal utility scales (according to Menger) in a reducing order of 10, 9, 8, 7, 6, 5, 4, 3, 2, and 1, and different labour costs; thus, making A requires twice the labour time taken to make B. From now on, all depends on how much labour we have available (labour is limited). If we have two hours, then the economic principle dictates that we should deny ourselves A and produce two units of B. If we produce a unit of A, we shall get a utility rating of 10, whereas by making two units of B, we shall get an overall utility for these two hours of 19 (10+ 9; this being the sum of the marginal utilities of the first and second units of B).

20If labour time were to increase to six hours (the labour resource constraint tripled), we would be able to produce six units of B. In this case the arbitrage for the last two hours is as follows: through producing B, we would obtain an overall utility rating of 11 (6 + 5, being the sum of the marginal utilities of the fifth and sixth units in the order), whereas with a single A, we would have an overall utility of 10.

21The drivers of choice change given a further increase in labour time, this time by two hours. In producing the seventh and eighth units of B, the overall utility derived from these two hours would be 7 (4 + 3), while with the two extra hours we could produce a single C with a utility rating of 10. In this last case, overall maximum utility from the entire duration of labour time would be attained by making 6 B and 1 A. This is precisely where the Tugan Theorem is proven, inasmuch as the marginal utility of the sixth unit of B is 5, whereas that of the first unit of A is 10; i. e., they are in proportion with the amount of labour necessary for their production (since A calls for double the labour).

22What has been said so far could be reduced down to a simple formula. If we were to designate the respective marginal utilities of A and B as and , and if L_A and L_B represented labour cost, then the Tugan Theorem, according to which the marginal utility of the last units of every type must be directly proportional to these units’labour cost, takes this form:

23For Tugan, the same economic (hozyaistvo) principle, i. e. the same theorem, also obtained in a future Socialist society. In Socialism as a Positive Doctrine, he writes:

The purpose of economic activity, to satisfy needs, cannot be achieved without expending economic labour; hence value [cennost], alongside labour cost (stoymost), must be recognised as a basic and immutable category of any economic activity, whatever it may be.31

24Here is how the Tugan Theorem was formulated for application within a socialist community32.

25Tugan assumes a choice between producing two types of consumer merchandise: potatoes and cucumbers. The Menger utility scales for potatoes are 9, 8, 7, 6, 5, 4, 3, 2, 1, 0, while for cucumbers they are 4, 3, 2, 1, and 0. The need for potatoes is more important than that for cucumbers, hence the cited numbers of 9 and 4, after which, their marginal utility falls as production increases. Tugan also assumes that the labour cost of cucumbers is twice that of potatoes and that the Socialist community has four units of labour available. If this labour were expended to make four units of potatoes, then the overall utility rating would be 30 (9 + 8 + 7 + 6). If half the labour went on potatoes and half on cucumbers, this utility rating would be 21 (potatoes 9 + 8 and cucumbers 4). Alternatively, if all labour were expended on cucumbers, the community would receive the least utility: just 7 (4 + 3). It turns out that only potatoes may be produced.

26Yet, if another six units of labour were to be made available, making the total 10, things change. The most efficient distribution is now that of 8 units of potatoes and one unit of cucumbers, for overall utility would be 48 (potatoes 9 + 8 + 7 + 6 + 5 + 4 + 3 + 2 and cucumbers 4); producing potatoes only, it would have been 45 (9 + 8 + 7 + 6 + 5 + 4 + 3 + 2 + 1 + 0), while if producing six units of potatoes and two units of cucumbers, it would be 46 (potatoes 9 + 8 + 7 + 6 + 5 + 4 and cucumbers 4 + 3). In this case, with eight units of potatoes and a unit of cucumbers, we could put the following down:

27In the combination of six units of potatoes and two of cucumbers, the above equation is breached and forces appear which restore it through arbitrage.

28Tugan expressly explains that the above equation is only an «ideal» which can never be attained33 and is necessary merely as an analytical construct. In this sense, Tugan is close to the principles of the Austrian School which regarded economics as an eternally unbalanced process, rather than as a mechanical equilibrium.

29Some more clarifications are necessary, above all ones to do with the category of cost [stoymost] or the «general theory of cost [obschee uchenie o stoymosti]»34. Tugan considered that it was solely labour cost [stoymost] which was an absolute cost [absolutnaya stoymost]; it was solely labour (in the ultimate instance, so to speak) that had any cost, for other things were gifts of nature which were not the product of human effort and hence had no cost. The means of production had a relative cost, being midway between absolute cost (that of labour) and the object of consumption (the ultimate purpose of production). A means of production was a value which was a means of comparison with another value (e. g., a comparison of the value of one object by reference to another object).

30According to Tugan, the category of labour cost was inversely proportional to labour productivity. If a were the amount of labour expended to produce amount b, then the cost of labour would be a/b and its productivity would be b/a. According to Tugan, human labour represented «a spending of the human personality, of man himself,» labour cost was based on ethics and derived from Kant’s principle of supreme value. It was precisely this principle, the idea of the supreme value of man, which offered the opportunity for diverse forms of labour to be compared within the framework of overall social labour [obshestvennoy trud]35.

31After Tugan, the error of Marx was in his failure to distinguish between the twin categories of cost and value, thus arriving at the celebrated contradiction (both logical and mathematical) between the formation of «exchange-value» (Das Kapital, Vol I) and «the cost of production» (Das Kapital, Vol III):

... In place of a theory of the absolute cost of labour [absolunaya stoymost truda], Marx offers a theory of absolute labour value [absolutnaya cennost truda]. The result is the perfect methodological impropriety of admixing two different theories: to the correct thought that product may be regarded solely as the result of human labour, we have added the entirely incorrect thought that it is solely labour which creates the value of a product.36

32And so, according to Tugan, value was a function of labour cost (1) and marginal utility (2). the marginal utility theory of value illuminated the subjective aspects of value37, while the labour theory of value illuminated their objective aspects. Tugan points to a number of economists (such as Lexis) who agree with the theory of labour cost without agreeing with that of labour value.

33In some passages, Tugan argued that marginal utility itself was a function of cost [stoymost]38, which led to the addition of a new causal link shown at the model 2 of the chart 1. These additions lay the grounds of Bukharin’s criticism which we shall address.

Bukharin’s Critique

34Bolshevik economists were strongly critical of Tugan, especially after his evolution in the direction of «revisionism» and collusion with the views of Edward Bernstein; yet, they rarely subjected his synthesised theory of value to analyses. Lenin had noted Tugan’s deviations from Marxism even earlier, as for instance in his 1898-‘9 article in which he draws up a comparative analysis of Bulgakov and Tugan’ s theory of capitalist markets39.

35Nikolai Bukharin is perhaps the sole Marxist who knew the marginal utility theory of value in detail and at first hand (having listened to Eugen von Böhm-Bawerk’s lectures in Vienna and Nikolai Shaposhnikov’s lectures in Moscow), as well as, naturally, the labour theory of value. It is beyond doubt that in Bukharin’s book offering a critique of the marginal utility theory of value (mostly in its Austrian version), it is Tugan who is the subject of attacks and critical remarks40. In the appendix to the 1925 edition, Bukharin included an annex under the ambiguous heading, «Теоретическое примиренчество. Теория ценности г. Тугана-Барановского»41, which comprised an article written significantly earlier for the Prosveshcheniye journal. Bukharin placed Marx’s thought that scientists «who attempt to achieve unison between the political economy of capital and the requirements of the proletariat... arrive at giftless syncretism» as the motto of his article42. He referred to the second printing of «ОсноВы политической экономии» [«The Fundamentals of Political Economy»] of 191143.

36Bukharin criticised Tugan on two fronts. First, there came a certain inner contradiction. In fact, as I pointed out, Tugan presented two models of value formation which genuinely do contradict each other: something which does not escape Bukharin’s attention. These models may be seen on Graph 1 in which they may be distilled to forming value through links (1) and (2), and a model which is implied in link (3), according to which labour cost ultimately lies at the base of marginal utility. According to this last model, labour was the basis of value and the theory of labour value was confirmed, i. e., synthesis was partial and thus somewhat transient inasmuch as the theory of labour value was not rejected. As regards the supreme ethical value, Bukharin called it «етическая болтовня» [«ethical clap-trap»].

37Bukharin’s second criticism was more substantial and comprised the following: according to Bukharin, labour cost could be interpreted as social (socially necessarily) or individual. According to Marx, it was social; at the individual level, it would be nonsensical. On the other hand, marginal utility, «if it has any sense at all,» existed only at the individual level according to Bukharin. Thus, according to Bukharin, it was improper to place an expression which obtained solely at the social level side-by-side in the same formula with an expression which obtained solely at the individual level. Yet, even if we were to assume that labour cost was an individual category (although Bukharin considered it not to be so), we would arrive at a purely empirical conflict with the individualist capitalist economy. Capitalism was not interested, felt Bukharin, in this cost, but rather in the general expenditure for production, in which was included labour expenditure. In this sense, Bukharin claimed, Tugan confused different levels of analysis and failed to draw a distinction between the economy and the capitalist economy. In other words, Tugan, Bukharin claimed, did not differentiate between the logical and historical meaning of the category «cost» (although, as I have pointed out already Tugan explicitly states that he would keep strictly to this cognitive differentiation). I’ll recapitulate also, that Marx does feature two levels of analysis: rate of surplus value and rate of profit, with the latter being a «mutated, transfigured form» [verwandelte Form] of the former.

Ideas on Distribution and Cooperatives (forms of Tugan’s synthesis)

38The critique he directed at Marx (for taking labour cost theory [trudovaya teoria stoymosti] for labour value theory [trudovaya teoria cennosti]) and the synthesis he offered leave no doubt that Tugan would not have accepted Marx’s theory of surplus value and exploitation44. As distinct from Marx, who drew a strong distinction between labour and the work force, basing on precisely this distinction his theory of surplus labour and surplus value which later become the basis of profit distribution between different types of capitalists, Tugan did not differentiate between labour and the work force (indeed, he often enumerated them one after the other, as synonyms). For Tugan, man was an indivisible supreme value and labour could not be separated from man, the latter being a unity of physical and spiritual forces45. Labour, according to Tugan, was mostly pleasant, rather than tedious (he notably distinguishes between work and play, claiming that there are ways of increasing the pleasure of working through the introduction of some aspects of play such as singing or dancing46).

39The theory of the integrity of the human personality (which could not be split into exchange value and use value, as in Marx) logically led Tugan on to his own theory of distribution, wages and profits, and naturally of exploitation, too. Tugan considers that

Marx attempts to prove the existence of exploitation in an extremely artificial manner stemming from his entirely unconvincing theory of absolute labour value. Thereafter, he arrives, setting out from this theory, at the entirely false doctrine that wages tend to the existential minimum.47

40Distancing himself from Marx, Tugan approached, as he himself admitted, Ricardo’s theoretical model of distribution, Tugan named his own theory «social theory of distribution». The problem of distribution in Tugan was not genetically tied to production; it was more of a social issue, resulting from the distribution of forces of separate groups in exchange. Wages, for instance, were not tied to value (as in Marx), nor to the productivity of the marginal worker (Clark), but were socially determined (in what Tugan called «the social theory of wages») by two basic factors: the productivity of social labour (that which was subject to sharing) and the distribution of the social forces of workers and capitalists (the sharing itself)48. Wages did not result from a simple act of exchange, but from a complex social struggle for a share of the social product49.

41Exploitation was not defined as the appropriation of surplus labour or surplus value, but as inequality of labour costs at exchange. According to Tugan, exploitation invariably obtained when an object with a lower labour cost was exchanged for one with a greater labour cost. The general ethical principle of the equality of man was again the determinant. In 1915 Tugan wrote:

In the exchange of labour equivalents, exploitation is absent. Yet, if one man gave another man less of his labour than he were to receive in exchange, this would breach the principle of the equality of man, and we could then speak of exploitation of man by man and hence of something which was morally inadmissible. The idea of the equal value of man comprises, therefore, an immutable ethical element in the doctrine of labour exploitation.50

42As I have pointed out, Tugan’s synthesis of value, as well as his ideas on labour, distribution and exploitation, were not an abstract exercise, but rather the basis upon which he interpreted and explained different economic forms, or as he called them, «manifestations of the economic (hozyaisvennyi) principle.»

43Cooperatives were a most essential such manifestation, and Tugan dedicated to them a number of his theoretical and empirical works. He was an adherent of diversity in institutional forms, seeing the economic principle as the thread that ran through all of them, having found its expression in the principle of the supreme value and most of all, in the theorem presented above on the relationship (the framework of value) between marginal utility and labour cost. Alongside the development of industry (as in his original analysis of Russian factories), Tugan paid especial attention to the emergence and diffusion of cooperative forms of manufacture, labour and consumption, which gained popularity in the late 19 th and early 20 th centuries, initially in Western Europe and then in Russia. Tugan conducted a significant theoretical and historical study of the cooperative movement, publishing its final results in «Социальные основы кооперацiи» [«The Social Fundamentals of Cooperatives»], a book which was reprinted and updated on many occasions (1989, [1915, 1917, 1919]), while at the same time being closely involved in the practical aspect of Russian cooperatives (since 1909, he edited the Vyestnik Kooperatsiy or «The Cooperative Journal»)51. Tugan believed in a «cooperative ideal»52 which combined («without this amounting to a compromise!») efficiency and moral principle.

44The cooperative form of organisation attracted Tugan with the possibilities it offered of an organic fusion surmounting the great dichotomy between capitalism and socialism, of seeking new forms, of (to coin a phrase) «a liberal, self-organising, spontaneous, free» Socialism. Tugan kept returning to diverse forms of utopian, syndicalist and anarchic Socialism, analysing their function in detail53.

45In a certain sense, Tugan dimly foresaw the emergence of the New Economic Policy, although he did not live to see it, dying in 1919. Regardless of the fact that he never clearly stated this, I am convinced that Tugan saw the principles of cooperatives as the concrete institutionalised incarnation of the theoretical synthesis he drew within the framework of theoretical political economy (marginal utility and labour cost) by uniting the «theories» of the two basic groups of capitalists and workers.

Neither pure egotism, nor pure altruism, but rather solidarity of interests: this is the spiritual strength of the cooperative. Egotism lies at the basis of capitalism and altruism at that of Socialism, yet cooperatives combine egotism and altruism in a realisation as to the solidarity of common and private interests.54

46Tugan’s book on cooperatives is also interesting for a number of theoretical insights which were formulated by other authors much later and which today form an indivisible part of institutional analysis, institutional change, translation costs, the asymmetry of information and other concepts.

47Thus, in analysing the principles and history of credit cooperatives (Raiffeisen-type farming cooperatives and Schulze-Delitzsch popular banks, with all the differences between them), Tugan dwells particularly on the possibilities of overcoming and reducing the asymmetry of information: adverse selection and moral hazard.

The peculiar feature of farming credit [...] is the necessity for the credit institution to know the personality of the debtor most closely. Without such knowledge, the credit institution risks to make a loss on its credit unless the debtors were able to secure the loan with his property. Yet, for advantage to be taken of this, the credit institution’s area of trading must be limited. [...] In this case we observe not only complete knowledge of everyone by everyone, but also complete awareness of the state of everyone’s farm; it is not difficult to ascertain the truth of declarations made by this man or that when seeking loans. If, for instance, a certain man were to declare that he required a loan in order to purchase a horse, it would not be difficult for us to convince ourselves whether this man genuinely needed a horse and how he could profit by purchasing one. [...]. In conditions of such close knowledge, it is not difficult to disburse loans without any risk of default whatsoever. Yet, there is one more very substantial benefit [...] in this way, the diversion of debtors from the performance of their dues is rendered exceptionally difficult; a default by one person causes harm to all members of the community, and those members have thousands of ways at their disposal to make their fellow-villager sense their displeasure. In this way, failure to service loans threatens the debtor with the gravest of trouble.55

48Tugan saw the problems of Russian credit cooperatives as stemming precisely from breaches of the principles of overcoming the asymmetry of information, as well as many other problems related mostly with incentives stimulus of the participants. Tugan saw that cooperatives were unstable forms that could not exist without other forms such as for instance public enterprises, nor could they survive outside particular legal framework (see also Сорвина, 1992). Therefore in his model of socialism, cooperatives exist along with state enterprises with market and monetary mechanisms between them being preserved (this is most thoroughly elaborated in his book «Socialism as positive science»56.) Tugan showed the importance of cooperatives for Russian life from a historical perspective as an outcome of the evolution of Russian economy where the phase of town economy was not observed just as there were no bourgeois or petty bourgeois (unlike Europe). Tugan believed that Russian intelligentsia also assumed specific features bringing them closer to cooperative ideas and cooperative socialism.

49As regards institutional analysis, I will note only Tugan’s observation of the nexus between technical innovation and labour organisation. The text below is of particular interest as it shows the emergence of the optimal size of the enterprise, in terms of transaction costs, information asymmetry, and the evolution of economic institutions in general. In analysing butter-producing dairy cooperatives in Denmark, he wrote:

To understand the rapid growth of Danish butter-making cooperatives, one needs to take into account the historical situation in which this evolution has taken place. The invention of the separator [separator is a machine for milking cows, my note] completely transformed the technicalities of butter making. At first, the separator gave a decisive advantage to capitalist dairies compared with farmers’ones, since an individual peasant could not afford to purchase a separator. Yet, the cooperative organisation of butter-making gave the opportunity to peasants to use this invention [...] by adopting the separator, village cooperative butter-making rapidly displaced its capitalist equivalent [...] True, a capitalist butter-making plant could also use the same machines as a cooperative [...] having purchased from the peasants the milk from which butter is derived. The weakness of such a purchase is [...] that the plant has no possibility of controlling milk making where, incidentally, even the smallest error in production and storage (such as keeping milk in dirty vessels) can suffice to spoil the quality of the milk. [...] In other words, both capitalist and village butter-making became equally irrational after the appearance of the separator. The sole rational form of butter-making is the cooperative one, for in it butter-making can take place on a large scale using machines, while at the same time offering the enterprise the ability to control milk production, since the cooperative owners are milk producers.57

50A careful perusal of the work enables the reader to discover almost all future directions of institutional and evolutionary economics, company theory and other aspects. In this respect, Tugan’s work is definitely interesting as subject of future in-depth analyses, which must restore him among the pioneers of institutional and evolutionary economics.

General reflexions on Tugan’s Model

51Mikhail Tugan-Baranovsky made an attempt to construct his own independent theoretical model of value, based upon a synthesis of labour theory and the theory of marginal utility, thus enabling himself to interpret not only the other analytical economic and social categories, but also concrete economic forms and diverse economic institutions (cooperatives for example). His «social ideal»—humanistic and cooperative socialism is also organically linked to his basic theoretical model.

52As any theoretical synthesis, and indeed theory (especially this dealing with the problems of value) go, Tugan’s model was as successful and even as true as any of its fellows. Nevertheless, many criticisms may be directed at it. Some critiques centre on internal contradictions in the logic system (such as the presence of causality between labour value and marginal utility; chart 1, stressed by Bukharin). Others are related to the incompatibility of the theory and empirical facts (the significance of overall production expenditure, rather than the individual expenditures of capitalist companies or capitalists), also stressed by Bukharin.

53Yet others are to do with ideology (for instance, Communist-period critiques) or with the fact that Tugan removed a certain spiritual value beyond the system (none other than the «equality of the human personality»). In reality, Tugan himself constantly stressed the links between a given economic and social theory and the interests of a set class or grouping. Despite claiming in certain passages that his theory defended the interests of workers and labouring people in its entirety, in reality his synthesised model was an attempt to discover an organic synthesis between the interests of workers and capitalists. In dedicating a given theory of political economy to the interests of a certain grouping, Tugan was undoubtedly close to Marx and most Marxists (thus, Bukharin claimed that the marginal utility theory of value in its Austrian version was the political economy of the rentier, as indeed his book’s subtitle shows)58.

54What could we add here?

55Essentially, Tugan’s model is an optimization model, when the utility function is maximized under the resource constraint (in Tugan’s model this is only labour). The one factor production function mathematically brings to Tugan formula, simplified version of the formula which is known from the microeconomics textbooks. Things however are not quite the same.

56First, we can notice at once that as regards utility we have comparison of marginal quantities, while with resources and labour costs comparison is made between mean quantities (because, although he does not explicitly mention it, Tugan adheres to Marx’s mean-quantities model). We know that in the familiar optimisation problem marginal quantities appear as well on the side of costs (which include other costs in addition to labour). This inconsistency is the major problem of the model, because the shortcoming of Marx’s model is preserved, although within only one of the value formation elements (in this particular case that of cost). This shortcoming, which is criticised by the Austrian School, consists in impossibility, to measure and compare the types of labour under Marx’s hypotheses of average and socially necessary human labour.

57As we know, in Marx’s model of exchange (and capitalist) economy the concrete, private types of labour are reduced to the abstract «socially necessary labour», as well as complex versus simple labour, through the mechanism of market, prices and money. As regards future communist society Marx mentions that reducing of labours would take place «naturally» but he does not offer any particular mechanism for that, hence the Austrian criticism of the impossibility of calculation under socialism is to the full effect. It could be surmised that while with Marx’s model reducing and commeasuring labour is through market, with Tugan this is (also) down through the supreme ethical value transcending the scope of economy—«the equivalence of all human beings», which is exactly what places the different types of labour on equal footing. The particular way for this to be achieved remains, however, unclear.

58Second, (here I will make a digression), in 1918 Tugan made an in-depth analysis of the future socialist society, where he suggests some interesting ideas of its functioning. Under this society, within the cooperatives and state enterprises, Tugan presumes, money will become ideal money, a pure mean of measurement. As a means of exchange (in dematerialised form such as paper, clearing, etc.) money would manifest only in the exchange between different cooperatives, and between cooperatives and the state sector. That is, money in the future is seen mostly as a means of measurement, weighing up, and comparison and not for exchange or transfer of value. Money is intrinsically a sign, not a commodity; first and foremost it has a nominal meaning, not a real one.

In socialist society the whole progress of expressing prices into monetary units will be ideal by character as the monetary unit itself will become entirely ideal.59

59Of course, the transformation of money into an ideal measure will be a long process, and therefore money as a means of exchange, along with prices and market, will continue to exist for a long time. Tugan believes that it would be well if monetary units during socialism keep their previous names—as for instance rouble, franc, etc., and it would not be well to give them labour names (labour hour, etc.) as prices in socialist society would not correspond to the labour cost of products, hence such «labour» names would be misleading. The ideal character of money, their nominal and holistic essence, epitomising the socium, share a lot in common with some of Kant’s reasoning. Kant defines the basic principle of metaphysics, according to which «I ought to behave only in such a way so as to demand my maxim be acknowledged as universal law». According to Kant this law is similar to money: money is much like the law, once it becomes universal, it stops existing60. That is, money becomes ideal; it becomes a sign. I believe that the above similarity places money as sign outside the economic sphere on equal footing with the supreme value of human personality. Perhaps this is the reason why the Japanese economist Kiichiro Soda (1881-1927), who ranks money above the value of goods, viewing it as some external and premise category, does that because he happens to be Kant’s follower61, similar to Tugan. Tugan’s monetary model could be an interesting facet of future research.

60Then third, as regards the equilibrium mechanism in the optimisation problem in capitalist and socialist societies Tugan fails to see some fundamental time and logical differences. Although he dedicated a whole book on socialism, Tugan did not show the specifics in the optimisation carried out by a central planning authority. To him, this authority should simultaneously outline the utility and cost curves for each product, which is most clearly expressed in the following way:

...in drawing up its economic plan a socialist society should strive to distribute social labour among the various types of production so that the marginal utilities of products are proportionate to their labour cost.62

61There is a sufficient reason to presume that Tugan did not realise that the equalisation of marginal utilities should precede the social planner’s distribution of labour resources. In this sense, and in general, Tugan’s model of the optimi sation under socialism falls under the blows of the well-known critique of the impossibility of calculation under socialism.

62Others flaws and inconsistencies could be found in Tugan value theory. Certainly, Tugan theoretical model is problematic, as any synthetic model. Nevertheless, there is no doubt (at least for me) that Tugan’s synthesis is original venture and that it offers an example of how theories which appear entirely mutually incompatible can be linked in a common model, offer a basis for a number of practical applications and raise interesting issues for future research63.

63A perusal of Tugan’s diverse studies inclines the reader to think of him not so much as a representative of the historical, Marxist or Austrian (however correct that may be)64, but rather as an «broad» social scientist in the tradition of Max Weber, Werner Sombart, Vilfredo Pareto and Joseph Schumpeter, or akin to the Japanese scholars such as Kiichiro Soda or Yasuma Takata.