Fundamentals of

Political Economy
Edited by
George C. Wang
Fundamentals of Political Economy

EDITED WITH AN INTRODUCTION BY

GEORGE C. WANG

MARTIN ROBERTSON

In Memory of My Parents Who Have Given Me Life and a Purpose

Fundamentals of Political Economy is a translation of Cheng-chih

ching-chi hsueh chi- ch’u chih-shih. 2 vols., compiled by the
“Fundamentals of Political Economy” Writing Group, Shanghai
(Shanghai People’s Press, 1974). The translations of Chapters 1-13
were first published in the journal Chinese Economic Studies.
Translated by K. K. Fung.
 Contents
Introduction by George C. Wang ix
FUNDAMENTALS OF POLITICAL ECONOMY
“Youth Self-Education Series” Editors’ Note
1. Learn Some Political Economy 1
The Object of Political Economy 1
2. Social and Economic Systems Preceding Capitalism 10
Production Relations in the Primitive. Slave, and Feudal 10
Societies
The Primitive Commune Established the Earliest Production 10
Relations in Human History
Slavery Was the Earliest System of Exploitation 14
Feudalism Is Another Exploitative System Based on Class 17
Conflicts
3. The Analysis of Capitalist Society Must Start from Commodities 25
Commodities, Money, and the Law of Value 25
The Commodity Relation Embodies the Seeds of All Capitalist 25
Contradictions
Money Is a Natural Product of the Development of Commodity 31
Exchange
The Law of Value Is the Economic Law of Commodity 35
Production
Expose the Mystery of Commodity Fetishism 37
4. How the Capitalists Exploit and Oppress the Workers 40
Capital and Surplus Value 40
The Secret of the Exploitation of the Workers by the Capitalists 40
The Cruel Means by Which the Capitalists Exploit and Oppress 44
the Workers
Wages Conceal the Exploitative Relation of Capitalism 49
5. The Widening Gap between the Rich and the Poor in Capitalist 53
Society
Capital Accumulation and the Impoverishment of the Working 53
Class
Capital Accumulation Increases the Exploitation of the Workers 53
The Unemployment of Workers Is the Inevitable Result of 56
Capital Accumulation
Capital Accumulation Leads to the Impoverishment of the 61
Proletariat
 The Proletariat Is the Gravedigger of Capitalism 65
6. The Process of the Movement of Capital Is the Process of 69
Exploiting and Realizing Surplus Value
The Circular Flow of Capital, the Turnover of Capital, and 69
the Reproduction of Social Capital
The Circulation of Capital Passes through Three Phases and 69
Takes Three Forms
The Turnover of Capital Is the Continual Production and 72
Realization of Surplus Value
Capitalist Reproduction Is Realized Spontaneously amidst 77
Antagonistic Contradictions
7. The Entire Bourgeoisie Exploits and Oppresses the Workers 84
The Division of Surplus Labor 84
Competition among the Industrial Capitalists Leads to the 84
Equalization of the Rate of Profit
The Commercial Capitalists Share in the Surplus Value through 88
Commodity Transactions
The Financial Capitalists Share in Surplus Value through Loans 90
and Borrowings
The Landed Class Reaps without Sowing 92
8. The Incurable Disease of Capitalism Economic Crises 98
Economic Crises Are a Product of the Intensification of the 98
Basic Contradictions in Capitalism
The Worsening Tendency of Capitalist Economic Crises 102
Economic Crises Undermine the Basis of Capitalist Rule 107
9. The Unchanging Nature of Imperialism 110
Imperialism Is Monopoly Capitalism 110
Monopoly Is the Deep-rooted Economic Basis of Imperialism 110
Financial Capital Is an Omnipotent Monopolist 115
Capital Export Leads to World Domination by Financial 118
Capital
The International Monopoly Alliance Carved up the World 120
Economically
Competition among the Imperialist Powers for the Division and 122
Redivision of the World
10. Imperialism Is the Eve of Proletarian Socialist Revolution 128
Imperialism Is Decaying and Moribund Capitalism 128
Imperialism Is Parasitic or Decaying Capitalism 128
Imperialism Is Dying Capitalism 135
11. Soviet Revisionist Social Imperialism Joins the Ranks of World 142
Imperialism
Social Imperialism Is Socialism in Name but Imperialism in 142
Substance
State Monopoly Capitalism Is the Main Economic Basis of 142
Social Imperialism
Soviet Revisionist “New International Relations” Is Another 148
Name for Neocolonialism
Soviet Revisionist Imperialism Is the Eve of a Second October 153
Revolution
12. Socialist Society Ushers in a New Era in Human History 160
Socialist Society and Proletarian Dictatorship 160
Proletarian Revolution and Proletarian Dictatorship Are the 160
Preconditions for the Emergence of Socialist Production
Relations
The Socialist Society Is a Fairly Long Historical Stage 165
Socialist Society Constitutes the Beginning of People 173
Consciously Creating History
13. The Socialist System of Public Ownership Is the Basis of 179
Socialist Production Relations
The System of Socialist State Ownership and Collective 179
Ownership by the Laboring Masses
The Socialist System of State Ownership Is the Main Economic 179
Basis of Proletarian Dictatorship
There Will Be No Completed Socialism without Agricultural 186
Socialization
The Socialist Public Ownership System Consolidates and 195
Develops through Struggle
14. Establish Interpersonal Relations according to Socialist 202
Principles
People’s Status and Their Interrelations in Socialist Production 202
People’s Status and Their Interrelations Have Undergone a 202
Fundamental Change
Consolidate and Develop Socialist Interrelations in the Course 209
of Struggle
The Immense Influence of the Superstructure on the Formation 217
of Interrelations
15. Develop Socialist Production with Greater. Faster and Better 222
Results at Lower Costs
The Nature and Goal of Socialist Production and the Means of 222
Achieving This Goal

5
 Socialist Public Ownership Has Fundamentally Changed the 222
Nature of Social Production
The Basic Economic Law of Socialism Embodies the Most 230
Essential Relations of Socialist Production
The Rapid Development of Socialist Production Is a Unity of 235
Object Possibility and Subjective Initiative
16. The Socialist Economy Is a Planned Economy 244
Planned and Proportional Development of the National 244
Economy
The Law of Planned Development Regulates Socialist 244
Production
The Law of Value Still Affects Socialist Production 251
The National Economic Plan Must Correctly Reflect Objective 255
Laws
17. We Must Rely on Agriculture as the Foundation and Industry as 262
the Leading Factor in Developing the National Economy
The Relations among Socialist Agriculture. Light Industry, and 262
Heavy Industry
Agriculture Is the Foundation of the National Economy 262
Industry Is the Leading Factor in the Socialist Economy 271
The National Economic Plan Must Follow the Order of 277
Agriculture. Light Industry, and Heavy Industry
18. Frugality Is an Important Principle in the Socialist Economy 281
Practice Frugality and Economic Accounting 281
Frugality Is a Necessity in Socialist Economic Development 281
Economic Accounting Is an Important Means to Develop the 285
Socialist Economy with Greater. Faster, and Better Results
at Lower Costs
The System of Economic Accounting Is a Management System 287
of the Socialist Enterprise
19. Exchange Is an Economic Form that Relates Production to 297
Consumption
Socialist Exchange and Currency Circulation 297
Socialist Exchange Possesses Brand-new Qualities and 297
Characteristics
Socialist Exchange Must Have Appropriate Forms of 303
Organization
Money Must Be the Servant of Socialist Exchange 307
20. Correctly Handle the Relations among the State, the Collective, 313
and the Individual
 The Distribution and Redistribution of the Socialist National 313
Income
The Socialist National Income Comes from the People and Is 313
Spent on the People
The Important Role of Public Finance in the Distribution and 317
Redistribution of National Income
The Proportional Relations between Accumulation and 320
Consumption Are Overall Proportional Relations
21. How are Personal Consumer Goods Distributed in Socialist 325
Society?
The Socialist Principle of “From Each according to His Ability, 325
to Each according to His Labor”
“From Each according to His Ability, to Each according to His 325
Labor” Is a Profound Revolution in the Distribution System
There Are Two Basic Forms of Distribution of Personal 330
Consumer Goods
Nurture the Communist Labor Attitude 334
22. Mutual Aid and Exchange 339
The External Economic Relations of the Socialist State 339
External Economic Relations Are a Component of the Socialist 339
State’s Foreign Relations
External Economic Aid Given the Socialist State Is an 342
Internationalist Obligation by Actively Develop the
Socialist State’s Foreign Trade
23. Communism Must Be Realized 353
From the Socialist Society to the Communist Society 353
Communism Is Irresistible 353
The Realization of Communism Is a Profound Social 358
Revolution
About the Editor 363

7
Acknowledgments
The editor wishes to acknowledge his indebtedness to John Gurley, Pro-
fessor of Economics at Stanford University; James Tobin, Professor of Eco-
nomics at Yale University; Lloyd G. Reynolds, Professor of Economics at
Yale University; and Victor D. Lippit, Assistant Professor of Economics at
University of California, Riverside, for reading the introduction and making
comments and criticisms. Any errors and shortcomings that remain are the
editor’s responsibility. He also wishes to thank Douglas Merwin of M. E.
Sharpe, Inc., for his support and patience, and Mrs. Florence Kawagoye for
her conscientious assistance.
G. C. W.
Introduction
George C. Wang
Fundamentals of Political Economy is a popular introductory economics
text published in the People’s Republic of China in 1974 as a part of the
Youth Self-Education series designed particularly for individual or group
study. The primary purpose of this series, according to the preface, is to ele-
vate the cultural level of the youths going down to the countryside, to ad-
vance their knowledge of the social and natural sciences, as well as to arouse
their class consciousness. This translation makes available a comprehensive
and authentic text of the Chinese version of Marxist political economy, a
version which differs profoundly from that of the Soviet Union. (1)
Fundamentals of Political Economy was originally published in two
volumes. The first volume (11 chapters) is a critical review of the historical
development of capitalism. The second volume (12 chapters) deals with
Marxist economic principles and the manner in which they are applied in
China.
Volume I is an informative historical account from a Chinese point of
view and stands as a valuable primer on Marxist political economy in gen-
eral. Volume II will be of particular interest to students of Marxism as it has
been applied to the Chinese economy because it is the Chinese Communists,
probably Mao Tse-tung more than anyone else, who first successfully ap-
plied Marxist theory to a semicolonial and semifeudal society with a pre-
dominantly agricultural economy (other than the Mongolian People’s Re-
public). Today China’s sweeping and thoroughgoing social changes, such as
land reform and the socialization of the means of production, appeal to peo-
ples in developing countries who are disappointed with the slow progress of
development under capitalism.
The principal features, some of which we will discuss in more detail be-
low, of the Chinese model of economic development outlined in Volume II
may be characterized as follows:
1. The Socialization of the Means of Production (Chapters 12-15}
2. Economic Planning and Proportional Growth between Sectors (Chap-
ter 16}
3. Agriculture Is the Foundation, and Industry Is the Leading Factor
(Chapter 17)
4. Practicing Economy and Capital Accumulation (Chapter 18)
5. The Economic Structure by the Type of Ownership (Chapter 19)
6. National Income and Its Distribution (Chapters 20-21)
7. Foreign Trade and Foreign Aid, and the Future of Socialism (Chap-
ters 22-23)
1. Socialization of the Means of Production
In the 1950s a transitory arrangement known as state-private joint opera-
tion was set up for the purpose of smoothing the transition of large (such as
textiles) and middle-size enterprises (such as hardwares) that had remained
in private hands in a way that would make it possible to continue the enter-
prises while changing the ownership system. There were two variants of
joint operation — by enterprise and by trade. In the joint enterprise the state
was a partner, participating in investment and management. The private
shares were to be paid off by the company out of its net revenue. In manu-
facturing, those producing the same type of products in the same locality
were organized into a “special company” under the supervision of the Indus-
trial Bureau of the local government.
The broadening of state control over consumer goods began in Novem-
ber 1953, as grains and edible oil were put under a scheme known as
“planned purchase and planned supply.” In September 1954, raw cotton and
cotton cloth were brought into it as well. (2) The state set up an annual quota
of procurement that had to be fulfilled under fixed procurement prices. The
“planned supply” part of the scheme meant some form of rationing in ac-
cordance with availabilities, based partly on consumers’ needs, and partly on
the state’s requirements for export and for commodity reserves. The opera-
tion of these two schemes resulted in the elimination of an open market for
controlled goods, although government-controlled grain markets continued
to exist.
Earlier, mainly between 1950 and 1952, lands confiscated from land-
lords and rich peasants were redistributed to poor peasants. But land redis-
tribution was only a means to an end because (l) private ownership was in-
compatible with socialism, and (2) the landholding after the redistribution
was too small to operate economically. This was especially true with regard
to the large-scale capital formation necessary to raise agricultural output
substantially. Initially, it was planned to make collectivization a gradual pro-
cess, but the slow growth of agricultural output and the reappearance of such
capitalist phenomena as speculation and increasing polarization of income
led to a decision to accelerate the process. So in 1955 the CCP organized
peasants into agricultural producers’ cooperatives in which farm tools and
draft animals were collectively owned, and land, although still privately
owned, was collectively operated; the members were paid according to their
work days and their land- contribution. A year later, the land too was collec-
tivized, and the members were paid only according to their labor. On August
29, 1958, the Party Central Committee published a directive demanding
prompt merger of all producers’ cooperatives into communes embracing
whole townships (hsiang), each comprising about 5,000 peasant households.
The institutionalizing of the commune was partly for economic reasons —
such as economies of scale; partly for political reasons — such as reducing
disparities between urban areas and the countryside; and partly for social
reasons — such as shortening the process of transition to communism. It was
meant ultimately to help smooth the transition from collective ownership to
ownership by the people as a whole. (3) Thus, by the end of the 1950s the
economy was virtually socialized.

2. Economic Planning
The allocation of scarce resources between alternative and competing
ends in China is determined not by the interplay of the forces of supply and
demand but rather by systematic planning. As Mao Tse-tung pointed out:
A constant process of readjustment through state planning is needed to
deal with the contradiction between production and the needs of society.
Every year our country draws up an economic plan in order to establish a
proper ratio between accumulation and consumption and to achieve a bal-
ance between production and needs. (4)
In China stress has been placed on the proportional growth between the
following sectors: (l) agriculture and industry, (2) the sub-sectors within ag-
riculture, (3) the sub-sectors within industry, (4) production and transporta-
tion, (5) material production and social welfare, (6) consumption and accu-
mulation, (7) population growth and output, and (8) various regions.

3. Agriculture Is the Foundation

In 1959 the ideological disputes between the PRC and the USSR
reached their peak, and in 1960 the Soviet Union recalled all its technical
advisers and canceled hundreds of contracts vital to China’s industrializa-
tion. Compounded by difficulties that had developed in communes and by
two consecutive years of floods and drought, and in the wake of the uneven
results of the Great Leap Forward, the economy went into a period of con-
solidation. It was against this background that the CCP reoriented its eco-
nomic policy to “taking agriculture as the foundation and industry as the
leading factor.” Mao pointed out:
As China is a large agricultural country with over 80 percent of her pop-
ulation in the rural areas, industry must develop together with agricul-
ture, for only thus can industry secure raw materials and a market, and
only thus is it possible to accumulate fairly large funds for building a
powerful heavy industry. (5)
Reflecting the increased emphasis on agriculture, grain output was re-
ported to have risen from a depressed level of 160 million tons in 1960 to
240 million tons in 1970, (6) and to 274.9 million tons in 1974. (7) If we
exclude the initial period of experimentation with the new institutional forms

11
which the Great Leap Forward established, then output rose from 180 mil-
lion tons in 1962 to 274.9 million tons in 1974. (8) In his address to the Na-
tional People’s Congress in 1975, the late Premier Chou En-lai indicated that
between 1964 and 1974 the gross value of agricultural output increased by
51 percent, while that of industrial output increased by 190 percent. (9)

4. Practicing Economy
One of the principal obstacles to economic development is the vicious
cycle of low per capita income and a low rate of savings As Mao Tse-tung
pointed out, “We want to carry on large-scale construction, but our country
is still very poor. One way of resolving it is to make a sustained effort to
practice strict economy in every field.” (10) Indeed, the ratio of saving to
national income in China has risen since the 1950s. It reached as much as
approximately 25 percent of national income (11) in 1958 and probably has
remained well above 20 percent since then.
To practice economy, it is necessary to set up a comprehensive econom-
ic accounting system. Economic accounting is defined as: the activities of
recording, calculating, and analyzing the costs accrued in the process of pro-
duction or rendering productive services. (12) In his 1942 directive concern-
ing the establishment of the economic accounting system, Mao Tsetung
called for “centralization in leadership, and decentralization in manage-
ment.” (13) The former means that the state would set up production targets
for each state enterprise regarding quality, quantity, variety, productivity,
costs, accumulations, as well as targets for profit taxes. Decentralization in
management means that, given these targets or constraints, each state enter-
prise is responsible for its own profit and loss. As indicated in Chapter 20.
profits from state enterprises constitute the main source of capital accumula-
tion in China.
Each of the production units under the collective ownership is an inde-
pendent accounting unit responsible for its own profit and loss. The collec-
tives are constituent parts of the national planning system. They sell and
purchase according to the prices set by the state.

5. The Economic Structure by the Types of

Ownership
In China, there are three major types of ownership: (l) ownership by the
people as a whole, (2) collective ownership, and (3) private ownership. The
characteristics of economic transactions are determined by the types of own-
ership of the means of production. In the third type of ownership prices are
determined within limits set by the state, by the supply and demand in the
market. Goods exchanged according to market conditions include the prod-
ucts of household subsidiary activities and produce grown in private plots,
both of which may be sold at trade fairs. The characteristics of the second
type of ownership are that (l) the prices of the products traded are fixed by
the state, (2) the transactions are not for profit. The characteristic of the third
type of ownership is that all production is determined by state planning.
However, since the products are treated as commodities, they are governed
by the law of value in the transactions, and money is used as the medium of
exchange.
State enterprises are owned by the people as a whole, and there are three
types of exchanges among them. The first type of transaction is direct sup-
ply, that is, raw materials and equipment being delivered directly from the
producing unit to the using unit. The second type of transaction consists of
raw materials or semi-finished products being shipped to a third state enter-
prise for further processing or fabrication before being delivered to con-
sumption-oriented enterprises. Another type of transaction includes various
assorted small articles such as bolts, nails, and screws which can be used
either in production or in consumption. In 1973, state enterprises accounted
for 92.5 percent of China’s retail trade, while collective enterprises account-
ed for 7.3 percent. (14)

6. National Income and Distribution

The concept of national income adopted by China is that of material
product, net of depreciation. The product for any one year is composed of
net contributions from industry, agriculture, restaurants, freight transporta-
tion, and that part of trade and communications which serves the materially
productive sectors. Omitted are not only passenger transportation and private
use of communications, but also finance and insurance, public administra-
tion, army and internal security, education, public health, private housing,
and all other professions that render services to the people. (15)
In the state sector of the economy, national income by distributive
shares, or the primary distribution, in Chinese terminology, consists of two
components: (l) wages and (2) state revenue from profit and taxes. The col-
lective sector is similar, except that a collective enterprise may retain a por-
tion of its profits for accumulation and welfare fund.
The nonproductive sectors of the economy including educational, cul-
tural, social welfare, and others receive their share of the national income
from what is called the “second-round” distribution of national income. In
effect, funds are appropriated for these activities through the state budget. To
a certain extent, the distribution of national income among various sectors in
a socialist economy can be carried out through adjusting the relative prices
of products or factors of production.
At present, 99 percent of the state revenue in China is derived from state
enterprises and the collectives. (16) Expenditures for economic, social and

13
cultural construction in the state budget rose from approximately 36 percent
in 1960 to 70 percent in 1973. From 1949 to 1973, the value of agricultural
production increased 1.8-fold; light industry, 12.8-fold; heavy industry, 59-
fold; state revenue, 13-fold; and state expenditures, 11-fold.

7. Estimates by Western Scholars

The visit to Peking of President Nixon ushered in a new epoch in our
perceptions of Chinese development. Many American economists have
toured the PRC, including Professors Wassily Leontief and John Kenneth
Galbraith from Harvard University; James Tobin and Lloyd G. Reynolds
from Yale University; and John Gurley from Stanford. According to Tobin’s
estimate, the 1974 Chinese GNP in the Western concept of national account-
ing was approximately $145 per capita. (17) This is close to Reynolds’ esti-
mate which amounted to $150 per capita. Taken literally, this would imply
imminent starvation of the population. “The error in the calculation,” Reyn-
olds explained, “arises from the fact that Chinese prices for basic consumer
goods are much lower than U.S. prices; thus; the purchasing power of the
yuan is much higher than the official exchange rate suggests.” (18) Professor
Gurley’s 1971 appraisal of the PRC’s economic performance is more opti-
mistic.
...the Chinese people over the past two decades have made very remark-
able economic advances (though not steadily) on almost all fronts. The
basic, overriding economic fact about China is that for twenty years she
has fed, clothed, and housed everyone, has kept them healthy, and has
educated most. Millions have not starved; sidewalks and streets have not
been covered with multitudes of sleeping, begging, hungry, and illiterate
human beings; millions are not disease-ridden.... In this respect, China
has outperformed every underdeveloped country in the world.... China’s
gains in the medical and public health fields are perhaps the most im-
pressive of all. (19)
However, some economists are less optimistic. For instance, Professors
T. C. Liu and K. C. Yeh in their estimates of China’s national income from
1952 to 1959 suggested that during 1952-57, the average annual rate of
growth of net domestic product was 6 percent per year in constant 1952
prices. (20)
A. G. Ashbrook, a U.S. government expert on China, in his review of
the economy sums up the 1975 outlook as follows:
“....The economy of the People’s Republic of China has proved an effec-
tive mechanism for supplying the minimum needs of the population,
modernizing the industrial sector, and supporting a formidable defense
establishment. With its floor under construction, its purposeful invest-
 ment program, its control over migration to urban areas, and its hard-
driven leadership, China has easily outdistanced other LCDs.” (21)
Finally, Professor Victor D. Lippit, in assessing China’s rapid economic
growth, stressed the increase in the share of national income devoted to capi-
tal formation, an increase made compatible with rising mass consumption by
the redistribution of income. He pointed out:
The experience of China in raising her national savings-investment ratio
by taking advantage of the situation created when revolution forced the
traditional claimants on the nation’s economic surplus to relinquish their
claims is perhaps the most significant in world history. (22)
Concluding Remarks
With these varying and provocative interpretations of the Chinese de-
velopmental experience, we now turn to the translation of this key Chinese
text on political economy. It is here that we develop a keener sense of how
the Chinese perceive, through the Maoist prism, Marxian political economy
as applied to their own set of priorities and goals for national development
— priorities and goals that are in some cases unique to China and in some
cases shared with other developing countries.
At a time when a new, post-Mao Tse-tung, era is developing in China,
when, judging at least from initial signs, there will be renewed emphasis on
economic development and modernization of the means of production, we
feel that Fundamentals of Political Economy provides a timely and valuable
means to understanding the critical issues that are alive in China today.

A Bibliographic Note
Fundamentals of Political Economy is a translation of Cheng-chih
ching- chi hsiieh chi-ch’u chih-shih. which was first published in May 1974
by the Shanghai People’s Press. While this translation was in preparation, a
second edition was published in December 1975. A comparison of the two
printings reveals few revisions in content or in style. There are some changes
however which should be mentioned.
In the first printing, the subtitle of Chapter 17. reads: “The Relations
among Socialist Agriculture, Light Industry, and Heavy Industry.” In the
second printing it has been revised to: “Correctly Handle the Relations be-
tween Agriculture and Industry, and Consolidate the Worker-Peasant Alli-
ance.” During the First Five-Year Plan (1953-57), first priority was accorded
to heavy industry because it was believed that that would speed up industri-
alization. The new policy adopted at the beginning of the 1960s stated that
agriculture is the foundation, and industry is the leading factor. What is the
justification for such a revision? In the second printing, the authors found a

15
justification in the Communist Manifesto, where Marx and Engels are quot-
ed as referring to the “... combination of agriculture with manufacturing in-
dustries; gradual abolition of the distinction between town and country.”
(23)
In the first printing, the title of the last section of Chapter 21 was “Nur-
ture the Communist Labor Attitude.” In the second printing, it has been re-
vised to: “Criticize Bourgeois Ideology and Advocate a Communist Labor
Attitude.” While both printings admit that the principle of distribution under
socialism is “From each according to his ability, and to each according to his
labor,” the second printing contends that differentials in wage scales should
not be wide; otherwise, they would dampen revolutionary enthusiasm.
Moreover, it asserts that under favorable conditions, as socialist construction
proceeds, efforts should be made toward the realization of “From each ac-
cording to his ability, and to each according to his needs.” The differences
between the two versions are in stress, not in principle. Nowhere, however,
is it indicated how wage scales are objectively determined. The title of
Chapter 22 in the second edition has been revised to: “Mutual Aid, and Mu-
tual Benefit on an Equal Basis.” There is little revision in the content.
A final note: in virtually all cases, quotations from Western works, such
as those of Marx and Engels, and quotations from Mao’s works were trans-
lated here directly from the Chinese.

Notes
1. To analyze the similarities and differences of the Chinese interpreta-
tion of Marxist economic principles and those of the Soviet Union, see A.
Leontief’s Political Economy. A Popular Introductory Text for Individual
or Group Study (International Publishers), a standard Soviet text.
2. Jen-min shou-ts’e (People’s Handbook, 1955), Tientsin, pp. 456-
458; Hsin Hua News Agency, October 15, 1954.
3. Edgar Snow, Red China Today (revised and updated edition of
The Other Side of the River). New York, Vintage Books, Random
House, pp. 405-410.
4. Mao Tse-tung, “On the Correct Handling of Contradictions among
the People,” in Mao Tse-tung and Lin Piao. Post-Revolutionary Writ-
ings, edited by K. Fan, Doubleday Anchor, pp. 164-165.
5. Mao Tse-tung, “On the Correct Handling of Contradictions among
the People,” p. 193.
6. Alva Lewis Erisman, “China: Agriculture in the 1970s,” in U.S.
Congress, Joint Economic Committee, China: A Reassessment of the
Economy. Washington, D.C. U.S. Government Printing Office, 1975, pp.
328-329.
7. Output figure cited by Agriculture and Forestry Vice-Minister Yang
Li-kung at a Food and Agricultural Organization Conference in Rome, No-
vember 4, 1975. Reported in Current Scene. Vol. XIV, No. 1 (January
1976) p. 20.
8. Ibid.
9. The Economist Intelligence Unit, Quarterly Economic Review:
China. Hong Kong. North Korea. No. 1,1975, p. 3.
10. Mao Tse-tung, “On the Correct Handling of Contradictions among
the People,” pp. 164-165.
11. Po I-po, “The Correct Disposition of the Relationship between Ac-
cumulation and Consumption,” Jen-min jih-pao (People’s Daily), Septem-
ber 20,1956.
12. Fundamentals of Political Economy, pp. 286 ff.
13. Ibid., p. 289.
14. Ibid., p. 319.
15. Yueh Wei, “The Method of Computing National Income,” Ching-
chi ven-chiu (Economic Research), 3: 48-66, August 1956.
16. Fundamentals of Political Economy, p. 319.
17. Chinese Economic Studies. VIII: 3 (Spring 1975), pp. 25-46.
18. Ibid., pp. 8-24.
19. John G. Gurley, “Capitalist and Maoist Economic Development,”
Monthly Review. February 1971, pp. 15-35 and pp. 26-27.
20. Ta-chung Liu, and Kung-chia Yeh, “Economic Development in
Mainland China, Preliminary Estimate of the National Income of the Chi-
nese Mainland, 1952-59,” American Economic Review. Vol. LI, No. 2
(May 1961), pp. 489-498.
21. Joint Economic Committee, U.S. Congress, Compendium on
China. A. G. Ashbrook, Jr., “China: Economic Overview, 1975,” July 10,
1975, Government Printing Office.
22. Victor D. Lippit, Land Reform and Economic Development in
China: A Study of Institutional Change and Development Finance.
White Plains, N.Y., M. E. Sharpe, Inc. (International Arts and Sciences
Press), 1975, p. x.
23. Karl Marx and Friedrich Engels, “Manifesto of the Communist Par-
ty,” in Lewis S. Feuer, ed., Marx and Engels. Basic Writings on Poli-
tics and Philosophy. New York, Doubleday and Company, 1959, p. 28.

17
Fundamentals of Political Economy
“Youth Self-Education Series” Editors’ Note
Chairman Mao teaches us that “it is necessary for educated youths to go
to the countryside to be reeducated by the poor and lower-middle peasants.”
In the past few years, in response to Chairman Mao’s great call, thousands
upon thousands of educated youths rushed to China’s countryside and fron-
tier with revolutionary enthusiasm. They have earnestly studied works by
Marx, Lenin, and Chairman Mao, actively participated in criticizing Lin Piao
and rectifying the style of work, energetically fought in the front line of the
Three Great Revolutionary Movements, resolutely followed the path of ally-
ing with the workers and peasants, and made new contributions to the build-
ing of a socialist countryside. Their awareness about class struggle and line
struggle has been greatly elevated. Countless proletarian heroes have sud-
denly emerged, and a whole new generation of revolutionary youths is ma-
turing healthily. This is a great victory for Chairman Mao’s revolutionary
line.
Following Chairman Mao’s instruction that “we must concern ourselves
with the growth of the younger generation” and in order to meet the need for
self-study of educated youths who go to the countryside and mountainous
areas, the “Youth’s Self-Education Series” was written and published. This
series is guided by Marxism-Leninism-Mao Tse-tung Thought and includes
fundamentals of philosophy, social sciences, natural sciences and selections
from the works of Lu Hsun. We hope its publication will contribute to the
self-study of educated youths who go to the countryside and mountainous
areas, help them to further elevate their awareness about line struggle, their
political consciousness, and their cultural and scientific levels so that they
can advance along the road of being both red and expert and better fulfill the
needs of building a socialist new countryside and other enterprises.
We are grateful to the support given to the publication of this series by
the units concerned and the authors, and we welcome the suggestions and
criticisms of readers of this series so that we can make improvements.
Shanghai People’s Press
1. Learn Some Political Economy
The Object of Political Economy*
The great Chairman Mao teaches us over and over again to learn some
political economy. This is not only a requirement for Communist Party
members and revolutionary cadres; it is also a requirement for every com-
batant in the Three Great Revolutionary Struggles. To learn some political
economy is very important for understanding Marxism, for penetratingly
criticizing revisionism and transforming our world outlook of our own ac-
cord, and especially for a deeper appreciation of the Party’s basic line and
policies in the whole socialist historical stage.
The youths fighting in the front lines of the countryside and factories are
our country’s hope and the successors to the proletarian revolutionary enter-
prise. To better engage in combat, to grow healthily and more quickly, the
youths must learn some political economy.
The Object of Political Economy Is Production Relations
What kind of science is political economy? We must start from its ob-
ject of study. The object of study for Marxist political economy is produc-
tion relations. Engels clearly pointed out that “what economics investigates
is not things, but the relations among people and ultimately the relations
among classes.” (l) How do production relations among people arise? We
must start from man’s productive activities.
Chairman Mao said, “Marxists regard man’s production activities as the
most basic practical activities which determine all other activities.” (2) But,
over a hundred years ago, before Marxism was created, people did not have
this scientific understanding. Thinkers of the exploiting class all opposed
this viewpoint. They either championed the fallacy that human society de-
veloped according to God’s will or peddled the heresy of heroes creating
history. These so-called thinkers glossed over the simplest fact, namely, that
people must first be able to feed, clothe, and shelter themselves before they
can engage in politics, science, fine arts, and religious activities. If people
need food, clothing, and shelter, they must engage in productive activities.
Therefore, the direct production of material commodities forms the basis of
human societal development. Without the productive activities of the labor-
ing class, people cannot survive, and society cannot develop. It was Marx
who discovered this law of development in human history.
To produce, people must form certain mutual relationships. Isolated in-
dividuals cannot engage in production. Just as Marx pointed out: “To engage
in production, people form certain associations and relationships. Only with-
in these social associations and relationships can there be a relation between
them and Nature and can there be production.” (3) These relations formed by

1
Fundamentals of Political Economy
people during the production process are called production relations. In class
society, these relations are ultimately reflected in class relationships.
Production relations consist of three aspects: (l) the ownership pattern of
the means of production; (2) people’s roles in production and their mutual
relations; (3) the pattern of product distribution. The ownership pattern re-
fers to who owns the means of production (including means of labor, such as
machines, plants, and land, and objects of labor, such as raw materials). In
production relations, the most important aspect is the ownership pattern of
the means of production. It is the basis of production relations. The owner-
ship pattern of the means of production determines the nature of production
relations. Primitive society, slave society, feudal society, capitalist society,
and socialist society in human societal development are classified according
to the differences in their ownership patterns of the means of production.
The ownership pattern determines people’s roles in production and their mu-
tual relations and thus the distribution pattern of products.
To produce, it is necessary not only to have relations among people but
also relations between man and Nature. Man must conquer and transform
Nature. The power which man uses to conquer and transform Nature is
called productive forces. Productive forces are composed of men and mate-
rials (namely, means of production). In productive forces, tools of produc-
tion are the most important. The types of tools used for production reflect
the magnitude of man’s power to conquer Nature. But we cannot regard
tools of production as the determining factor in productive forces. “The de-
termining factor is man, not materials.” (4) “Of all things in the world, man
is the most valuable.” (5) Because tools have to be used by man, created by
man, and renovated by man, without man, there would be no tools and no
know-how. Without man, the best “automatic” tools are never really “auto-
matic.”
Production relations and productive forces comprise the two aspects of
social production. In overall historical development, productive forces are
generally revealed as the major determining factor. Any transformation of
production relations is necessarily a result of a certain development in pro-
ductive forces. Production relations must be compatible with productive
forces. When certain production relations become incompatible with the
development of productive forces, these production relations must be re-
placed by some other new production relations which better match the de-
velopment in productive forces. This is to say, the form of production rela-
tions is not determined by man’s subjective will, but by the level of devel-
opment of productive forces. Production relations must conform to the de-
velopment of productive forces. This is an objective law which is not subject
to change according to people’s will. The emergence, development, and ex-
tinction of certain production relations unfold with a corresponding evolu-
tion of the contradictions of certain productive forces. Therefore, in the
2
 1. Learn Some Political Economy
study of production relations, Marxist political economy also studies produc-
tive forces.
In the overall development of history, if productive forces are revealed
to be the major determining factor, does it mean that production relations are
entirely passive compared with productive forces? Definitely not. When
production relations are compatible with productive forces, they exert an
active impetus to the development of productive forces. When production
relations become incompatible with productive forces, they will hinder the
development of productive forces. As productive forces cannot be developed
without changing production relations, the transformation of production rela-
tions plays a major determining role. When old China was under the rule of
imperialism, feudalism, and bureaucratic capitalism, the landlord and the
comprador represented the most reactionary and backward production rela-
tion of China. Productive forces were severely restricted and sabotaged. Be-
fore liberation, China did not have any machine-building industry or any
automobile or airplane manufacturing. The annual output of steel was only
several hundred thousand tons outside of Northeast China. Even daily neces-
sities were imported. Cloth was called foreign cloth; umbrellas were called
foreign umbrellas. Even a tiny nail was called a foreign nail. Under those
circumstances, the overthrow of the rule of imperialism, feudalism, and bu-
reaucratic capitalism, the transformation of comprador-feudal production
relations, and the establishment of socialist production relations played an
important role in promoting the development of productive forces.
Big development of productive forces often occurs after the transfor-
mation of production relations. This is a universal law. Big development of
productive forces in capitalist society also occurred after the disintegration
of feudal production relations induced by the bourgeois revolution and the
rapid development of capitalist production relations. Take England, for ex-
ample, where big development of productive forces occurred on the basis of
the bourgeois revolution in the seventeenth century and the Industrial Revo-
lution of the late eighteenth and early nineteenth centuries. The modern in-
dustries of France, Germany, the United States, and Japan rapidly developed
only after the old superstructure and production relations had been trans-
formed in various ways. On the issue of production relations and productive
forces, one of the principal aspects of the long struggle between the Marxists
and the Soviet revisionists has always been whether one should insist on
taking the dialectical unity viewpoint or should expound the reactionary
productivity-first viewpoint. Lin Piao, in league with Ch’en Po-ta, advocated
that the major task after the Ninth Party Congress was to develop produc-
tion. This is a copy of the revisionist fallacy inserted into the Resolution of
the Eighth Party Congress by Liu Shao-ch’i and Ch’en Po-ta which pointed
out “the contradiction between the advanced socialist system and the back-
ward social productive forces.” In China, socialist production relations are
3
Fundamentals of Political Economy
basically compatible with the development of the productive forces. This
opens up a new horizon for the development of the productive forces. But it
also has its imperfect aspects. And these imperfections contradict the devel-
opment of the productive forces. The experience of socialist revolution
teaches us that it is always the superior socialist system which promotes the
development of the productive forces. It is always after the transformation of
those parts of production relations which are incompatible with the devel-
opment of the productive forces that the development of the productive forc-
es is promoted. Where is “the contradiction between the advanced socialist
system and the backward social productive forces”? The criminal intent of
Liu Shao-ch’i’s, Lin Piao’s, and other similar swindlers’ advocacy of this
fallacy was to vainly attempt to use the productivity-first viewpoint as a
weapon to oppose the continuing revolution under the proletarian dictator-
ship and the basic Party policy laid down by Chairman Mao for the socialist
stage. This is their impossible dream.
Production relations must be compatible with productive forces. The
development of productive forces necessitates the destruction of old produc-
tion relations which are not compatible with it and their replacement by new
production relations which are compatible with its development. But the
process of disintegration of old production relations and the appearance of
new production relations cannot be a smooth one. The transformation of old
production relations and the establishment and perfection of new production
relations are often realized only after revolutionary struggles. Therefore, if
one wants to understand how old production relations are transformed and
new production relations are established and perfected, it is not enough to
explain in terms of the contradictions between production relations and pro-
ductive forces. The relations between the superstructure and the economic
substructure must also be investigated.
The superstructure refers to the national government, army, law, and
other political systems and their corresponding ideological forms, such as
philosophy, literature, and fine arts. The economic substructure is production
relations. “The sum total of these production relations forms the economic
substructure of society, the real basis upon which a legal and political super-
structure arises and to which definite social forms of consciousness corre-
spond.” (6) This statement by Marx scientifically explains the relation be-
tween the superstructure and the economic substructure.
In the contradiction between the superstructure and the economic sub-
structure, the latter, in general, is the determining force. The economic sub-
structure determines the superstructure. With change in the economic sub-
structure, “the whole immense superstructure is slowly or rapidly trans-
formed.” (7) This is to say, the old economic substructure has disintegrated,
and the superstructure built upon this foundation must also disintegrate. But
the rate of its disintegration varies. When reactionary state machinery has
4
 1. Learn Some Political Economy
been transformed, the reactionary classes do not willingly bow out of the
historical stage with the disappearance of the old economic substructure.
They inevitably engage in prolonged and desperate struggle with the ad-
vanced classes in the political, ideological, and cultural spheres. In particu-
lar, old ideological forms associated with the overthrown classes remain for
a long time.
The superstructure is determined by the economic substructure. Once it
is established, it has an immense negative effect on the economic substruc-
ture. Stalin pointed out, “The substructure creates its superstructure to serve
its own establishment and consolidation and to destroy the old substructure
and its superstructure.” (8) This explains why the superstructure always
serves its economic substructure. The socialist superstructure serves its so-
cialist economic substructure, and the capitalist superstructure serves its cap-
italist economic substructure.
In capitalist society, with the intensification of the contradictions be-
tween the socialization of production and the private ownership of means of
production, there is an urgent need to replace capitalist private ownership
with socialist public ownership. But the bourgeoisie controls the reactionary
state machinery and uses it to maintain the capitalist economic substructure.
If the proletariat does not first smash the capitalist state machinery, it is im-
possible to destroy the capitalist economic system. The new and old revi-
sionists’ claim that “capitalism can peacefully grow into socialism” is all a
pack of lies.
In socialist society, the superstructure and the economic substructure are
basically compatible. But due to the existence of the bourgeoisie and its ide-
ological forms, some bureaucratic styles of work in the state organs, and
defects in certain parts of the state system, the consolidation, perfection, and
development of the socialist economic substructure was hindered or under-
mined. We must make the socialist superstructure better serve the socialist
economic substructure. We must firmly grasp the struggle in the superstruc-
ture and carry the socialist revolution in the superstructure to the end.
Political economy touches upon the most practical and immediate inter-
ests of various classes and strata. It explains the most acute and intense prob-
lems of class struggle. Marxist political economy, like Marxist philosophy,
publicly proclaims that it is at the service of proletarian politics. Political
economy is a science about class struggle.
Political Economy Is the Theoretical Basis for the Party’s
Defining the Basic Line
Marxist political economy was born with the appearance of the modern
proletariat and the big productive forces — big industries. Marx participated
in the class struggles of his time. He used revolutionary materialist dialectics
to analyze the capitalist society. He revealed the secrets of how the capital-
5
Fundamentals of Political Economy
ists exploited the workers and scientifically demonstrated the contradictions
between the socialization of production and capitalist ownership. These con-
tradictions were manifested as acute antagonism between the proletariat and
the bourgeoisie. With the daily development of capitalist social contradic-
tions, the proletariat, who acted as the gravediggers of the capitalist system,
daily strengthened. ‘The knell of capitalist private property will soon be
struck. The expropriators will be expropriated.” (9) From this, the revolu-
tionary and scientific conclusion of the inevitable replacement of the capital-
ist system by the socialist system and the bourgeois dictatorship by the pro-
letarian dictatorship was arrived at. “This conclusion was arrived at by Marx
according to the law of economic motion in modern society.” (10) Thus,
Marxist political economy, along with Marxist philosophy and scientific
socialism, became the theoretical basis for the proletarian political party to
formulate its basic policy. On the theoretical basis of Marxism and under
capitalist conditions, the proletarian revolutionary leaders formulated for the
proletarian party the basic political line of using revolutionary violence to
seize political power. They guided the proletariat to struggle for the com-
plete overthrow of the bourgeoisie and all exploiting classes, the replace-
ment of bourgeois dictatorship by proletarian dictatorship, the triumph of
socialism over capitalism, and the realization of communism.
In socialist society, Marxist political economy still provides the theoret-
ical basis for the proletarian party‘s formulation of basic lines. Chairman
Mao has penetratingly analyzed the contradictions between socialist produc-
tion relations and productive forces and between the superstructure and the
economic substructure and has demonstrated the long duration and complex-
ity of class struggle and line struggle in the socialist period.
On this theoretical basis, he further formulated the basic line for our Par-
ty for the entire socialist stage. This basic line tells us: “Socialist society
covers a considerably long historical period. Throughout this historical peri-
od, there are classes, class contradictions, and class struggle, there is the
struggle between the socialist road and the capitalist road, there is the danger
of capitalist restoration, and there is the threat of subversion and aggression
by imperialism and social imperialism. These contradictions can be resolved
only by depending on the theory of continued revolution under the dictator-
ship of the proletariat and on practice under its guidance.” (11) The Party’s
basic line guides the Chinese people to persist in continuing revolution under
the proletarian dictatorship, to struggle for the consolidation of the proletari-
an dictatorship, the prevention of capitalist restoration, and the building of
socialism, and to struggle for the great ideal of worldwide realization of
communism.
The basic task of socialist political economy is to study and illustrate the
law of transformation from socialist production relations to communist pro-
duction relations. Some understanding of political economy helps us to un-
6
 1. Learn Some Political Economy
derstand the objective law of socialist economic motion and the inevitability
of the association, distinction, and development of various production rela-
tions. This will increase our understanding of the Party’s basic line and ele-
vate our awareness about implementing it.
It is of fundamental importance to insist on the Party’s basic line. It is
simply “to carry out Marxism, not revisionism.” To carry out Marxism, we
must first learn Marxism. To oppose revisionism, we must be able to tell
what revisionism is. But, Marxism consists of philosophy, political econo-
my, and scientific socialism. If we want to understand Marxism, we must
seriously study Marxist philosophy and scientific socialism, but we must
also seriously study Marxist political economy.
Marxist political economy is in opposition to all bourgeois and revision-
ist political economy, and it developed from the process of challenging
bourgeois and revisionist political economy. Learning Marxist political
economy helps to distinguish between Marxism and revisionism, between
socialism and capitalism, and between the proletariat and the bourgeoisie. It
will also correct tendencies toward deviation and elevate our ideological
awareness.
In summary, we must study some political economy if we want to over-
come anti-Party, anti-Marxist thinking, better carry through the Party’s basic
line for the socialist stage, more penetratingly unfold the criticism of Lin
Piao and the rectification of the style of work, and score new and greater
victories in the great socialist revolution and socialist enterprise.
Combine Theory with Practice to Learn Political Economy
Well
Political economy is a demonstration and application of dialectical ma-
terialism and historical materialism. To learn political economy, we must
follow the guidance of dialectical materialism and historical materialism.
“The dialectical method attempts to understand every set pattern through its
continuous motion and its temporary nature. It does not worship anything,
and it is critical and revolutionary in nature.”(12) This proletarian world out-
look is in direct opposition to idealism and metaphysics. Only after we fully
appreciate dialectical materialism and historical materialism and use them to
observe and analyze the law of motion in capitalist society and economy can
we understand why capitalism is bound to perish and socialism will triumph.
And only when we use them to observe and analyze the law of motion in
socialist society and economy can we understand the duration and complexi-
ty of class struggle and line struggle in socialist society, and only then can
we understand the general tendency of development from socialism to com-
munism and why it cannot be averted by human will. This will strengthen
our faith to struggle for the ultimate victory of the communist enterprise
with full determination and without fear of sacrifice and difficulties.
7
Fundamentals of Political Economy
To study political economy, we must insist on the revolutionary style of
learning, which combines theory with practice. Chairman Mao teaches us:
“We must thoroughly know Marxist theory and be able to apply it. The pur-
pose of thoroughly knowing it lies in applying it.” (13) To combine theory
and practice is a question of revolutionary discipline and a question of the
nature of the Party. We must combine the study of political economy with
the criticism of modern revisionism, with the criticism of the reactionary
fallacies peddled by Liu Shao-ch’i, Lin Piao, and similar swindlers, with the
Three Great Revolutionary Practices of class struggle, production struggle,
and scientific experiment, and with the transformation of the world outlook.
“Marxist philosophy considers that the most important question is not being
able to explain the world through an understanding of the laws of the objec-
tive world, but being able to use this understanding to transform the world.”
(14)
Is it difficult to learn Marxist political economy? Yes. In the preface to
the first edition of Capital. Marx said: “Everything starts out difficult. Every
science is this way.” In the concrete analysis of objective phenomena, Marx-
ist political economy penetrates the surface, grasps the essence, and under-
takes scientific abstraction. Thus, when we start, we often come across some
terms and concepts which are difficult to understand. But Marxist political
economy was written for the proletariat and talked about proletarian revolu-
tion. If only we seriously study it, we can understand it gradually. “‘There
are no difficult things, only people without sufficient resolve.’ If it is not
difficult to start, it is also feasible to do advanced study. All that is needed is
the determination and the ability to learn.”(15)
Marx once pointed out: “There is no smooth path in science. Only those
who are not afraid of climbing the steep mountain paths can expect to reach
the summit of brilliance.” (16) Proletarian revolutionary leaders spent their
whole lives establishing and developing Marxist theory. Following their
shining examples and diligently reading works by Marx, Lenin, and Chair-
man Mao, we should struggle to study for the mastery of this Marxist theo-
retical weapon, for the socialist revolution and the socialist construction en-
terprise, and for the worldwide realization of communism.
Major Study References
Marx, “Introduction to A Critique of Political Economy.” Engels, Anti-
Dühring, Part 2, Chapter 1.
Lenin, Karl Marx (“Marx’s Economic Theories”).
Chairman Mao, “On Contradiction,” Section 4.
Chairman Mao, “On the Correct Handling of the Contradictions among
the People,” Section 1.

8
 1. Learn Some Political Economy

Review Problems
1. Why is political economy a science of class struggle?
2. Why do we say that Marxist political economy is an important theo-
retical basis for the Party’s basic line?
3. How can one learn political economy well?
Notes
* Hsiieh i-tien cheng-chih ching-chi-hsvieh — cheng-chih ching-chi-
hsiieh ti tui- hsiang.
1) Engels, “Karl Marx ‘A Critique of Political Economy,’ Selected
Works of Marx and Engels. Vol. 2, Jen-min ch’u-panshe, 1972, p. 123.
2) “On Practice,” Selected Works of Mao Tse-tung. Vol. 1, Jen-min
ch’u-pan-she, 1968, p. 259.
3) Marx, Wage Labor and Capital. Selected Works of Marx and Engels.
Vol. 1, Jen-min ch’u-pan-she, 1972, p. 362.
4) “On Protracted War,” Selected Works of Mao Tse-tung. Vol. 2, Jen-
min ch’u-pan- she, 1968, p. 437.
5) “The Bankruptcy of the Idealist Conception of History,” Selected
Works of Mao Tse-tung. Vol. 4, Jen-min ch’u-pan-she, 1968, p. 1401.
6) Marx, “Introduction to A Critique of Political Economy.” Selected
Works of Marx and Engels. Vol. 2, Jen-min ch’u-panshe, 1972, p. 82.
7) Ibid., p. 83.
8) Stalin, Marxism and Linguistics. Jen-min ch’u-pan-she, 1971, p. 4.
9) Marx, Capital. Vol. 1, Complete Works of Marx and Engels. Vol. 23,
pp. 831-832.
10) “Karl Marx,” Selected Works of Lenin. Vol. 2, Jen-min ch’u-pan-
she, 1972, p. 599.
11) “Constitution of the Chinese Communist Party,” Collected Docu-
ments from the Tenth Chinese Communist Party Congress. Jen-min ch’u-
pan-she, 1973, p. 44.
12) Marx, “Epilogue to the Second Edition of Capital.” Complete Works
of Marx and Engels. Vol. 23, p. 24.
13) “The Rectification of the Party’s Style of Work,” Selected Works of
Mao Tse-tung. Vol. 3, Jen-min ch’u-pan-she, 1968, p. 773.
14) “On Practice,” Selected Works of Mao Tse-tung. Vol. 1, Jen-min
ch’u-pan-she, 1968, p. 268.
15) “Strategic Questions in China’s Revolutionary War,” Selected
Works of Mao Tse- tung. Vol. 1, Jen-min ch’u-pan-she, 1968, p. 165.
16) Marx, “Preface to the French Edition of Capital.” Complete Works
of Marx and Engels. Vol. 23, p. 26.

9
2. Social and Economic Systems Preceding
Capitalism
Production Relations in the Primitive. Slave, and
Feudal Societies*
The primitive, slave, and feudal societies are the three societal systems
which preceded capitalism. To comprehend the replacement and substitution
of the production relations in these societies helps us to understand the his-
torical process of the development of production relations in human society.
It is especially significant for the understanding of the origin and develop-
ment of capitalist production relations and the historical law governing their
inevitable replacement by socialist production relations.

The Primitive Commune Established the Earliest

Production Relations in Human History
Labor Created Man
The primitive society started from the separation of man from the ani-
mal world. Human societies appeared simultaneously with the emergence of
man. With man, the first chapter of human history began.
The history of human society is about a million years long. Man’s an-
cestors were a kind of highly developed ape-man. How did the ape-man de-
velop into man? The key lies in labor. Labor began with the making of tools.
In the process from ape-man to man, natural objects were transformed into
suitable tools. It may only have been the striking of one stone against anoth-
er to make stone knives and axes or the shaping of branches into crude tools,
but a great revolution appeared. Man separated himself from the animal
world and could rely on his own hands to make tools for the transformation
and conquest of Nature. Just as Engels said: Labor “is the first basic condi-
tion for human life. This is true to the extent that we must, in a certain sense,
admit that labor created man himself.” (l) In the long process of labor, man
learned how to make stone tools, hunt, and fish. He invented bows and ar-
rows. Especially important was the discovery and use of fire. This greatly
increased man’s power to conquer and transform Nature. Engels highly val-
ued this achievement. He said: “As far as worldwide liberation is concerned,
the discovery of making fire through friction surpasses the importance of the
invention of the steam engine”. “Because the discovery of making fire
through friction enabled man to control a natural force, he was thus separat-
ed from the animal world.” (2) From that time on, human society made its
formal appearance on this earth.
Production activities conducted after man’s separation from the animal

10
 2. Social and Economic Systems Preceding Capitalism
world were from the start a kind of social and group activity. “Every indi-
vidual cooperated with other members of the society to form production re-
lations to engage in production activities for the material needs of human
life.” (3) When the curtains of human social history were raised, the produc-
tion relations were those of the primitive commune, and they were the first
production relations in human history.
Clan Commune Ownership Was the Basis of the Primitive
Commune Production Relations
The primary social and economic organization of the primitive society
was the clan commune united on the basis of kinship for the purpose of la-
bor. Clan commune ownership was a primitive form of collective ownership.
Land and other means of production were owned by all the members of the
commune. At that time, because of the crude stone knives, axes, spears,
bows, and arrows used, only by collective labor could the great natural forc-
es be conquered. Therefore, individual ownership of means of production
and products was not possible. This clan commune ownership system was
the only form adopted under the low level of productive forces. Means of
production collectively owned by the clan commune included production
tools, land, forests, rivers, and livestock. Weapons, bows, and arrows were
carried and used by individuals.
In the primitive society, all able-bodied members participated in produc-
tive labor. They employed a natural division of labor based on sex and age.
Men went out to hunt, old men made tools, and women harvested plants,
managed household chores, and engaged in primitive agriculture. Children
helped women do auxiliary labor. Interpersonal relations were primitive co-
operative relations.
Under the conditions of clan commune ownership and collective labor,
products were shared equally. Because of the low level of productive forces
at that time, products obtained through labor were only sufficient to maintain
a minimum level of subsistence with little left over. If distribution had not
been equal, some members of the clan would have starved, or the clan might
have disintegrated.
The economic substructure of the primitive society also produced its
corresponding superstructure. The primitive society successively passed
through the matriarchal and patriarchal clan stages. The formation of the
matriarchal clan was the result of the more important positions occupied by
women in productive activities. At that time, women were mainly occupied
with primitive agriculture, and men with hunting. But hunting was more sea-
sonal, and its results chancy. Agriculture was a more reliable source of
means of livelihood. Therefore, social life evolved around the female. With
the development of productive forces, agriculture advanced from its primi-
tive form and animal husbandry was separated from agriculture. Men’s im-
11
Fundamentals of Political Economy
portance in productive activities was elevated. With the transition from
group marriages centering around women to one-to-one marriages, women’s
positions were rendered more subordinate, ushering in the patriarchal clan.
The clan council, composed of all the adult members of the clan, was
the highest power organ in the clan commune. The clan council elected the
clan chief and wartime military leaders and deliberated and decided on all
important matters. [Lewis H.] Morgan, an American scholar, described in
his Ancient Society the clan commune of the American Indians as fol-
lows: “All members were free persons and were obliged to protect each oth-
er’s freedom. Everybody had equal rights. Not even the clan chief and mili-
tary leaders could ask for any preferential privilege. They were compatriots
based on blood relations.” This superstructure of the clan was instrumental
in consolidating and developing the clan economic substructure and in ad-
vancing the productive forces at that time.
Chairman Mao points out: ‘The development of the Chinese people
(here with reference mainly to the Han people) was similar to other peoples
in the world. They passed through many tens of thousands of years in a
classless, primitive society.” (4) The society connected with the “Peking
Man” which was discovered in Chou-k’ou-tien suburb of Peking represented
the earliest stage of China’s primitive society. Many old sites and cultural
relics from primitive societies discovered in many areas of China prove that
matriarchal clan tribes once existed in the central region along the Yellow
River basin and extended to Inner Mongolia, Heilungkiang, Sinkiang, Tibet,
Kwangsi, Szechuan, and Yunnan. About five thousand years ago, tribes
along the Yellow River and Yangtze River basins gradually became patriar-
chal clan communes. Before the Hsia dynasty in China, the primitive society
existed for several hundred thousand years.
Historical facts tell us that the primitive society had no private property,
no classes, no class exploitation, or class oppression. They strongly refute
the fallacy that private property and classes have been with us from time
immemorial.
The Emergence of Private Property Led to the Collapse of the
Primitive Commune
In the course of development in the primitive society, with the develop-
ment of productive forces, social division of labor arose. In the beginning,
animal husbandry was separated from agriculture. Some tribes specialized in
animal husbandry. Other tribes specialized in agriculture. This was the first
major social division of labor. Later on, handicraft activities were separated
from agriculture. This was the second major division of labor. Toward the
end of the primitive society, iron was discovered. The appearance of iron
symbolized the advancement of human society to a higher stage. But it also
heralded the collapse of the primitive society. With the separate appearance
12
 2. Social and Economic Systems Preceding Capitalism
of agriculture, animal husbandry, and handicraft activities, production for
the purpose of exchange, namely commodity production, appeared.
With the continual development of productive forces, some surplus was
available after the maintenance of a basic level of subsistence. The two ma-
jor divisions of labor increased labor productivity and promoted the devel-
opment of agriculture, animal husbandry and handicraft activities. Surplus
products and social wealth increased. Under these conditions, the possibility
of some people expropriating the labor products of other people occurred.
On the other hand, with the expansion of exchange, the possibility of the
clan chief gradually converting commune property into his own private
property also arose. The use of metal tools — especially iron axes, iron hoes,
and iron plows — markedly increased labor productivity and created condi-
tions for production on an individual household basis. The original collective
production based on the clan gradually dissolved into individual production
based on the household. Production changed from a collective to a private
matter. Means of production and products also became private property.
Then, land formerly collectively owned but assigned to individual house-
holds also passed into private hands. Private ownership appeared and the
primitive commune disintegrated.
With the emergence of private ownership, inequality in the distribution
of property among families arose. The clan chiefs continuously used their
power to convert collective property into their private property and became
the wealthiest households in the clan. At the same time, as the wealth of
these rich families increased and their scope of operation expanded, labor
shortages were experienced. On the other hand, with the development of
productive forces, the use of slave labor became possible and profitable. As
a result, prisoners of war were no longer slaughtered but were converted into
slaves. Later on, some poor people of the clan also became slaves of the rich
families. The exploitation of people by people emerged.
With the development of production and the expansion of exchange, the
third major division of labor occurred. There arose merchants who special-
ized in commodity exchange. With the development of commodity ex-
change, money came into being. With the appearance of money the rich
families engaged in usury and accelerated the concentration and uneven dis-
tribution of wealth. As a result, wealth rapidly became concentrated in the
hands of a few slave owners. On the other hand, the broad laboring masses
were forced into slavery by poverty and bankruptcy, rapidly swelling the
ranks of the slaves. Thus, society was separated into classes: the slave own-
ers and the slaves. These two opposing classes made their first appearance in
human history. With the appearance of classes, the former clan council
evolved from being society’s public servant into being its master and be-
came a tool by which the slave owners oppressed the slaves. The state — the
machinery for the oppression of one class by another class — was born at
13
Fundamentals of Political Economy
that time. From that time up to the present, “all social history has been the
history of class struggle.” (5)

Slavery Was the Earliest System of Exploitation

The Characteristic of Production Relations in the Slave Society
Was the Ownership of the Means of Production and of Slaves
by the Slave Owner
In the slave society, the slave owner not only owned the means of pro-
duction, but also slaves. The slave was merely a living tool under the abso-
lute domination of the slave owner. The slave was not only exploited, he was
treated as an animal, a sacrificial object, and a commodity. He could even be
slaughtered by his owner. Slave labor was overt forced labor. The slave
owner used brute force to make the slave work and indiscriminately tortured
his slaves. To make it easier to catch runaway slaves, the slave owners even
branded slaves and put them in fetters. The slave owner used the crudest
means to extract surplus labor and products from the slave. All products
produced by the slave belonged to the slave owner. The slave was fed like an
animal, just enough to keep him alive. This, then, was the production rela-
tion of the slave society.
Chairman Mao points out, “About four thousand years have elapsed be-
tween the present and the time when the primitive society of the Chinese
nation disintegrated into a class society, passing through the slave society
and the feudal society” (6) China developed into a slave society after the
Hsia dynasty In the Yin dynasty “chung-ien” and “hsu-min” [“&A” and
“HR”: the “masses”] were all slaves. Clay burial figures unearthed in Yin-
hsii (the abandoned site of the capital of the Yin dynasty in the vicinity of
Hsiao-t’un-ts’un, An-yang, Honan Province) all had handcuffs. The male
figures were cuffed with their hands behind them, and the females in front.
These were reflections of slave lives at that time. The slaughter of slaves
was even more hair-raising. The slave owner often sacrificed his slaves in
sacrificial ceremonies. In some ceremonies during the Yin dynasty more
than a thousand people were killed. From the tombs of slave owners in the
Yin dynasty slaves were found buried alive or dead. They ranged from more
than ten to several hundreds. Among them were both males and females,
even children. There is no doubt that the slave society existed in China.
But, Trotskyites like Ch’en Po-ta spread the fallacy that there was no
slave society in China in a vain attempt to negate the universal truth of
Marxist classification of human societies and to create evidence for their
fallacy that communism was not suited to Chinese conditions. This is reac-
tionary in the extreme and utterly futile.

14
 2. Social and Economic Systems Preceding Capitalism

Class Antagonism Led to the Opposition between Urban and

Rural Areas and between Mental and Physical Labor
The earliest ancient city appeared at the end of the primitive society and
was established at the central region of the tribal alliance for the purpose of
defense. After the formation of the slave society and with the development
of agriculture, handicraft industry and commodity exchange, the opposition
between the city and the countryside arose.
At that time, industrial products were handicraft products. The city was
the center of the handicraft industry The development of the handicraft in-
dustry was related to the development of commerce. Therefore, the city was
also the center of commercial activities. In China’s Yin dynasty, commerce
developed rapidly. Commercial cities emerged. Yin and Shang [shang is the
Chinese term for commerce] are synonymous, and the Yin dynasty is also
known as the Shang dynasty. Present-day Yin-hsu was the site of a fairly
large commercial city in the Yin dynasty.
The slave owner established a superstructure corresponding to the eco-
nomic substructure of the slave society, and the city became the political
center of the slave society. The slave owner paid special attention to
strengthening the state machinery in the city to suppress the rebellion of
slaves. Many slave owners, big merchants, usurers, and bureaucrats were
concentrated in the city, leading evil and extravagant lives. To satisfy their
needs for recreation, the slave owner forced the slaves to build beautiful pal-
aces, temples, theaters, and other public places. The city thus gradually de-
veloped into the cultural center of the slave society.
Thus, the city in the slave society assumed a dominating economic, po-
litical, and ideological role and created opposition between the city and the
countryside. The opposition between the city and the countryside was a
product of acute class contradictions. It was characterized by urban exploita-
tion of the countryside.
In the primitive society, all able-bodied people participated in labor.
There was no specialization in mental labor. In the slave society, the situa-
tion was different. As a result of a large quantity of surplus products created
by slave labor, it was possible for the slave owners to divorce themselves
from production labor. At that time, the division between mental and physi-
cal labor was necessary and possible. This division between mental and
physical labor was antagonistic right from the start. It was the privilege of
the slave- owning class to enjoy cultural education. “The class controlling
the means of material production also controlled the means of mental pro-
duction. Therefore, the thinking of those without means of mental produc-
tion was generally under the influence of the ruling class.” (7) The slave-
owning class tried its best to spread the fallacy that “the mental workers rule
others while the physical laborers are ruled by others.” It used to its best ad-

15
Fundamentals of Political Economy
vantage its politics, law, philosophy, and ideology as tools to rule the slaves
and other laboring masses for the consolidation of the dictatorship of the
slave owner.
The Rebellion of Slaves Hastened the Collapse of Slavery
Slavery was an inevitable stage in human history. Its appearance met the
needs of existing productive forces. Under slavery, prisoners of war were no
longer slaughtered en masse. They were instead kept alive to work. This was
helpful to the development of production. Because the slave owner pos-
sessed large amounts of means of production and labor, it was possible to
organize production and cooperation on a large scale. With the use of metal
tools, agriculture, animal husbandry, and handicraft industry developed rap-
idly. Agriculture became the most important component of the national
economy. The horse, buffalo, sheep, chicken, dog and pig were domesticat-
ed. By means of cooperative efforts among a large number of handicrafts-
men, a bronze ritual vessel [ssu-mu-mao ta fang ting] measuring 110 centi-
meters in horizontal length, 77 centimeters in width, 137 centimeters in
height, and weighing 1,400 market catties, was cast with fine floral designs.
From it we can infer the high production skills and workmanship already
reached at that time.
The production relations of the slave society promoted the development
of productive forces to a certain extent. But these production relations em-
bodied inherent contradictions to the further development of productive
forces. These contradictions became more acute as productive forces devel-
oped. The broad masses of slaves could not bear the cruel exploitation and
oppression of the slave owner any longer. They slowed their work, ran away
in large numbers, and purposely wrecked production tools. On the one hand,
the slave owners increased their oppression, leading to massive early death
of slaves. On the other hand, they substituted heavy tools not easily subject
to abuse. But the development of productive forces was thus restricted. The
restriction on the development of productive forces also resulted from the
contempt toward physical labor generated by the system. Bankrupt small
producers preferred to wander around than to engage in physical labor.
These things all showed that the production relations of slavery were already
ill-suited to the development of productive forces. Its extinction was as inev-
itable as its emergence.
At the end of the slave society, feudal production relations appeared.
The ownership of land by the slave state was the basis of the production re-
lations in the slave society. In the Yin-Chou period of China, state owner-
ship of land was in the form of ching-t’ien [well fields]. All land within the
confines of ching-t’ien was called “communal land.” These “communal
lands” and the slaves were at the disposal of the biggest slave owners — the
feudal princes, nobles, and state officials appointed by the Son of Heaven.
16
 2. Social and Economic Systems Preceding Capitalism
With the development of productive forces, some slave owners tried their
best to force the slaves to bring under cultivation large amounts of “private
land” so as to exploit more surplus labor. With the expansion of “private
land,” the system of “communal land” was undermined. At this time, the
landlord class emerged. They championed the “abolition of ching-t’ien and
the demolition of raised paths between fields [used as boundaries].” Slaves
gradually became serfs. The sprouts of feudal production relations flour-
ished.
The basic classes of the slave society were the slave-owning class and
the slaves. Outside of these two classes were the free peasants and handi-
craftsmen. Slaves were at the bottom of the social strata and were subject to
the cruelest exploitation and oppression by the slave owners. All through the
whole period of slavery, there was violent class struggle between the slaves
and the slave owners. The Spring and Autumn period of China saw the tran-
sition from slavery to feudalism. A slave leader named Chih led 9,000 peo-
ple rampaging across the land and invading the feudal lords. Slave rebellions
seriously challenged the rule of the slave-owning class. In various countries
of the world, slave uprisings were the theme of many heroic epics. For ex-
ample, in the Roman period, Spartacus led the biggest rebellion with
120,000 participants. This rebellion shook the whole Roman Empire to its
foundation. Violent slave rebellions dealt severe blows to the political power
of the slave owners and hastened the collapse of slavery. While slavery dis-
integrated, feudal production relations gradually matured. The newly emerg-
ing landlords representing feudal production relations used the power of the
laboring people to overthrow the rule of the slave owners and established a
government of landlords. Feudalism finally replaced slavery.
The replacement of slavery by feudalism was historically inevitable. In
China, during the time of the great epoch-making social changes, Confucius,
the reactionary proponent of the slave system, obstinately opposed any so-
cial reforms and regarded the changes in production relations as “great
evils.” He resolutely opposed all the reform measures carried out by the new
feudal lords, advocated the restoration of the old slave system, and hoped in
vain to save the tottering social order. But it was all over. His efforts repre-
sented the futile struggle of a dying cause.

Feudalism Is Another Exploitative System Based on

Class Conflicts
Feudal Landownership Is the Economic Substructure of the
Feudal Society
The production relations of the feudal society were based on landowner-
ship by the landlord class and their almost complete control of serfs. The

17
Fundamentals of Political Economy
landlord owned most of the land. The peasants and serfs owned little or no
land. They had to depend on farming the landlord’s land for a living. This
way, they were fettered by the feudal land system. They lost their personal
freedom and were subject to the landlord’s cruel exploitation and oppres-
sion.
The chief means by which the landlord exploited the peasants was
through the collection of feudal rent from land rented to them. There were
three kinds of feudal rents: labor rent, rent in kind, and money rent.
Labor rent was prevalent in the early period of the feudal society. Labor
rent consisted of the peasants using their own tools and working on the land-
lord-operated land at specified times. The peasants could work on their land
only after working for the landlord. Under this type of land rent, the relations
between the exploiter and the exploited were quite clear-cut. The produce
from the land operated by the peasants belonged to them. They were thus
interested in the labor performed on it. The produce from the labor per-
formed by the peasants on the land operated by the landlord belonged whol-
ly to the landlord. The peasants were naturally not enthusiastic about such
labor. The landlord was well aware of this difference in attitude. To make
the peasants work hard on the land operated by the landlord, the latter kept a
number of foremen to enforce strict discipline. Therefore, under such a rent
system, the relations between the oppressor and the oppressed, the ruling and
ruled, were quite obvious. In the early period of feudalism, productive forces
were quite weak. The landlord could not have expropriated the surplus labor
of the peasants if he had not relied on direct coercion. This kind of feudal
rent met with violent resistance from the peasants.
Later, under the impetus of the development of productive forces and
out of a desire for greater exploitation and less visibility of their exploitative
intent, the landlord adopted rent in kind in place of labor rent. Under rent in
kind, the peasant no longer worked under the supervision of the landlord. He
did not have to work on the land operated by the landlord. The peasant could
control all his labor. But he had to turn in surplus produce in kind to the
landlord at specified intervals. Compared with labor rent, rent in kind was
instrumental in improving know-how and labor productivity to some extent.
But rent in kind often represented 50 percent or even 70 to 80 percent of the
peasants’ harvests. To maintain a minimum level of subsistence, the peas-
ants had to extend their working hours and raise their labor intensity Even
so, the peasants were unable to lead a life very far above extreme poverty.
Money rent appeared in late feudal society. Productive forces were then
much higher than before. The relations between money and commodities
were widely developed. To satisfy his manifold needs for a luxurious and
extravagant life, the landlord needed ever more money Under such condi-
tions, money rent appeared. Under money rent, the peasants sold their pro-
duce in the market in exchange for money to pay rent. Thus the peasants
18
 2. Social and Economic Systems Preceding Capitalism
were not only exploited by the landlord, but also by merchant middlemen.
When harvests were good, the merchants depressed prices to squeeze every
drop of sweat and blood from the peasants. As a result, the peasants’ liveli-
hood was even more pitiable, and they were frequently at the brink of bank-
ruptcy
In the feudal society the broad masses of peasants were under the ex-
ploitation of feudal rent. They also had to pay heavy taxes to the feudal state
and were subject to the exploitation of usurers. The landlord colluded with
the bureaucrats and the army to plunder the peasants’ land, steal their
wealth, and force them to engage in involuntary unpaid labor. The broad
masses of peasants were subject to all sorts of extra-economic exploitation.
Peasant Rebellions Reflected the Increasingly Acute Class
Contradictions in the Feudal Society
The replacement of the slave society by the feudal society was a step
forward in history. The feudal production relations were conducive to pro-
moting productive forces in the early stage of feudal society. Agricultural
production techniques were elevated, and tools improved. The applications
of iron instruments to production were disseminated, both the variety and
quantity of crops were increased, and handicraft industry was thriving. In the
Warring States period of China, large-scale water conservancy projects, such
as the Tu-chiang Dike in Szechuan Province, were constructed. Through
additional construction and maintenance during various dynasties, Tu-
chiang Dike still serves a very useful purpose at present. Salt baking, metal-
lurgy, silk goods, spinning and weaving, porcelain and pottery, and embroi-
dery were quite well developed in China’s feudal society. The compass,
gunpowder, paper, and block printing were invented very early.
However, production under feudal production relations was basically
small-scale production on a household basis. This small-scale production
was not conducive to the further development of productive forces. The
broad masses of peasants under feudal production relations were especially
subject to cruel exploitation and oppression with little possibility for devel-
oping production. The contradictions between feudal production relations
and productive forces were reflected as class contradictions between the
landlord and the peasant. This was the major contradiction in feudal society.
The highest manifestation of this contradiction was armed rebellion by the
broad masses of peasants to resist the rule of the landlord. These rebellions
and struggles were characteristic of the whole feudal period. About 200
B.C., soon after Ch’in Shih-huang unified China and established the first
feudal dictatorship, the first great peasant rebellion in China’s history ex-
ploded — the rebellion led by Ch’en Sheng and Wu Kuang. After that, dur-
ing the more than two thousand years before the Taiping Rebellion in the
mid-nineteenth century, several hundred small and large peasant rebellions
19
Fundamentals of Political Economy
and peasant revolutionary wars were recorded. The size and number of peas-
ant uprisings in Chinese history broke world records. “Only these peasant
class struggles, peasant rebellions, and peasant wars were the real motive
force of historical development. Because every major peasant rebellion and
peasant war dealt blows to the contemporary feudal rule, they thus promoted
the development of social productive forces to some extent.” (8) However,
renegades like Ch’en Po-ta attributed the development of social productive
forces to the “concessions” made by the feudal ruling class. This runs coun-
ter to historical facts. In history, the landlords never made concessions to
peasant rebellions. They always resorted to bloodthirsty suppression, coun-
terattacks, and trickery, but never to “concessions.” Renegade Ch’en Po-ta’s
theory about “concessions” was purely an attempt to beautify the landlords.
The Development of a Commodity Economy and Primitive
Accumulation Gave Birth to and Promoted Capitalist
Production Relations
In the late feudal period, with the further development of a commodity
economy, capitalist production relations arose.
Simple commodity production in the feudal society was based on pri-
vate ownership and individual labor. The purpose of production was ex-
change. Small commodity producers had to sell their products in the market.
But because every commodity producer had different production conditions,
skills, and labor intensity, labor spent on each type of commodity varied. On
the other hand, similar commodities were sold at the same price. This consti-
tuted a contradiction. With the development of this contradiction, a small
number of small commodity producers with better conditions prospered. But
the majority of small commodity producers with poorer production condi-
tions were increasingly impoverished. Thus, the simple commodity produc-
ers were polarized.
In the feudal society, craft guilds were often formed to prevent competi-
tion among handicraftsmen in the same line or from handicraftsmen from
other areas or lines. Members of the guilds had to obey guild regulations. In
the handicraft guild, there were the master, journeyman, and apprentice. The
relations between the master and the journeyman and apprentice were basi-
cally feudal with slight exploitation. These guilds limited the polarization
among the small commodity producers. But with the development of a
commodity economy, some comparatively prosperous masters were unwill-
ing to obey the guild regulations. They indiscriminately increased the num-
ber of journeymen and apprentices, lengthened their labor time, improved
production techniques, and gradually converted their journeymen and ap-
prentices into hired hands. Other bankrupt masters, journeymen, and appren-
tices gradually joined the ranks of hired hands. On the basis of polarization,

20
 2. Social and Economic Systems Preceding Capitalism
there gradually appeared the capitalist relations of employment.
In the process of polarization among the small commodity producers
and the emergence of capitalist production relations, commercial capital
played an important role. The merchant was originally the middleman in
commodity exchange. Later he became a contract merchant who contracted
to sell the products of the commodity producers. He later supplied raw mate-
rials and even tools to the small producers who were to produce products at
specified times and of a certain quality, quantity, type, and specification.
Thus, the small commodity producer was entirely controlled by the merchant
and became a hired hand. And the merchant himself became an industrial
capitalist.
In the countryside, during the period of late feudal society, because of
the development of a commodity economy, the landlord class gradually con-
verted to money rents. This daily increased the peasants’ dependence on
markets and hastened their polarization. The majority of peasants went bank-
rupt and degenerated into hired farm hands. A few elevated themselves to
become rich peasants and later agricultural capitalists.
Thus, capitalist production relations gradually established themselves in
feudal society. In China’s late feudal society, with the development of a
commodity economy, the seeds of capitalist production relations were about
to sprout. Without the influence of foreign capitalism, China was gradually
to develop into a capitalist society.
The establishment of capitalist production relations in feudal society
was closely related to the development of productive forces. In the begin-
ning, the small workshops of the handicraftsmen became large capitalist
workshops. In these workshops, hand labor was still the rule. But with many
workers working together under unified capitalist command, simple coop-
eration was possible, forming a new productive force. Later, capitalist sim-
ple cooperation developed into capitalist factory handicraft industry. The
characteristic of the factory handicraft industry was division of labor among
workers producing the same commodity with each specializing in one pro-
cess. It simplified labor processes and improved labor productivity by inten-
sifying labor input. It also created the conditions for the substitution of ma-
chine operation for hand operation.
The development of capitalist production relations depended on two
basic conditions: First, there had to be a large body of proletariat who could
freely sell their labor. Second, there had to be a prior accumulation of a large
amount of pecuniary wealth. To facilitate the development of capitalist pro-
duction relations, the bourgeoisie used violence to create these two condi-
tions. Therefore, in the development of capitalism, there was a process of
primitive accumulation.
An important method of primitive accumulation was exploitation of the
peasant. England, where capitalist production relations first developed, was
21
Fundamentals of Political Economy
a typical example. During the more than three hundred years from the 1470s
until the early nineteenth century, the English ruling class launched the “en-
closure” movement by forcibly taking land from the peasants. The modern
industry of England started from wool textiles. The wool textile industry
required a large amount of wool, thus forcing up its price. The big landlords
and farm operators enclosed land wherever they could to raise sheep to cash
in on the fortune. They forcibly evicted peasants from their land, demolished
and burned down their houses, and expropriated large amounts of means of
production and means of livelihood. The enclosure movement forced a large
number of peasants to leave their native places and wander far afield beg-
ging for their livelihood. Following this, the English ruling class promulgat-
ed various bloodstained legislation to forbid the peasants from drifting and
force them to accept hired employment under harsh conditions.
The plundering of pecuniary wealth was another important method of
primitive accumulation. The European bourgeoisie resorted to armed inva-
sions of Asia, Africa, America, and Australia to establish the colonial sys-
tem. They launched commercial warfare and plundered the colonies’ materi-
al resources and pecuniary wealth in order to amass capital for the estab-
lishment of large-scale capitalist production.
Therefore, the process of primitive accumulation was the process of
forcing the separation of the direct producers from their means of production
and concentrating pecuniary wealth in the hands of the capitalists as capital.
Marx penetratingly pointed out, “This history of expropriation (of the direct
producers by the bourgeoisie) was written with blood and fire into the hu-
man chronology.” (9) The process of primitive accumulation vividly demon-
strated that the capitalists did not “start from scratch,” but depended entirely
on plundering. “Capital comes dripping from head to foot, from every pore,
with blood and dirt.” (10)
Bourgeois Revolution Declared the Collapse of Feudalism
The birth and development of capitalist production relations in feudal
society was severely restricted by feudal production relations and their su-
perstructure. They were prevented from assuming a dominating role in feu-
dal society because the feudal ruling class would never willingly retire from
the historical stage. They inevitably used the state machinery in their control
to protect the outdated feudal system. The bourgeoisie and the intellectuals
representing capitalist production relations publicized capitalist production
relations as “manifestations of eternity and rationality” and “an eternal law
of Nature.” They championed so-called “freedom, equality, and universal
love” and denounced feudalism in their efforts to prepare public opinion for
the bourgeois revolution to overthrow feudalism. In the bourgeois revolu-
tion, the major class forces were the peasants, the proletariat, and the bour-
geoisie. The peasants were the major force, but not the representatives of the
22
 2. Social and Economic Systems Preceding Capitalism
new productive forces. The proletariat had not formed its independent politi-
cal force, so the bourgeoisie assumed the leadership of the bourgeois revolu-
tion.
In old China, because it was a semifeudal and semicolonial society, the
bourgeoisie was divided into two parts. One was the bureaucratic bourgeoi-
sie. It depended on imperialism. Along with the landlords, its members rep-
resented the most backward and most reactionary production relations. They
were the targets of the Chinese bourgeois democratic revolution. The second
part was the national bourgeoisie. It was subject to the oppression and re-
striction of imperialism and feudalism on the one hand but was also closely
related to them on the other. This determined that the national bourgeoisie
was a force on the side of democratic revolution under some conditions. But
it was also weak and unstable. Therefore, “it was determined historically that
the task of anti-imperialist and antifeudal bourgeois democratic revolution
could not be completed by bourgeois leadership, but only by proletarian
leadership.” (11)
Although the bourgeois revolution was a revolution in which one form
of exploitation replaced another, this revolution also had its reversals. In the
course of the revolution, there were acute class struggles involving attempt-
ed restorations by the feudal class and opposition to restorations by the
bourgeoisie. England started its bourgeois revolution in 1640. Not until after
two internal wars was Charles I, a representative of the Stuarts, executed. In
1660, Charles II, another representative of the Stuarts, again attempted resto-
ration. In 1688, the English bourgeoisie invited the Prince of Orange (Wil-
liam III) from Holland to overthrow the Stuart House. Only then was the
bourgeois dictatorship stabilized. In France, in the eighty-six years from
1789 when the bourgeois revolution exploded until 1875 when the Third
Republic was formed, advances were mixed with retreats, republics with
monarchies, revolutionary terror with anti-revolutionary terror, internal with
external wars, with conquests by foreign countries, without a moment of
peace and stability. Even so, because the feudal system was rotten, it still
could not escape its extinction no matter how hard it tried to struggle. The
replacement of feudalism by capitalism was inevitable.
Major Study References
Marx and Engels, Communist Manifesto.
Engels, The Origin of the Family. Private Property and the State.
Chairman Mao, “The Analysis of Chinese Social Classes ”
Chairman Mao, “The Chinese Revolution and the Chinese Communist
Party” Chapter 1.
Review Problems
1. How did private ownership, classes, and the state arise?
23
Fundamentals of Political Economy
2. How did the contradictions between production relations and produc-
tive forces in the slave society and the feudal society manifest themselves in
class struggle?
3. What were the major conditions for the birth and development of cap-
italist production relations?
Notes
* Tzu-pen-chu-i i-ch’ien ti she-hui ching-chi chih-tu — yuanshih she-
hui, nu-li she- hui ho feng-chien she-hui ti shengch’an kuan-hsi.
1) Engels, “The Role of Labor in the Transformation of Apes into
Man,” Complete Works of Marx and Engels. Vol. 3, Jen-min ch’u-pan-she,
1972, p. 508.
2) Engels, Anti-Dühring. Selected Works of Marx and Engels. Jen-min
ch’u-pan-she, 1972, p. 154.
3) “On Practice,” Selected Works of Mao Tse-tung. Vol. 1, Jen-min
ch’u-pan-she, 1968, p. 260.
4) “The Chinese Revolution and the Chinese Communist Party,” Select-
ed Works of Mao Tse-tung. Vol. 2, Jen-min ch’u-pan-she, 1968, p. 585.
5) Communist Manifesto. Selected Works of Marx and Engels. Vol. 1,
Jen-min ch’u- pan-she, 1972, p. 250.
6) “The Chinese Revolution and the Chinese Communist Party,” Select-
ed Works of Mao Tse-tung. Vol. 2, Jen-min ch’u-pan-she, 1968, p. 585.
7) The German Ideology. Selected Works of Marx and Engels. Vol. 1,
Jen-min ch’u- pan-she, 1972, p. 52.
8) “The Chinese Revolution and the Chinese Communist Party,” Select-
ed Works of Mao Tse-tung. Vol. 2, Jen-min ch’u-pan-she, 1968, p. 588.
9) Marx, Capital. Vol. 1, Complete Works of Marx and Engels. Vol. 23,
p. 783.
10) Ibid., p. 829.
11) “The Task of the Chinese Communist Party in the Anti-Japanese
Period,” Selected Works of Mao Tse-tung. Vol. 1, Jen-min ch’u-pan-she,
1968, p. 241.

24
3. The Analysis of Capitalist Society Must Start
from Commodities
Commodities. Money, and the Law of Value*
Chairman Mao points out: Marx “started from the simplest capitalist
factor — commodities — to analyze closely the economic structure of the
capitalist society” (l) Why did Marx start from commodities in his analysis
of capitalist economy? This is because every product in the capitalist society
is a commodity. Not only are means of production and consumer goods
commodities, even human labor is a commodity. Here, social wealth is re-
flected as a large amount of accumulated commodities. Commodities be-
come the cell structures of the capitalist economy. In commodities are em-
bodied all the contradictions of capitalism. Therefore, the study of capitalism
must start from an analysis of commodities.

The Commodity Relation Embodies the Seeds of All

Capitalist Contradictions
Commodities Consist of Two Components: A Use Value and an
Exchange Value
Commodities, the product of labor, are for sale and exchange. They
went through a historical process of birth and development. In the primitive
society, people labored together. The products obtained were all consumed
by the members of the primitive commune. Under these conditions, there
was no exchange or production of commodities. The exchange and produc-
tion of commodities developed gradually in the slave and feudal society.
Their development reached a peak in the capitalist world.
What are the basic characteristics of commodities which are the cells of
the capitalist economy?
Since commodities are labor products for exchange, they must first of all
be useful to people. For example, rice can fill our stomachs, clothes can keep
us warm, iron and steel can be made into machines, and tractors can plow.
This usefulness of a commodity is called use value. Obviously, if something is
not useful, nobody needs it. It cannot, therefore, qualify as a commodity.
Use value is a necessary condition of a commodity but not the only con-
dition. Not all useful things are commodities. For example, air and sunshine
are basic necessities for our survival, but they are not labor products. They
are free goods and therefore not commodities. Further, though food grains
and vegetables are labor products, if they are produced for one’s own con-
sumption, they are not commodities. Again, though food grains turned in by
the peasant to the landlord as rent are not for the peasant’s own consump-

25
Fundamentals of Political Economy
tion, they are not paid for by the landlord and cannot, therefore, be regarded
as commodities.
Labor products can become commodities only if they are transferred to
other people through exchange. Therefore, in addition to use value, com-
modities must also be exchangeable for other products. This characteristic of
commodities is called exchange value.
Exchange value is first expressed as a numerical proportion between one
use value and another use value. For example, one chang of cloth is ex-
changed for two tou of rice. The two tou of rice is the value in exchange for
one chang of cloth.
The numerical exchange proportion between two commodities varies
according to time and place. But at a given time and place, this proportion is,
on the whole, uniform. What determines this exchange proportion? Obvious-
ly, if various commodities can, in the course of exchange, establish among
them numerical proportions, they must have something in common. This
common property cannot be their use values. From the viewpoint of their use
values, every commodity is different in nature. For example, cloth can be
made into clothes, and rice can fill our stomachs. These are two entirely dif-
ferent use values and cannot be compared. The common property among the
commodities must be found in their exchange value. And when the use value
of both commodities, whether cloth or rice, is ignored, the only characteris-
tic left is that they are both labor products. Labor has been expended for
their production. This embodied labor constitutes value. Values are compa-
rable, and therefore commodities can be compared in quantity. The fact that
one chang of cloth can be exchanged for two tou of rice implies that their
production requires an equal quantity of labor. Consequently, they are equal
in value. Exchange value is therefore determined by value. Exchange value
is an expression of value. Value itself is the basis of exchange value.
Use value and value are the two characteristics of commodities. They
constitute the two factors of commodities. Use value is the material support
for value. If one commodity has no use value, no matter how much labor has
been expended on it, no value can be formed. And it cannot be a commodity
in exchange for other labor products. At the same time, only use value creat-
ed by labor can become the use value of commodities. Even if something is
absolutely essential for our survival, such as air and sunshine, it cannot be-
come a commodity unless labor has been expended on it.
The Duality of Commodities Is Determined by the Duality of
Labor Used in Commodity Production
Where does the duality of commodities come from? When we go to the
source, we discover that labor used for commodity production has a dual
nature: it consists of concrete labor on the one hand and abstract labor on the
other.
26
 3. The Analysis of Capitalist Society Must Start from Commodities
To produce various use values, people have to engage in various pur-
poseful production activities. For example, carpenters make tables, and
peasants raise crops. They all have their own tools, their objects, and their
methods. The labor of a peasant consists of using various farm tools to plow,
rake, plant, and harvest, finally producing food crops. This labor expended
in different concrete forms is called concrete labor. Concrete labor creates
use value. There are many different use values for commodities. There are
also many different forms of concrete labor in commodity production. Con-
crete labor in various trades and occupations is different, a manifestation of a
complex division of labor.
Various concrete labor is different in nature and cannot be compared.
But in the market, various labor products can be compared. This shows that
labor expended on commodity production not only has an aspect of differ-
ence, but also an aspect of similarity.
What is this similarity? It lies in the fact that although labor is different
in its concrete forms for the production of various commodities, it is basical-
ly an expenditure of physical and mental human labor. This homogeneous
labor abstracted from its concrete characteristics is called abstract labor. The
value of commodities is created by abstract labor. Earlier, we said labor em-
bodied in commodities constitutes value. Now, after analyzing the duality of
labor, we can be more specific about the meaning of value. Value is the ab-
stract labor embodied in commodities.
Concrete labor and abstract labor are not two different types of labor.
They are merely two aspects of the same labor. People must engage in vari-
ous forms of concrete labor in the production of various use values for the
satisfaction of various needs. Concrete labor expresses the relation between
man and Nature. On the other hand, abstract labor provides a unified meas-
ure to compare the labor expended on the production of various commodi-
ties. Therefore, abstract labor expresses the social relation in which labor is
exchanged among people under the condition of commodity production.
The Value of Commodities Is Determined by the Socially
Necessary Labor
The value of commodities is created by labor. Its level is determined by
the labor expended on the production of commodities. And the volume of
labor is measured by labor time. The longer the labor time needed for the
production of a commodity, the larger the volume of labor and the higher the
value.
Does this mean that the lazier and more unskilled a man is, the more
valuable the commodity he produces would be? Definitely not.
The production of a given commodity requires different labor time from
different commodity producers for obvious reasons. Some are more skilled
than others. And some use better tools and equipment than others. The time
27
Fundamentals of Political Economy
required by those who are more skilled and use better tools and equipment is
naturally shorter than the time required by those less skilled and using crude
tools and equipment. Then, which labor time should be used to determine
the value of commodities?
The labor time expended by various commodity producers on commodi-
ty production is called individual labor time. For example, some carpenters
spend thirty hours to make a table, some twenty-five hours, and others twen-
ty hours. These are all individual labor times. The value of commodities is
not determined by the individual labor time, but by the socially necessary
labor. “Socially necessary labor is such labor time as is required for produc-
ing a use value under existing normal conditions of production and with the
average amount of skill and intensity prevalent at the time.” (2) If under
normal production conditions and with the average amount of skill and in-
tensity the required time to make a table is twenty-five hours, then twenty-
five hours are the socially necessary labor for making tables. Twenty-five
hours’ labor is the socially necessary labor determining the value of a table.
When we talk about labor determining value, we must distinguish be-
tween not only individual labor and socially necessary labor, but also be-
tween simple labor and complex labor. Simple labor is labor that can be per-
formed by a normal, healthy person without going through special training.
Complex labor is labor performed by a skilled worker who has undergone
certain special training. Therefore, in a given period of time, the value creat-
ed by simple labor is less than that created by complex labor. Complex labor
is multiple simple labor. The conversion between complex and simple labor
is spontaneously carried out in the exchange process.
The Contradiction between Private Labor and Social Labor Is
the Basic Contradiction of Commodity Production
We have analyzed above the duality of commodities, the duality of labor
in commodity production, and the value of commodities. With this basic
understanding, we can further analyze the contradictions of commodity pro-
duction.
Commodities are used as exchange for labor products. Commodity pro-
ducers produce commodities not for their own needs, but for sale in ex-
change for the commodities they need. For example, the blacksmith does not
make hoes because he needs them. What he is concerned about is selling the
hoes to realize their value for the exchange of the rice and cloth he needs.
Whether his commodities can be sold or not is of vital concern to the com-
modity producer.
Commodities are a unifier between the opposites of use value and value.
Concrete labor and abstract labor in commodity production are also oppo-
sites in unity. They are unified in a commodity, but they are also opposites.
If the commodity can be sold, their internal contradictions are resolved.
28
 3. The Analysis of Capitalist Society Must Start from Commodities
When a hoe reaches the hands of a peasant who needs it, concrete labor is
converted into abstract labor, and the blacksmith obtains the value of his
hoe. The use value and the value of the hoe are also unified. But if the com-
modity cannot be sold, the contradiction between use value and value and
the contradiction between concrete labor and abstract labor are immediately
revealed. Although the hoe obviously possesses use value, if it cannot be
sold, its value cannot be realized, and the hoe is no better than a heap of
scrap. In this case, the concrete labor of the blacksmith, which also obvious-
ly represents the expenditure of physical and mental labor, cannot be con-
verted into abstract labor. In other words, his labor is not recognized by so-
ciety and is as good as wasted. Under these conditions, the blacksmith has
no means to purchase pig iron and charcoal with which to engage in more
production. He certainly has no means to buy fuel, rice, oil, and salt to sup-
port himself. The contradictions between use value and value and between
concrete and abstract labor bear directly upon the production and livelihood
of the commodity producer.
How do these contradictions in commodity production arise? Where are
their origins? There is one basic contradiction in commodity production un-
der private ownership. This is the contradiction between private and social
labor. Since commodities are labor products used for exchange and since the
use value created by the producer is not for the satisfaction of his own needs
but to satisfy social needs, the labor of the commodity producer is social in
nature. It is a part of total social labor. But under the condition of private
ownership, what and how much to produce and the size of his income are the
private affairs of the producer. Therefore, the labor of the commodity pro-
ducer also possesses the nature of private labor. This contradiction between
private and social labor is the source of all contradictions of commodity pro-
duction under private ownership. When the commodities produced by the
private producer are sold in the market, it shows that his private labor is rec-
ognized by society and constitutes a part of the social labor. If the commodi-
ties cannot be sold, the private labor of the commodity producer is not rec-
ognized by society and cannot be converted into social labor. The concrete
labor of the commodity producer cannot be converted into abstract labor.
The value of commodities cannot, therefore, be realized.
Marx’s Labor Theory of Value Is the Basis of the Theory of
Surplus Value
Through the analysis of the duality of labor, Marx firmly created the la-
bor theory of value. This theory scientifically demonstrates that concrete
labor creates the use value of commodities, while abstract labor creates the
value of commodities and labor is the sole source of value. Marx’s labor
theory of value is the basis of Marx’s theory of surplus value and is an im-
portant constituent part of Marxist political economy.
29
Fundamentals of Political Economy
Before the proletariat received the guidance of Marxist theory, they did
not realize the source of their sufferings and could not identify the objects of
their struggle. Some mistakenly thought that their sufferings were caused by
machines and once resorted to destroying machines as a method of struggle.
Marx summarized the long experience of the proletarian struggle and created
the theory of surplus value to expose the secret of capitalist exploitation.
This made the proletariat realize their historical mission and the fact that
only through violent revolution and the replacement of capitalism by social-
ism could they be liberated. Marx’s theory of surplus value is based on the
labor theory of value. Without the labor theory of value, the theory of sur-
plus value could not have been established.
Because Marx’s labor theory of value provided theoretical guidance to
proletarian revolutionary struggles, bourgeois economists tried their best to
establish all sorts of antiscientific theories of value in a vain attempt to sepa-
rate the relations between value and labor, to oppose Marx’s labor theory of
value, and to conceal capitalist exploitation.
Among the vulgar economists, a production-costs theory of value was
once much in vogue. This theory says that the value of a commodity is de-
termined by the costs of production (the value of the means of production
and labor wages) expended on its production. If the value of a commodity is
in fact determined by the costs of production, then the capitalist would only
get back the costs of production expended when the commodity is sold. How
can he ever get rich this way? Where is the exploitation of the worker?
Therefore, those vulgar economists who proposed that value was determined
by the cost of production necessarily explained profit as a form of higher
wage, a reward for abstinence, an award for risk. This fully exposed their
ugly role as apologists for the bourgeoisie.
Among the bourgeois vulgar economists, another utility theory of value
was also once in vogue. According to this theory, the value of a commodity
is determined by the amount of utility it possesses. What then is “utility”?
This is, in fact, the use value of a commodity. We said earlier that various
commodities had different use values which were not comparable. It is simp-
ly not logical to say that the value of a commodity is determined by its use
value. The utility theorists of value could not intelligently explain why such
things as air and sunshine, which are essential for human survival, did not
possess any value and could not be sold as commodities.
Another popular theory among the bourgeois vulgar economists was a
supply-demand theory of value. This theory denied that there was any objec-
tive, intrinsic value in a commodity and thought that the value of commodi-
ties was determined by the supply and demand conditions in the market.
When the supply of a certain commodity exceeded its demand, its exchange
value for other commodities was lower, and its value was lower. But when
the demand for a commodity exceeded its supply, its exchange value for
30
 3. The Analysis of Capitalist Society Must Start from Commodities
other commodities was higher, and its value was higher. This theory was
obviously fallacious. The supply-demand theorists of value simply cannot
explain what determines the value of a commodity when supply is equal to
demand; neither can they explain why in the changing relations between
supply and demand for various commodities, some commodities are consist-
ently more expensive than others.
Although the bourgeois economists tried their best to negate the labor
theory of value, truth can never be negated. Marxist labor theory of value
has been proven to be the only correct theory in its struggle against various
pseudoscientific theories of the bourgeoisie.

Money Is a Natural Product of the Development of

Commodity Exchange
Money Is a Special Commodity Serving as a Universal
Equivalent
Money is associated with commodities because in daily life the value of
commodities is expressed in terms of money And commodities are bought
with money However, the value of commodities was not expressed in terms
of money from the start. Money is a product of the development of commod-
ity production and exchange.
Commodity exchange started out as direct barter among commodities.
In the beginning, the nomad tribes and agricultural tribes exchanged their
surplus products. For example, sheep were exchanged for rice. At that time,
the exchange of commodities was on an occasional basis and occurred main-
ly among clan communes. In the course of exchange, the value of a com-
modity was accidentally expressed in terms of another commodity. For ex-
ample, two sheep equal one bag of rice. The value of a sheep could not be
evaluated in terms of itself. But when sheep were exchanged for rice, the
value of a sheep was expressed in terms of rice. In the above equation,
commodities such as rice assumed the special role of an “equivalent.” They
acted like a mirror and in them the value of another commodity could be
reflected.
With the development of productive forces and social division of labor,
commodity exchange daily developed. Both the volume and the variety of
commodities being exchanged increased. In the course of exchange, one
commodity could be traded for many other commodities. Its value could be
expressed in many other commodities. At the same time, with the develop-
ment of commodity exchange, the disadvantages of direct barter among
commodities were increasingly evident. Direct barters could be concluded
only when both sides happened to need what the other side had to offer. For
example, suppose that the owner of sheep wanted to exchange them for food

31
Fundamentals of Political Economy
grains, but the owner of food grains needed a hoe instead of sheep and the
owner of hoes wanted cloth instead of sheep or food grains. If the owner of
cloth happened to want sheep, then, the seller of sheep could obtain food
grains by first exchanging sheep for cloth, then cloth for hoes, and finally
hoes for food grains. The expected purpose of exchange was realized only
after much trouble. If the owner of cloth did not need sheep, then no matter
how much trouble he went through, he still could not get what he wanted.
Therefore, when commodity production increasingly developed, direct bar-
ters proved to be extremely difficult.
In the course of commodity exchange, people gradually realized that if
they first exchanged what they had for some commodity (like sheep) which
was generally needed and used it to exchange for what they needed, then the
purpose of exchange could be realized in only two transactions. Therefore,
in the long developmental process of commodity exchange, commodities
such as sheep would be separated from other commodities and perform a
role not possible for other commodities. Then, the values of all commodities
were all expressed in terms of sheep. And sheep assumed the role of a “uni-
versal equivalent” in commodity exchange.
In the long process of the development of commodity exchange, nations
used different mediums of exchange, including sheep, shells, cloth, and met-
als. Finally, they decided to use precious metals such as gold and silver as
money. Because the precious metals are small in quantity but great in value,
easy to carry, readily divisible, and not perishable, they are suitable for a
medium of exchange. Hence, gold and silver are generally accepted as mon-
ey. Note, however, that money is not an innate property of gold and silver; it
is acquired. Gold and silver became money under certain historical produc-
tion relations.
From the origin of money, one can understand the nature of money.
Money is a special commodity separated from other commodities and serv-
ing as a medium of exchange.
The Five Functions of Money Evolved Step by Step
The property of money is manifested in its functions. Money possesses
five functions which are evolved in the process of commodity exchange.
These functions are to serve as (l) a unit of value, (2) a medium of exchange,
(3) a standard of payments, (4) a store of value, and (5) a universal currency.
Of these, the basic functions are as a unit of value and as a medium of ex-
change. But they have all evolved with the emergence of money.
The first function of money is as a unit of value. Just as a ruler is used to
measure the length of things, money is used to measure the value of com-
modities. Money functioning as a measure of value can be conceptual mon-
ey. This is to say, when people use money to evaluate the value of commodi-
ties, they need not have money in their hands. For example, a table is worth
32
 3. The Analysis of Capitalist Society Must Start from Commodities
ten yuan. But there is no need to put ten yuan on the table. When the values
of commodities are expressed in terms of money, they are the prices of the
commodities. Prices are the expression of values in money terms. The prices
of commodities are determined by two factors. One is the value of the com-
modities themselves, and the other is the value of money (gold, silver). The
prices of commodities are directly proportional to the value of the commodi-
ties themselves and inversely proportional to the value of money. For exam-
ple, a buffalo is worth five hundred hours of social labor and one ounce of
gold is worth five hundred hours of social labor. Then, the price of a buffalo
is one ounce of gold. If the labor productivity of gold miners is doubled and
one ounce of gold is now worth only two hundred and fifty hours of social
labor, then, even though the value of a buffalo has not changed a bit, the
price of a buffalo has doubled.
The second function of money is as a medium of exchange, namely, it
serves as a medium of commodity circulation. Commodity circulation is
commodity exchange by means of money. Before the appearance of money,
commodities were bartered directly. In terms of a formula, it is expressed as
commodity equals commodity. After the appearance of money, all com-
modities were exchanged in terms of money. In terms of a formula, it is ex-
pressed as commodity equals money equals commodity. This role of money
as a medium in commodity circulation is the function of money as a medium
of exchange.
The money used as a medium of exchange was originally gold and sil-
ver pieces of different sizes and weights. This was later replaced by coins.
Coins were merely minted metal pieces of uniform shape, purity, and weight
certified by the state. The coins of various countries were all different. In
China’s late Shang dynasty, coins began to be minted with copper. The old-
est coins were made of copper and shaped like farm tools. They were known
as pu ch’ien. In the Chou dynasty, in addition to pu ch’ien. there were tao
ch’ien and yuan ch’ien. Yin yuan [silver dollars] were first minted in the
Kuang-hsii period of the Ch’ing dynasty. Each vin yuan consisted of 0.72
ounces of silver.
In the course of circulation, coins were worn out and part of their value
was lost. But even then coins were still accepted at their full value. This was
because the function of money as a medium of exchange was performed in
one instant. People exchanged their commodities for money merely in order
to use it to buy the commodities they needed. The primary concern of the
commodity owners was whether the money could be used as a medium of
exchange and not whether the money had its full worth. For this reason, not
only could worn metal money be used as a medium of exchange, but even
pure value symbols in the form of paper notes could take its place.
Since paper money in place of metal money serves as a medium of ex-
change in commodity circulation, the amount of paper money issued is lim-
33
Fundamentals of Political Economy
ited to the amount of metal money needed for commodity circulation. Marx
pointed out: “The amount of paper money issued, which is a token or sym-
bol of real money, always equals the value of the gold (or silver) needed for
commodity circulation.” (3) If the paper money issued equals the amount of
metal money needed for commodity circulation, then the paper money shall
possess the same purchasing power as the metal money. If the amount of
paper money issued exceeds the amount of metal money needed for com-
modity circulation, then the value of the total paper money still equals the
metal money needed for commodity circulation, but the unit value of the
paper money shall fall in terms of the metal money. Hence, the value of the
paper money depreciates, and commodity prices appreciate. For example, if,
in a given period, the amount of metal money needed for circulation were
100 million yuan but the amount of paper money were 200 million yuan,
then the value of paper money would be halved. The purchasing power of 1
yuan of paper money would be equivalent only to 0.5 yuan of metal money.
This depreciation of paper money resulting from the issue of paper
money in excess of the amount of metal money needed for circulation is
called inflation. In capitalist society, inflation is an important means by
which the bourgeois state plunders its people. The result of inflation is the
depreciation of paper money and rising prices. On the other hand, the in-
creases in the money wages of the workers lag far behind the increases in
prices, resulting in decreases of their real wages and their standard of living.
At the same time, the exploitative income of the bourgeoisie increases rapid-
ly. In old China, the issue of legal tender reached astronomical figures, lead-
ing to galloping inflation and quantum jumps in prices. Some people once
calculated that the purchasing power of 100 yuan of legal tender in 1937 was
two buffaloes. In 1938, it was one buffalo. In 1941, it was one pig. In 1947,
it was one-third of a box of matches. In 1948, it could not even buy one-third
of a matchstick.
The third function of money is as a means of hoarding. The develop-
ment of the money relation of commodities increasingly made money into a
symbol of social wealth. When the natural economy played a dominant role,
the accumulation of wealth assumed the form of food grains, cloth, and silk
goods. After the money relation of commodities was developed, because
money could be used to purchase any commodity, the accumulation of
wealth increasingly adopted the form of hoarding money (gold and silver).
This money which was temporarily retired from commodity circulation and
hoarded by its owner became hoarded money. It served the function as a
means of hoarding.
The fourth function of money is as a means of payment. With the devel-
opment of commodity production and exchange, transactions on credit in-
creasingly developed. When a debt was due, payment had to be made in
money. But at that time, commodity exchange had already been completed.
34
 3. The Analysis of Capitalist Society Must Start from Commodities
Here, money no longer served as a medium of exchange, but rather as a
means of payment. As a means of payment, money was first used among
commodity producers to settle debts. Later, its use went beyond the sphere
of commodity circulation. This function was also instrumental in the pay-
ment of rent, interest, and taxes.
The fifth function of money is as a world currency. With commodity ex-
change proceeding beyond a nation-state, international trade developed, and
a new function of money was created. This was the function of a world cur-
rency. Only gold and silver could serve as world currency.
In the world market, gold first served as a means of payment to settle in-
ternational accounts. This was the major function of a world currency. Next,
in the world market, gold was also used as a means of payment to buy vari-
ous commodities. Finally, gold was transferred from one country to another
as a symbol of social wealth. For example, the payment of war indemnities,
capital export, and other transfers of gold and silver from one country to
another served this function.
The above five functions of money are organically related and are dif-
ferent expressions of the nature of money. They are the expressions of the
different roles assumed by a universal equivalent in the development of
commodity circulation.

The Law of Value Is the Economic Law of

Commodity Production
The Objective Requirement of the Law of Value Is
Equivalence in Exchange
The law of value is the economic law of commodity production and ex-
change. The basic content of this law is this: The value of a commodity is
determined by the socially necessary labor. Commodities must be exchanged
according to their values. That is, there must be equivalence in exchange.
Wherever and whenever the conditions of a commodity economy exist, the
law of value has a role to play. Marx said, “In the anarchic and constantly
changing trade relations of private labor products, the socially necessary
labor time for their production forcibly clears its own path as a regulatory
law of nature, just as the law of gravity forcibly clears its own path when a
house falls on a person’s head.” (4) In other words, in commodity exchange,
although because of the influence of the supply-demand relation the propor-
tions in which commodities are exchanged may change continuously so that
the socially necessary labor (the value) embodied in two commodities being
exchanged may not be exactly equal, in the long run, commodity exchange
necessarily involves equivalence in exchange. The values being exchanged
must be identical.

35
Fundamentals of Political Economy
Why is the objective tendency of commodity exchange toward equiva-
lence in exchange? This is because commodity producers are all concerned
about how much of others’ commodities their own commodities can be ex-
changed for. Due to the influence of the supply-demand relations, the pro-
portions in which commodities are exchanged constantly change. People
increase production of commodities which are more profitable and decrease
production of commodities that are less profitable. As a result, the supply of
the former commodities exceeds the demand for them, and their exchange
values decrease. The supply of the latter commodities falls below the de-
mand for them, and their exchange values increase. This constant change in
the proportions at which commodities are exchanged demonstrates that
equivalence in exchange is an objective law which does not change accord-
ing to people’s will.
With the appearance of money, all commodity exchanges depend on
money as a medium. Values are expressed as prices. The law of value re-
quires equivalence in exchange. In other words, it requires the equivalence
between prices and values. Needless to say, the equivalence between prices
and values must be understood as a long-term tendency. In fact, in a com-
modity economy based on private ownership in which production is uncoor-
dinated, there are constant dislocations in the supply of and demand for
commodities in the market, leading to constant fluctuations of prices. Alt-
hough changes in the supply-demand relations lead to fluctuations in prices,
the fluctuations are always centered around the equilibrium values. There-
fore, nonequivalence between prices and values due to the influence of the
supply-demand relations does not imply the negation of the law of value, but
rather a necessary form through which the law of value operates.

The Three Functions of the Law of Value Which

Arise in the Course of Market Competition
The law of value performs three functions in commodity production
based on private ownership. These functions are realized through the spon-
taneous force of market competition.
First, the law of value is a regulator of production. It spontaneously reg-
ulates the distribution of social labor and the means of production among
various production sectors. Commodity production based on private owner-
ship is conducted under the condition of competition and anarchy. Nobody
has direct information on what or how much society needs. But some order,
allocations, and arrangements are necessary for the continuation of social
production. These allocations and arrangements are regulated by the law of
value and realized through the spontaneous influence of market price fluctu-
ations. If the supply of a certain commodity does not meet the demand for it,
its price will rise above its value, and the production of this commodity be-

36
 3. The Analysis of Capitalist Society Must Start from Commodities
comes especially profitable. The production of this commodity will thereby
be increased. If the reverse is true, its price will fall below its value, and its
production will be decreased. It is in this way that the law of value directs
the activities of commodity producers and regulates the distribution of labor
and the means of production among various production sectors.
Although the regulation of social production by the law of value impos-
es certain order in the commodity economy based on private ownership, this
order is achieved under the condition of anarchy. It is constantly destroyed
by blind competition, and a new order is again spontaneously formed. The
establishment of this kind of order is achieved through an immense waste of
social labor. Just as Marx said, “This orderless motion is its order.” (5)
Second, the law of value stimulates the improvement of production
techniques and labor productivity. Labor productivity is measured by the
amount of products produced in one unit of time. Expressed as a formula:
labor productivity equals amount of products divided by labor time. The
level of labor productivity is determined by many factors. The most im-
portant ones are the skill of labor, the state of technology and its application
to production, and the extent of division of labor and cooperation. According
to the objective requirement of the law of value, commodities are sold ac-
cording to the values determined by the socially necessary labor. Therefore,
whoever is more skilled, more efficient, and uses less than the socially nec-
essary labor time will get more profit. This stimulates the commodity pro-
ducer to pay attention to improving his production techniques and labor
productivity But under private ownership, the improvement of production
techniques by the commodity producer is for the sake of higher profits.
Those who possess new techniques will naturally keep them secret. Under
these conditions, the development of social productive forces is hindered.
Third, the law of value promotes polarization among commodity pro-
ducers. This is because the production conditions of various commodity pro-
ducers are all different. The individual labor time used to produce a certain
commodity varies widely But the law of value requires that commodities are
sold according to the value determined by the socially necessary labor. Thus,
those commodity producers with better production facilities and with indi-
vidual labor time less than the socially necessary labor time will make a
higher profit and develop faster. On the other hand, those commodity pro-
ducers with poorer production facilities and with individual labor time high-
er than the socially necessary labor time will not survive the competition.
Thus, the polarization among commodity producers is inevitable.

Expose the Mystery of Commodity Fetishism

Fetishism originally referred to religions in which people worshiped
things believed to possess certain mystical power. When the level of social

37
Fundamentals of Political Economy
productive forces was low and the control people exercised over Nature was
weak, they made natural forces mysterious. They thought natural forces like
thunder, lightning, water, and fire were controlled by certain gods and there-
fore worshiped them. This also happened in the commodity economy under
private ownership. Although commodities are made by people’s hands, they
were worshiped as gods and believed to hold people’s destiny Marx called
this phenomenon commodity fetishism.
How did commodity fetishism come about?
Under private ownership commodity production, the relations among
men were manifested in commodity relations. Commodities were treated as
if they were something above men, their master. The destiny of the com-
modity producer was entirely associated with the destiny of commodities.
His destiny was entirely determined by whether and how well his commodi-
ties could be sold. If his commodities could be sold at profitable prices, the
commodity producer would be well off. But if they could not be sold or
could only be sold at very low prices, he would be poor. The commodity
producer had no way of knowing beforehand whether there was a demand
for his commodities or whether the commodities could be sold at good pric-
es. The prices of commodities were not determined by the individual pro-
ducers, but rather by the spontaneous forces of the operation of the law of
value in the market. It was this condition that led the commodity producer to
feel that his destiny was beyond his own control and was decided by the fate
of his commodities in the market.
After the appearance of money as a universal equivalent which could be
freely exchanged for all commodities, there arose an illusion that money
itself had a special magical power that could affect people’s destiny. There-
fore, commodity fetishism inevitably developed into money fetishism.
Marx was the first one to reveal the mystery of commodity fetishism.
Marx’s theory on the relations between commodities and money permitted
the revelation of the relations among people, while bourgeois economists
could see only the relations among things and the social relations among
them concealed by things. Marx’s theory irrefutably demonstrated that the
relation between commodities and money will not hold eternally, but will be
a passing historical phenomenon. Therefore, the capitalist economic system
with commodities as its cells is not eternal. Things that were created under
certain historical conditions will disappear when the historical conditions
change. This is an objective law that cannot be changed according to peo-
ple’s will.
Major Study References Marx, Capital. Vol. 1, Chapters 1, 3.
Engels, Anti-Dühring. Part 2, Chapter 5.
Lenin, Karl Marx. (“Marx’s Economic Theories”).

38
 3. The Analysis of Capitalist Society Must Start from Commodities

Review Problems
1. Why do we say that commodity relations embody all the seeds of cap-
italist contradictions?
2. What are the major content and meanings of Marx’s labor theory of
value?
3. What are the roles played by the law of value in a commodity econo-
my based on private ownership?
Notes
* Chieh-p’o tzu-pen-chu-i she-hui pi-hsii ts ’ung shang-p’in k’ai-shih —
shang-p’in, huo-pi, chia-chih kuei-lii.
1) “The Rectification of the Party’s Style of Work,” Selected Works of
Mao Tse-tung. Vol. 3, Jen-min ch’u-pan-she, 1968, p. 775.
2) Marx, Capital. Vol. 1, Complete Works of Marx and Engels. Vol. 23,
p. 52.
3) Ibid., p. 147.
4) Ibid., p. 92.
5) Marx, Wage Labor and Capital. Selected Works of Marx and Engels.
Vol. 1, Jen- min ch’u-pan-she, 1972, p. 360.

39
4. How the Capitalists Exploit and Oppress the
Workers
Capital and Surplus Value*
Capitalist production is commodity production aimed at reaping surplus
value. To understand the nature of capitalist production, we must study
Marx’s theory of capital and surplus value. Only by equipping ourselves
with this theory can we understand the exploitative relation of capitalism,
realize the inevitable extinction of capitalism and the inevitable triumph of
socialism, appreciate the historical mission of the proletariat, and become
conscious revolutionary soldiers of the proletariat.

The Secret of the Exploitation of the Workers by the

Capitalists
The Conversion of Labor Power into Commodities Is the
Precondition for the Production Surplus Value
Every old worker from the old society has a family history full of hard-
ship and suffering. In the old society, the workers “ate like pigs and dogs
and toiled like buffaloes and horses.” They “worked until they were old, and
their lot was worse than a blade of grass.” They were oppressed politically,
and their livelihood was uncertain. But the capitalists never worked. They
bossed the workers around and led extravagant and degenerate lives. Their
wealth increased all the time. Why? Marx’s theory of capital and surplus
value revealed this secret and scientifically answered these questions.
How did Marx’s theory of capital and surplus value reveal the secret of
the capitalists’ exploitation of the workers? We must start from that special
commodity, labor power.
Labor power means human work, the sum total of a person’s physical
and mental effort. In any society, labor power is the chief factor of produc-
tion. But only in the capitalist society is labor power a commodity. There are
two conditions under which labor power becomes a commodity. First, the
laborer is a “free man.” He is free to sell his labor power as a commodity.
Second, the laborer has nothing aside from his labor. He has no means of
production or means of livelihood and must sell his labor power to live.
These two conditions occurred when the feudal society collapsed and in the
course of polarization between the small commodity producers and primitive
accumulation. The employment of workers by the capitalist consists of buy-
ing their labor power and converting them into hired slaves.
Once labor power becomes a commodity, it possesses value and use
value, like other commodities. The value of labor power, like the value of all

40
 4. How the Capitalists Exploit and Oppress the Workers
commodities, is determined by the amount of socially necessary labor re-
quired for its production and reproduction. The capitalist must maintain the
labor capacity of the worker if he wants him to work for him. To maintain
the worker’s labor capacity, it is necessary to feed, clothe, and shelter him
and provide him with means of livelihood. Therefore, the value of labor
power must include, first of all, the value of the means of livelihood needed
to maintain his sustenance. At the same time, workers grow old and die. In
order to maintain the capitalist exploitative system, the capitalist needs new
workers as replacements. Therefore, the value of labor power must also in-
clude the value of means of livelihood needed by the worker to support his
children and other dependents. To more fully exploit the worker, the capital-
ist generally requires him to master certain skills through general education
and training. Thus, the value of labor power must also include the cost of
education and training. But this amounts to very little. In general, it can be
said that the socially necessary labor needed for the production of labor
power is the socially necessary labor needed for the production of the above-
mentioned means of livelihood. In other words, the value of labor power is
the value of the means of livelihood needed to keep the worker alive and his
offspring growing.
As for the use value of labor power, it is different from the use value of
other commodities. Labor power is a special commodity. Its use value pos-
sesses a special characteristic. When the use value of other commodities,
like food grains and clothing, is consumed, no new use value is created. But
the use of this special commodity labor power, that is, the worker’s work,
can create value and, moreover, can create value which is higher than the
value of the labor power itself. “When the capitalist purchases labor power,
it is this augmented value in which he is interested.” (l) This difference is
called surplus value.
The Surplus Value Expropriated by the Capitalist Comes from
the Exploitation of Workers
How then does surplus value arise? Let us examine concretely the pro-
duction process of surplus value. After the purchase of labor power by the
capitalist, he forces the worker to work in his factories to produce commodi-
ties. There are two aspects of capitalist production process. It is a labor pro-
cess. It is also a value-augmenting process.
A labor process is the purposeful process by which people use certain
labor to transform the labor object for human needs. The characteristic of the
capitalist labor process is that the capitalist possesses means of production.
The worker toils under the capitalist’s orders while his labor products belong
to the capitalist. The result of the capitalist labor process is the production of
a certain use value capable of satisfying certain social needs. But that is not
the purpose of capitalist production. The capitalist allows the worker to pro-
41
Fundamentals of Political Economy
duce certain use value only because use value is the material carrier of value.
If he does not provide some use value, there will be no demand for his
commodity, and the value (including surplus value) produced will not be
realized.
The capitalist production process is also a value-augmenting process.
When the workers produce use value, they are also using their active labor to
create new value. The new value which the workers create is higher than the
value of the labor power itself. This is called value-augmenting. This value-
augmenting is the ultimate goal of the capitalist. The value- augmenting pro-
cess is the major theme of the capitalist production process.
Take the example of cotton yarn production. The capitalist first purchas-
es enough means of production for a worker’s twelve-hour workday. Sup-
pose the value of these means of production is equal to forty-eight hours of
labor, totaling twenty-four yuan. He also purchases a day’s labor power from
a worker. Suppose the value of a day’s labor power is equal to six hours of
labor, totaling three yuan. Then the worker is made to spin yarn. Since what
the capitalist has purchased is a day’s labor power, he will not ask the work-
er to work for only six hours. Suppose the worker toils twelve hours a day.
Then, the value of the cotton yarn produced is equal to sixty hours of labor,
totaling thirty yuan, of which twenty-four yuan is transferred from the means
of production and six yuan is the new value created by the worker in twelve
hours’ labor. In this labor process, the capitalist gets only twenty-seven yu-
an, of which twenty-four yuan are used for purchasing means of production
and three yuan for paying wages. The remainder is three yuan. This is the
augmented value created by the worker and expropriated by the capitalist.
The process of value augmenting is the production process of surplus value.
What takes place above still follows the principle of equivalence in ex-
change. But value is augmented, and surplus value produced. The key of this
process is that the capitalist obtains the right to use the labor power he has
purchased. “The use value of the labor power, that is, the labor itself, be-
longs just as little to the vendor as the use value of oil which has been sold
belongs to the oil dealer. The owner of money has paid the daily value of
labor power. Consequently, its use during the day, the whole day’s labor,
belongs to him. The daily sustenance of labor power only costs half a work-
ing day, although such labor power can be in action the entire day. Conse-
quently, the value which its employment creates in a single day is double its
own daily value.” (2) That the capitalist can build larger factories and ac-
cumulate ever more wealth is due to the fact that the value created by labor
is far larger than the value of labor power and the difference is expropriated
by the capitalist.
Through the analysis of the production process of surplus value, we can
see clearly that surplus value is created by workers in the production sphere.
But to conceal the exploitation of workers, the bourgeoisie and their
42
 4. How the Capitalists Exploit and Oppress the Workers
agents insist that the new value obtained by the capitalist conies from the
circulation sphere. We must thoroughly expose such lies. Surplus value can-
not be explained by saying that the buyer buys commodities below their val-
ues or that the seller sells commodities above their values, since the gain or
loss obtained through the transaction will be offset by the change in roles
between buyers and sellers. Neither can surplus value be explained by de-
ceit, because even though deception may increase the welfare of one party at
the expense of another, it cannot increase the total wealth of both parties.
“The whole capitalist class of a country cannot become richer by deceiving
themselves.” (3) If there is any relation between surplus value and the cir-
culation sphere, it is the fact that the capitalist cannot divorce himself from
the circulation sphere in buying labor and selling commodities. In the circu-
lation sphere, the capitalist buys labor power which provides the condition
for producing surplus value. And the capitalist realizes this surplus value
through selling his commodities. In any case, surplus value can only be cre-
ated in the production sphere and not in the circulation sphere. Surplus value
can only be the product of the capitalist’s exploitation of the worker in the
production process.
Once we understand the secret of capitalist exploitation, we can appreci-
ate the nature of capital and the basic economic law under capitalism. Capi-
tal is a value that can bring about surplus value, or it can be said to be a val-
ue with self-value-augmenting power. Capital is not a simple thing. It ex-
presses the capitalist mode of production, namely the class relations whereby
the capitalist exploits the workers.
This relation expressed by capital is a result of historical development.
Means of production and money existed before the emergence of the capital-
ist mode of production. But only under the capitalist mode of production
when capital is owned by the capitalist and is used as a means to exploit the
worker’s surplus value does it become capital. Marx pointed out, “The Ne-
gro is simply a negro. Only under some conditions does he become a slave.
A spinning machine is a machine for spinning cotton. Only under some con-
ditions does it become capital.” (4) Bourgeois economists insisted that the
means of production is capital. According to this reasoning, the stone im-
plements and wood clubs used by primitive man were capital. The purpose
of their fallacies was to conceal the class relations among people with the
relations among things, to conceal the nature of capitalist exploitation, to
negate the fact that capital is a historical category, and to explain capitalism
as eternal and existing from time immemorial.
Marx pointed out in his analysis of the capitalist mode of production
that “to produce surplus value and to make money is the absolute law of this
mode of production.” (5) This law of surplus value is also the basic econom-
ic law of capitalism. It reveals the objective purpose and nature of capital-
ism. There would be no capitalist production without the production of sur-
43
Fundamentals of Political Economy
plus value. All the activities of the capitalist are aimed at squeezing the
sweat and blood from the worker for profit. The capitalist’s greed for money
is never satisfied and his thirst for surplus value is never quenched. This is
the nature of the capitalist. “The purpose of capital is not to satisfy needs,
but to produce profit.” (6) “Capital and its increase in value are the begin-
ning and the end of production and are the means and the end of produc-
tion.” (7) The whole capitalist system is based on the cruel exploitation of
the worker by the capitalist. Capitalism is the evil system in which man ex-
ploits man.
To maintain the capitalist system and conceal the nature of capitalist ex-
ploitation, the bourgeoisie and their spokesmen fabricated all sorts of falla-
cies to deceive the masses. They said that the suffering of the workers was
due to their “bad luck” and that the wealth of the capitalist was a result of
their “diligence and thrift.” These are all lies. The capitalist never works;
how can he be “diligent”? He leads an extravagant and evil life; how can he
be “thrifty”? In the old society the suffering of the worker was not because
of “bad luck,” but because most of the products produced were expropriated
by the capitalist. In short, the poverty of the worker and the wealth of the
capitalist arose from the same source. It was the capitalist exploitative sys-
tem based on the capitalist’s private ownership.

The Cruel Means by Which the Capitalists Exploit

and Oppress the Workers
The Rate of Surplus Value Reflects the Degree of Exploitation
of the Worker by the Capitalist
The capitalist is capital in disguise. His soul is the soul of capital. The
capitalist is a bloodsucker. He will not stop if there is still something left to
be squeezed out of the worker. To get more surplus value, the capitalist tries
his best to increase the exploitation of the worker. We can gauge the degree
of the capitalist’s exploitation of the worker by the rate of surplus value.
To understand the rate of surplus value as a gauge of the degree of the
capitalist’s exploitation of the worker, we must understand the different roles
played by the means of production and labor power in the creation of value
and in augmenting value and the difference between constant and variable
capital.
Means of production is consumed in the process of production and loses
its original value in use. But its value is not lost. It is simply transferred to
new products through the worker’s labor. But this transfer cannot add any
new value. Therefore, the part of capital which is used to buy means of pro-
duction is called constant capital. In contrast to constant capital, the part of
capital used by the capitalist to buy labor power is called variable capital

44
 4. How the Capitalists Exploit and Oppress the Workers
because the new value created by labor exceeds the value the labor power
received. Surplus value is the product of the augmenting of variable capital.
Let us use “c” to denote constant capital, “v” for variable capital, and
“m” for surplus value. Then, the advance payment for capital, is c + v and
the total value of products is c + v + m. Since the value of c is unchanged in
the production process, m is merely the result of the augmenting of v. So to
indicate the degree of exploitation of the worker by the capitalist, we can
ignore c and contrast only m with v. Then m /v is the rate of surplus value.
Using the above example of spinning, v is three yuan, and m is also three
yuan. The rate of surplus value reflecting the degree of exploitation by the
capitalist is thus m/v, that is, 100 percent.
From the process of value-augmenting, we can see that the labor time of
a workday can be divided into two parts: one is the value (wage) used to
reproduce variable capital. That part of labor time is needed for the suste-
nance of the worker and is called necessary labor time. The other part is used
to produce surplus value for the capitalist and is called surplus labor. There-
fore, the rate of surplus value can also be expressed as:
rate of surplus value = surplus value (m) = surplus labor time
variable capital (v) necessary labor time.
To Obtain Absolute Surplus Value through Lengthening
Labor Time
The capitalist always tries to increase the rate of surplus value by in-
creasing the exploitation of the worker. In order to increase the rate of sur-
plus value, the capitalist generally resorts to lengthening labor time. Under
capitalism, the labor time of a worker in a day is the sum of necessary labor
and surplus labor time. Under the condition of constant necessary labor time,
the longer the labor time, the longer the surplus labor time. If, in the begin-
ning, the daily labor time of a worker is twelve hours, six hours of which are
necessary labor time, then six hours are surplus labor time. Now the capital-
ist extends the labor time to fifteen hours. With necessary labor time con-
stant at six hours, surplus labor time becomes nine hours, three hours more
than before. Thus, the ratio between surplus labor time and necessary labor
time changes from six to six to nine to six. And the rate of surplus value is
increased from 100 percent to 150 percent. This surplus value produced by
the absolute lengthening of the daily labor time is called absolute surplus
value.
In old China, the working time of the worker was incredibly long. The
daily labor time was 15, 16 or even more than 18 hours. It was not unusual
for a worker “to see stars in the sky before he went to bed late at night and to
see stars when he had to get up early the next morning.” Prior to liberation,
the workers in San-t’iao-shih, Tientsin, had to work 357 days a year and

45
Fundamentals of Political Economy
about 20 hours a day. Reckoning on the basis of 8 hours a day, it was equiv-
alent to working 893 workdays. One year’s labor was equivalent to nearly 3
years. To lengthen the labor time of the workers, the capitalists thought up
all kinds of restrictions, such as 10 minutes for meals and registration before
going to toilets. They even resorted to the mean trick of setting the clock
back! The longer the worker’s labor time, the longer the surplus labor time
and the longer the absolute surplus value obtained by the capitalist. Under
the cruel exploitation of the capitalist, this constant physical exhaustion se-
verely strained the worker, often resulting in early death.
Though the lengthening of labor time by the capitalist to increase ex-
ploitation is an easy method, it inevitably leads to opposition from the work-
er. At the same time, the capitalist cannot extend the work time to twenty-
four hours a day because there is a physical limit to labor power expenditure.
Thus, the capitalist adopts another, more obscure method by shortening the
necessary labor time and thus lengthening the relative surplus labor time to
increase his exploitation of the worker.
To Extract Relative Surplus Value through Shortening the
Necessary Labor Time
How can the necessary labor time be shortened? We know that the nec-
essary labor time is the labor time needed for the reproduction of the value
of labor power. And the value of labor power is determined by the value of
necessary means of livelihood for the sustenance of the worker and his de-
pendents. If the capitalist adopts new techniques and new machines to in-
crease general labor productivity and thus reduce the value of means of live-
lihood necessary for the reproduction of labor power, then, even if the total
daily labor time of the worker is constant, the relative surplus labor time can
be lengthened because the necessary labor time can now be shortened be-
cause the value of labor power is reduced. Suppose the original necessary
labor time is six hours and the surplus labor time is also six hours. Now, if
the general labor productivity has been doubled, the value of the means of
livelihood necessary for the worker and his dependents will be reduced by
half, and the labor time necessary for reproducing the labor power value will
also be shortened from six to three hours. And the surplus labor time will be
lengthened from six to nine hours, three hours more than before. The ratio of
surplus labor time to necessary labor time changes from six to six to nine to
three. The rate of surplus value increases from 100 percent to 300 percent.
This surplus value created by the shortening of the necessary labor time and
the relative lengthening of the surplus labor time is called relative surplus
value.
It must also be pointed out that the efforts of the individual capitalist to
adopt new techniques and new machines to force the worker to increase his
labor productivity cannot reduce the value of means of livelihood. Therefore,
46
 4. How the Capitalists Exploit and Oppress the Workers
he cannot immediately fulfill his aim of extracting relative surplus value. If
this is the case, why does the capitalist adopt new techniques and new ma-
chines? The direct motive of the capitalist for adopting new techniques and
new machines is to reduce the individual labor time for commodity production
below the socially necessary labor time, so that when he sells his commodities
at values determined by the socially necessary labor time he can get more sur-
plus value than other capitalists. The surplus value resulting from lower indi-
vidual labor time of commodities than the socially necessary labor time is
called excess surplus labor. But the capitalist who first adopts new techniques
is not likely to enjoy this excess surplus value for long because of similar ac-
tions by other capitalists to share part of the excess profit. When the new tech-
niques and new machines have been widely adopted and the general labor
productivity elevated, the value of commodities will come down. The gap be-
tween individual labor time and socially necessary labor time leading to ex-
cess surplus value will disappear. Excess surplus value will also disappear.
However, as a result, general labor productivity will have been elevated. The
values of many commodities will come down, and the means of livelihood
constituting the value of labor will be cheaper. The value of labor power will
be cheaper, and the necessary labor time will be shortened. Consequently, the
capitalist can extract more relative surplus labor.
The greedy capitalist not only resorts to elevating labor productivity to
increase his relative surplus value, he also resorts to shortening the necessary
labor time by increasing labor intensity to extract more relative surplus val-
ue. Marx said: “In a sense, the elevation of labor productivity and the in-
crease of labor intensity serve the same function. They will increase the total
production derived from a given period of time. Consequently, they will
shorten the part of the workday needed for the production of the workers’
own means of livelihood or other equivalents.” (8) The capitalist quickens
the operation of machines, raises the labor quota, and reduces total employ-
ment but not total workload to increase the labor intensity of the worker. The
labor of the worker is ever more demanding. After one day’s work, he is
completely exhausted. Take the example of the Shanghai Shen- hsin Yarn
Mill. In 1933, 440 workers were employed for every 100,000 spindles. In
order to compete with the Japanese-operated yarn mills and to get more sur-
plus value, the capitalists of this mill forced up labor intensity by reducing
the number of workers. In 1934, only 270 workers were employed for
100,000 spindles. In the old society under the oppression of the capitalist,
the workers were so overworked that many became senile at age forty.
Depress Wages below the Value of Labor to Extract More
Surplus Value
The tricks adopted by the capitalist to exploit the worker are numerous.
He often depresses and deducts wages. When we analyzed absolute surplus
47
Fundamentals of Political Economy
value earlier, we assumed that the capitalist pays wages according to the
value of labor power. But the wages of the worker are often below the value
of his labor power. The capitalist tries his best to depress the worker’s wag-
es. Even though the worker’s wages may barely be enough for his suste-
nance, he still tries to make all sorts of reductions to depress wages below
the value of labor power so that even a minimum level of subsistence cannot
be maintained by the worker. For example, there was a regulation in K’ai-
luan Coal Mine: forty-seven cents daily for the mule as fodder, but not more
than twenty-two cents daily for the miner in wages. “Men were inferior to
mules.” Also, in old China, many plants had penal codes for the workers,
with all sorts of fancy items. Sometimes, the fine was even higher than the
wage. For example, emptying water indiscriminately was punishable; look-
ing out of the window was also punishable; assembling and associating were
even more punishable. All the fines finally ended up in the capitalist’s pock-
ets as an additional source of income.
The capitalist employed a large number of women and child laborers to
engage in more cruel exploitation. With the employment of a large number
of women and child laborers, the worker’s wages were often reduced to be-
low the value of labor power. The wages of women and child laborers were
even lower. In old China, women worked for more than ten hours daily, just
like men, but their wages were only two-thirds or half that of men. The wag-
es for child laborers were even lower, often only half that of women. Some
capitalists merely provided some cheap meals with no money wage. The
capitalist treated the “young apprentices” and the “child laborers” as less
than human. Marx pointed out that the capitalist “extracts silk out of the
blood of children who are so young that they have to be helped to their
workshop” (9) Children in the growing stage and at school age were under-
fed, underclothed, and tortured by the capitalist. They were often beaten up
and cursed. A large number of child laborers perished under the cruel exploi-
tation of the capitalist.
In capitalist society the capitalist not only cruelly exploited the worker,
he also ruthlessly oppressed him. In old China, many capitalists stipulated
plant regulations to oppress the worker. The tens or even a hundred penalty
code items stripped much of the worker’s freedom. Examples were “search-
ing before and after work” and “the management has the right to fire work-
ers.” The plants were like prisons, and the workers were like prisoners.
Some capitalists even had military and police forces stationed in the plant to
oppress the workers.
Capitalism brought untold suffering to the worker. It is an evil, exploita-
tive system. But renegade Liu Shao-ch’i tried his best to defend the capitalist
exploitative system and advocated that “exploitation has its merits.” He even
said, “Capitalist exploitation is not only not evil, it has its merits.” This is all
nonsense! Marx’s theory of surplus value is the most eloquent criticism of that
48
 4. How the Capitalists Exploit and Oppress the Workers
so-called “exploitation has its merits.” Liu Shao- ch’i and company’s vain
attempt to restore the capitalist exploitative system in socialist China could
only expose their evil countenance as the spokesmen of the bourgeoisie.

Wages Conceal the Exploitative Relation of

Capitalism
Wages Are a Disguised Form of the Value or Price of Labor
In capitalist society, the worker toiled in the capitalist’s plant and earned
wages from the capitalist. The worker received a day’s wages after he toiled
for a day. He received a week’s wages after he toiled for a week. On the sur-
face, it looked as if all his labor had been compensated and that it was an
“equivalent exchange.” In fact, the form of wages concealed the exploitation
of the worker by the capitalist.
Marx pointed out: “Wages are not what they appear to be. They are not
the value or price of labor, but a disguised form of the value or price of labor
power.” (10) The wages advocated by the capitalist as “the value or price of
labor” are entirely fictitious.
The key lies in the distinction between labor power and labor. This “in-
volves an extremely important question in political economy.” (11) Under
the capitalist system, what is being sold and bought as a commodity is labor
power, not labor.
Why is labor not a commodity and why can it not be bought or sold?
This is because, first, if labor is a commodity, it should exist before it is sold,
just like other commodities. But, in fact, labor is the exercise of labor power.
It does not exist before it is sold. It exists only after it is sold and used in the
labor process. Also, once the worker’s labor is hired out, it no longer be-
longs to the worker himself. His labor belongs to the capitalist. Second, if
labor is a commodity, according to the requirements of the law of value, it
must be exchanged for equivalent value. Then the capitalist should pay the
worker the full value created by the worker as his wage and as payment for
the worker’s labor. If this were the case, then the capitalist would lose his
source of wealth and surplus value would be abolished. There would no
longer be capitalism. Third, if labor is a commodity, it should have a value.
How should this value be determined? We know that the value of all com-
modities is determined by the amount of embodied labor. If the value of la-
bor is also determined by the amount of labor, the result is to evaluate labor
with labor. This is a tautology.
From this we can see that labor is not a commodity. It has no value.
There is no such thing as “the value or price of labor.”
Under capitalism, the capitalist purchases labor power from the worker,
but not labor. The wage paid to the worker by the capitalist is equivalent
only to the value of the labor power. The remainder of what the worker’s
49
Fundamentals of Political Economy
labor creates over and above the value of the labor power is surplus value
which is exploited by the capitalist. Therefore, the capitalist wage reflects
the relation between the hiring capitalist and the hired worker, between the
exploiting capitalist and the exploited worker.
The Downward Trend of the Real Wage of the Worker
The capitalist usually pays wages in money form. When the worker sells
his labor power, he obtains a certain amount of money. The wage expressed
in money form is called the nominal wage. The amount of money cannot
reflect the actual standard of living of the worker. The real standard of living
can only be reflected by the amount of means of livelihood purchasable by
the money wage. This wage that reflects the real standard of living of the
worker is called the real wage.
The nominal wage and the real wage are not always the same. With the
nominal wage held constant, the real wage can decline. When the purchasing
power of money declines and the prices of the means of livelihood go up, the
same amount of the nominal wage can only be exchanged for a smaller
amount of means of livelihood. Then the real wage falls. Sometimes even if
the nominal wage goes up a bit, but less than the increase in prices of the
means of livelihood, the real wage will still decline.
In capitalist society, there is a downward trend in the real wage of the
worker. The bourgeoisie always use inflation, price increases, and rent hikes
to increase the gap between the nominal and the real wage and to exploit the
worker.
In old China, “wages increased at a snail’s pace while prices went up
like a balloon.” To maintain their reactionary rule and plunder the people,
the Chiang [Kai-shek] dynasty quickened the operation of the money print-
ing press. In the twelve years between 1937 and 1949, the issue of notes in-
creased by 140,000 million times and the price index increased by 8,500,000
million times. The worker in old China had more than his share of suffering
from inflation. On the eve of the collapse of the Chiang dynasty, on every
payday “the price of rice jumped three times while one trudged across the
street.” In old China, the worker not only was paid a low wage, but what he
could buy with it was even less. The wage was not worth a damn. It was
almost impossible to support a family. Sometimes after strikes the nominal
wage might go up a little, but prices went up a lot more. The lot of the work-
er was getting worse every day. What was even worse, the rents were very
high. Even a run-down thatched shed cost a fortune. Marx and Engels point-
ed out, “After the exploitation by the plant owner, another group of bour-
geoisie — landlords, proprietors, and pawn shop owners — were waiting to
take turns getting their shares from the worker’s wages.” (12)

50
 4. How the Capitalists Exploit and Oppress the Workers

The Working Class Struggles against Capitalist Exploitation

The decline in the real wage reduced the majority of workers to cold and
starvation. The working class naturally rose to oppose capitalist exploitation.
The economic struggle which the working class undertook to increase
wages in order to protect their right to survive and to oppose the cruel ex-
ploitation of the bourgeoisie was very significant. This was because it not
only delayed the decline of real wages, but it was also able to strengthen the
unity of the working class, elevate their class consciousness, and temper
their combat spirit. But we must not exaggerate the significance of economic
struggle. Marx pointed out that the working class “should not forget: in this
daily struggle they are only opposing the effect, but not the cause that pro-
duces this effect; they are only delaying the downward trend, not changing
the direction of the trend; they are only suppressing the symptom, not curing
the disease.” (13) Therefore, if the working class wants an ultimate solution,
it cannot limit itself to economic struggles but must also extend from eco-
nomic struggles to political struggles, overthrow the reactionary rule of the
bourgeoisie, and demolish the capitalist exploitative system.
However, all sorts of scabs advocated: It is only necessary to engage in
economic struggles. According to their fallacies, there is no need for the
working class to seize political power through violent revolution and demol-
ish the capitalist system. It should be contented with a little wage increase
and some improvement in working conditions. These fallacies peddled by a
handful of scabs were intended to vainly lead the proletarian revolutionary
movement to the stray path of bourgeois reformism. They wanted the work-
ing class to serve as the capitalists’ hired slaves forever. “Workers should
not abide by the conservative motto ‘a fair day’s wage for a fair day’s la-
bor!’ They should write on their banner the revolutionary slogan: ‘Do away
with the system of hired labor!’” (14)
Major Study References
Marx, Capital. Vol. 1, Chapters 4, 5, 10,17.
Marx, Wage Labor and Capital.
Marx, Wage. Prices and Profit.
Chairman Mao, “The Analysis of Chinese Social Classes.”
Chairman, Mao, “The Chinese Revolution and the Chinese Communist
Party,” Chapter 1, Section 3; Chapter 2, Section 4.
Review Problems
1. How does surplus value arise? Why do we say that the production of
surplus value is the nature of capitalist production?
2. What methods does the capitalist use to exploit and oppress the work-
er?

51
Fundamentals of Political Economy
3. Why do we say that the capitalist wage is merely a disguised form of
the value or price of labor power?
4. Why do we have to learn Marx’s theory of surplus value? How do we
use Marx’s theory of surplus value to criticize Liu Shao-ch’i and company’s
viewpoint that “exploitation has its merit”?
Notes
* Tzu-pen-chia shih tsen-yang po-hsiao ho ya-p’o kung-jen ti — tzu-pen
ho sheng-yii chia-chih.
1) Marx, Capital. Vol. 1, Complete Works of Marx and Engels. Vol. 23,
p. 219.
2) Ibid.
3) Ibid., pp. 185-186.
4) Marx, Wage Labor and Capital. Selected Works of Marx and Engels.
Vol. 1, Jen- min ch’u-pan-she, 1972, p. 362.
5) Marx, Capital. Vol. 1, Complete Works of Marx and Engels. Vol. 23,
p. 679.
6) Marx, Capital, Vol. 3, jen-minch’u-pan-she, 1966, p.280.
7) Ibid., p. 272.
8) Marx, Capital. Vol. 1, Complete Works of Marx and Engels. Vol. 23,
p. 578.
9) Ibid., p. 325.
10) Marx, Critique of the Gotha Program. Selected Works of Marx and
Engels. Vol. 3, Jen-min ch’u-pan-she, 1972, p. 17.
11) Engels, “Introduction to Wage Labor and Capital.” Selected Works
of Marx and Engels. Vol. 1, Jen-min ch’u-pan-she, 1972, p. 341.
12) Communist Manifesto. Selected Works of Marx and Engels. Vol. 1,
Jen-min ch’u- pan-she, 1972, pp. 258-259.
13) Marx, Wage. Prices and Profit. Selected Works of Marx and Engels.
Vol. 2, Jen- min ch’u-pan-she, 1972, p. 203.
14) Ibid., pp. 203-204.

52
5. The Widening Gap between the Rich and the
Poor in Capitalist Society
Capital Accumulation and the Impoverishment of the
Working Class*
The capitalist tries his best to extract absolute and relative surplus value
and to convert it into capital for the exploitation and oppression of the work-
er on a larger scale. This process of converting surplus value into capital is
called capital accumulation. The analysis of capital accumulation makes us
realize why in the old society the capitalist who never labored was getting
richer and the toiling worker’s lot was getting worse. It helps us further un-
derstand why the expropriation of the expropriator, the extinction of capital-
ism, and the inevitable triumph of socialism cannot be reversed by any reac-
tionary forces and why the overthrow of the evil capitalist system is the great
historical mission of the proletariat.

Capital Accumulation Increases the Exploitation of

the Workers
Analyze Capitalist Simple Reproduction and Expose the Lie
That the Capitalist Supports the Worker
We said earlier that the conversion of surplus value expropriated by the
capitalist into capital is capital accumulation. Before we analyze capital ac-
cumulation, let us see what would happen if the capitalist spent the expropri-
ated surplus value all on himself instead of converting it to capital. Under
this condition, the production of the capitalist could not be expanded. He
could only carry on capitalist simple reproduction.
Suppose a capitalist started a plant with 10,000 yuan, of which 8.000
yuan was used to buy the plant building, raw materials, and machine equip-
ment (to simplify the example, suppose this 8.000 yuan of means of produc-
tion was totally expended in the year with its value transferred to the prod-
ucts) and 2,000 yuan was used to purchase labor power. Further, suppose the
rate of surplus value was 100 percent. Then the value of annual products
would be equal to 8,000c + 2,000v + 2,000m = 12,000 yuan, of which, 2,000
yuan would be surplus value. If the capitalist spent this 2,000 yuan of sur-
plus value on luxury consumption for himself and his family dependents, the
capital in the capitalist’s hands at the beginning of the second year would
still be 8,000c + 2,000v = 10,000 yuan. If there were no change in the sur-
plus value, the value of the second year’s products would still be 8,000c +
2,000v + 2,000m = 12,000 yuan. In the course of reproduction, the scale of
operation would not have expanded, staying at the original level. This repro-

53
Fundamentals of Political Economy
duction based on the original scale is called simple reproduction.
What does capitalist simple reproduction explain?
First, we can clearly see who supports whom in the capitalist society If
we look at it from one single production process, it looks as if the capitalist
supports the worker by advancing his capital as wages. This is how the capi-
talist puts it. But, if we look at it from the reproduction process, the capital-
ist’s lie is easily exposed. Wages are only part of the value created by the
worker himself in the production process. In the value newly created by the
worker is included not only the value for the support of the worker himself
and the reproduction of labor power, but also the surplus value for the sup-
port of the capitalist and for his extravagant living. Therefore, it is not the
capitalist who supports the worker. On the contrary it is the worker who
supports the capitalist.
Second, from the process of simple reproduction, we can see that the
capital of the capitalist is converted from surplus value. Using our earlier
example, this capitalist who started out with 10,000 yuan spent 2,000 yuan
on his personal consumption. Thus, after five years, his initial capital would
have been completely spent. But, through simple reproduction, after five
years he still had 10,000 yuan as capital. This 10,000 yuan was no longer the
capital he started out with, but the sum total of his continual extraction of
surplus value in five years. Marx said, ‘Ignoring all accumulation, the simple
continuation of the production process or simple reproduction would, after a
longer or shorter period of time, transform any capital into accumulated cap-
ital or capitalized surplus value.” (l)
Since the capital of the capitalist is converted from surplus value created
by the worker, it is entirely reasonable that all means of production expro-
priated from the capitalist should belong to the proletarian state if the work-
ing class has seized political power. This is merely taking back the wealth
created by the labor of the ancestors of the working class.
Finally, from the process of simple reproduction, we can also see that
capitalist reproduction not only reproduces various commodities, but also
reproduces the capitalist production relations. In the process of reproduction,
the worker continuously produces the variable capital used for the purchase
of labor power. When the production process ends, the worker is still an
empty-handed hired laborer, and the capitalist still possesses all the means
for the exploitation of the worker.
The Capitalist Expands Reproduction for the Sake of
Extracting More Surplus Value
We assumed above that the capitalist spent all the surplus value on his
personal consumption. Because of this, reproduction could only be carried
on at the original scale. But, simple reproduction is not the characteristic of
capitalist production.
54
 5. The Widening Gap between the Rich and the Poor in Capitalist Society
The characteristic of capitalist production is expanded reproduction.
To carry on expanded reproduction, the capitalist cannot spend all the
expropriated surplus value on personal consumption. He must spare part of it
for conversion into capital to buy new machines and equipment and to hire
additional workers before he can expand the scale of operation and realize
expanded reproduction.
Suppose the capitalist started out with 10,000 yuan, of which 8.000 yuan
was constant capital and 2,000 yuan was variable capital, and that the rate of
surplus value was 100 percent. When the production process was completed,
the value of products would be 8,000c + 2,000v + 2,000m = 12,000 yuan.
Further, suppose that the capitalist used half of the 2,000 yuan of surplus
value for personal consumption and the other half for accumulation to be
converted into capital. If the proportion between constant capital and varia-
ble capital were kept constant, then from this 1,000 yuan of new capital, 800
yuan would go into constant capital, and 200 yuan into variable capital. In
the second year, the total amount of capital would be increased to 11.000
yuan. Its composition would be 8,800c + 2,200v + 2,200m = 13,200 yuan.
Compared with the value of the first year’s products of 12,000 yuan, this
capitalist realized expanded reproduction.
From capitalist expanded reproduction, we can see that expanded pro-
duction can be carried out only because part of the surplus value has been
converted into capital. If, under the condition of simple reproduction, the
capital invested by the capitalist can be seen as converted from surplus value
only after a period of time, then under the condition of expanded reproduc-
tion, the added capital can be seen as converted from surplus value right
from the beginning.
Why does the capitalist not spend all of the surplus value on his personal
consumption but instead carry out capital accumulation for expanded repro-
duction? Some bourgeois economists explained capital accumulation as the
virtue of “abstinence” on the part of the capitalist, as if capital accumulation
by the capitalist were for the good of society as a whole and involved a re-
straint of his consumption desire.
Marx exposed the nature of “abstinence.” Marx pointed out that the cap-
italist possessed “an absolute desire to get rich.” (2) The greed of the capital-
ist for surplus value is limitless. Surplus value can be increased continuously
only if the capitalist continuously accumulates capital, increases the amount
of capital, and expands the scale of production. At the same time, capitalist
competition also forces him to accumulate capital. Whoever has more capital
is in an advantageous position with respect to the addition of equipment, the
purchase of raw materials, and the adoption of new techniques. He is also
more likely to increase labor productivity and to depress the individual labor
time of a commodity below the socially necessary labor time, so as to tri-
umph in the competition. If the reverse were the case, he would fail in the
55
Fundamentals of Political Economy
competition and be swallowed up by the bigger capitalist. Competition be-
comes a source of pressure on every capitalist. The fear of failure and bank-
ruptcy in competition forces the capitalist to engage in capital accumulation
to strengthen his competitive power. “Competition transforms the internal
law of capitalist production into a coercive external law governing every
capitalist. Competition forces the capitalist to maintain his capital by ex-
panding it continuously. And he expands his capital by progressive accumu-
lation.” (3)
It can be seen that it is not “abstinence” but greed and fear which moti-
vate the capitalist to convert part of the surplus value extracted from the
worker into capital. The more the capitalist exploits, the larger the accumu-
lated capital. The larger the accumulated capital, the more surplus value can
be exploited. Therefore, capital accumulation is not only a result of the ex-
ploitation of the worker, but also a means by which the capitalist extends
and expands his exploitation of the worker.

The Unemployment of Workers Is the Inevitable

Result of Capital Accumulation
The Increase in the Organic Composition of Capital Leads to
the Expulsion of the Worker by Machines
The process of capital accumulation is not only a process of increasing
the total amount of capital. In this process, there is also the change in the
composition of capital and the consequent adverse effect on the proletariat.
From the material side, the composition of capital is expressed as the
proportion between means of production (plant, machines, equipment, raw
materials) and labor power. There is a definite relation between the amount
of means of production purchased and the number of workers employed. For
example, there is a definite number of spindles a worker can manage using a
certain amount of cotton each day. The level of this proportion depends on
the technological level of production in society, the characteristics of various
production spheres, and the degree of mechanization. It also depends on the
technical equipment of various enterprises. Therefore, we can call this pro-
portion the technical composition of capital.
The composition of capital can also be viewed from the value viewpoint.
The value of means of production is expressed as constant capital, and the
value of labor power is expressed as variable capital. The proportion between
constant and variable capital is called the value composition of capital.
There is a close relation between the technical and value composition of
capital. In general, the value composition of capital varies with the technical
composition of capital. ‘The value composition of capital, which is deter-
mined by the technical composition of capital and which reflects its change,

56
 5. The Widening Gap between the Rich and the Poor in Capitalist Society
is called the organic composition of capital.” (4) The formula for the organic
composition of capital is c:v. For example, suppose a capitalist has 10,000
yuan, of which 8,000 yuan is constant capital and 2,000 yuan is variable cap-
ital. Then the organic composition of capital is 8,000c : 2,000v, that is, 4:1.
In the course of the development of capitalism, the organic composition
of capital is not constant. To extract more surplus value and to gain an upper
hand in competition, the capitalist must improve the technical equipment of
the enterprise by substituting machines for hand labor or new machines for
old machines. Thus, the capitalist must increase his capital in machine
equipment. The substitution of machines for labor enables the worker to
produce even more products in a given period of time with an even higher
consumption of raw materials. The capitalist must also increase his capital
for the purchase of more raw materials. Thus, with the continual accumula-
tion of capital, the proportion of constant capital in the total capital constant-
ly increases. On the other hand, the proportion of variable capital gets small-
er all the time, leading to an increase in the organic composition of capital.
In general, the precondition for the increase in the organic composition
of capital is the increase in individual capital. Capital can be increased in
two forms: one is by capital accumulation, that is, an increase in the total
amount of capital by the accumulation of individual capital; the other is by
capital concentration, that is, the absorption of small capital by big capital
through competition or the merger of several companies into a joint-stock
corporation so that capital that was once scattered is concentrated into larger
capital. Capital accumulation and capital concentration inevitably increase
the organic composition of capital.
The increase in organic composition of capital has serious repercussions
for the working class. If the organic composition of capital is constant, the
accumulation of capital will increase the corresponding demand for labor
power. That is, it will correspondingly increase the employment opportuni-
ties of the worker. But after the organic composition of capital is increased,
the result of capital accumulation is no longer the same. It can increase the
total demand for labor power. But this increase will be much smaller than
the increase in constant capital. Under certain conditions, the total demand
for labor power may even be lower than before. This is because the demand
for labor power does not depend on the size of total capital but on the size of
variable capital. For example, when the organic composition of capital is
4:1, it means that for every 100 yuan of total capital, 20 yuan can be used for
hiring workers. But when the organic composition of capital is increased to
9:1, it means that for every 100 yuan, only 10 yuan is available for hiring
workers. Thus, even if the total capital increases from 10,000 yuan to 15,000
yuan, the amount of variable capital decreases from 2,000 yuan to 1,500 yu-
an. This demonstrates that the increase in the organic composition of capital
reduces employment opportunities for the worker. In the capitalist society,
57
Fundamentals of Political Economy
the working class creates machines. But when the machines are used by the
capitalist, a large number of workers are displaced and unemployed. The
adoption of sewing machines by the capitalist led to the unemployment of
many sewing workers. The adoption of packing machines led to the unem-
ployment of many packing workers. The adoption of typesetting machines
led to the unemployment of many typesetting workers. In the development
process of capitalism, with the improvement in techniques and the increase
in the organic composition of capital, employment opportunities for the la-
borers are correspondingly reduced and unemployment increases. This is
called the expulsion of workers by machines.
Relative Surplus Population Is the Inevitable Outcome of
Capital Accumulation
The increase in the organic composition of capital relatively reduces the
demand for labor power. But in the course of capital accumulation, the sup-
ply of labor power increases absolutely. With the development of capitalist
production techniques and the widespread adoption of machines, many labor
operations were so simplified that many women and children could join the
ranks of hired labor. At the same time, in the course of capital accumulation,
a large number of small commodity producers and small capitalists went
bankrupt and had to sell their labor power to support themselves. The devel-
opment of capitalism in the countryside also brought bankruptcy to a large
number of peasants who flocked to the city to earn their living. All these
factors contributed to an absolute increase in the supply of labor power.
Thus, on the one hand, the demand for labor power was reduced rela-
tively. On the other hand, the supply of labor power increased absolutely. In
the end, there always exists in the capitalist society a large body of unem-
ployed, resulting in a relative surplus in population.
The so-called relative surplus population is “surplus” only in relation to
the capital demand for it. It does not imply that the population is in absolute
surplus such that it can no longer be supported by the means of livelihood
produced by society. In fact, there is no such thing as an absolute population
surplus because a person not only has a mouth that can consume food grain,
but also two hands that can create certain material wealth. Once the laboring
masses control their own destiny, they can advance toward the depth and
width of production to create ever more means of livelihood for a more di-
versified life. Only in the capitalist society, where the laborers cannot con-
trol their own destiny and the machines created by them are used as capital,
are the workers displaced as relative surplus population. Therefore, Marx
called the relative surplus population an outcome of “a special law of popu-
lation under the capitalist mode of production.” He pointed out, “Surplus
worker population is an inevitable outcome of accumulation or the develop-
ment of wealth on the capitalist basis.” (5)
58
 5. The Widening Gap between the Rich and the Poor in Capitalist Society
There are three basic forms of surplus population in the capitalist society:
First, mobile surplus population. This refers to the unemployed popula-
tion which has been temporarily displaced in the production process. This
kind of unemployment is most common in industrial centers. In time of cri-
ses and after new machines and new techniques are adopted, some workers
will be displaced. But in time of recovery and when industry further devel-
ops, many of these unemployed workers will be absorbed back into facto-
ries. Very few workers in capitalist countries can escape from unemploy-
ment at one time or another. Most people are employed off and on.
Second, disguised surplus population, that is, surplus population in the
countryside. After agricultural production has become capitalist and with the
increase in the organic composition of capital, the demand for agricultural
workers decreases steadily. Moreover, in agriculture this displacement of
labor power is absolute. Unless new land is reclaimed, no additional labor
power can be absorbed. Some of the laborers displaced by capitalist agricul-
ture drift to the city. Others still cling to a small piece of land and barely
support themselves by intensive cultivation and doing odd jobs. They may
not be unemployed in form, but they are actually surplus in agricultural pro-
duction. This is called disguised surplus population.
Third, static surplus population. These people perform household chores
and do odd jobs. Though still belonging to the current labor force, their jobs
are not stable. Their jobs often involve long hours and low wages. Their
standard of living is depressed below the average level for the working class.
In the capitalist society, in addition to the above three kinds of surplus
population, there is a large number of very poor people who depend on wel-
fare and begging for their livelihood. Among them are the aged, the weak,
the handicapped, the orphaned, and vagabonds who have lost their labor ca-
pacity. They constitute the lowest stratum of the relative surplus population,
and their lot is the worst.
Relative surplus population is an inevitable outcome of capital accumu-
lation. At the same time, these people become the lever of capital accumula-
tion, or even a condition for the existence and development of the capitalist
mode of production. The capitalist uses the existence of the unemployed
workers as a trump card to increase oppression and exploitation of the cur-
rently employed. From the mouth of the capitalist, one can often hear such
vicious words as, ‘It is more difficult to find a hundred dogs than to find a
hundred workers.” Why is the capitalist so ferocious? Because outside the
door of the plant there are thousands and thousands of unemployed workers.
They are used by the capitalist to threaten the workers inside the plant and to
depress their wages. At the same time, capitalism develops amidst competi-
tion and chaos and is characterized by sudden contractions and expansions.
When production suddenly expands, the capitalist’s demand for labor cannot
be met by the natural increase of labor power. The capitalist requires a labor
59
Fundamentals of Political Economy
power “reservoir.” Relative surplus population provides such a “reservoir.”
In this sense, we call the huge army of unemployed in capitalist society an
industrial reserve army. It is required by the existence and development of
the capitalist mode of production.
Malthus’s “An Essay on the Principle of Population” Is a
Reactionary Fallacy in Defense of Capitalism
In the capitalist society, the widespread existence of a huge army of un-
employed is a “good” thing for the capitalist because it is conducive to ex-
ploitation. But it is also a shameful thing because it makes the so-called civi-
lized country look very uncivilized. To remedy this situation, some intellec-
tuals in the service of the bourgeoisie racked their brains to produce biased
theories for the defense of the capitalist system. In the early nineteenth cen-
tury, the reactionary An Essay on the Principle of Population cooked up by a
vulgar English economist named Malthus was one such biased theory.
Malthus advanced a notorious argument. He said that population in-
creases by the geometric progression (1, 2, 4, 8...), while the means of liveli-
hood increases by the arithmetic progression (1, 2, 3, 4...). He argued that
this is the basic reason for surplus population, unemployment, and poverty
among the masses. This contention was intended to explain that unemploy-
ment and poverty are not the evils of the capitalist system, but a result of the
law of Nature. According to Malthus’s theory, wars and plagues are a bless-
ing to human society. In wars and plagues, a large number of people die,
thus ameliorating the effects of surplus population and rendering the in-
crease in population more compatible with the increase in the means of live-
lihood.
Facts are stronger than arguments. Malthus’s reactionary An Essay on
the Principle of Population does not hold water. How did the pseudoscience
that purported to show the geometric increase of population and the arith-
metical increase of the means of livelihood come into being? What really
happened was that Malthus took the increase in population in America in
one period as the basis for his rate of population increase. He also took the
increase in food production for one period in France as the basis for his rate
of increase in the means of livelihood. The rapid increase in the American
population at that time was not mainly due to the natural multiplication of
population, but to other factors such as immigration. As to the food produc-
tion of France, if it was compared with the increase of population in France
and not with the increase of population in America, then it did not lag behind
the increase in population, but exceeded the increase in population. In 1760,
the population of France was 2.1 million. The average output of food grain
per capita was 450 liters. Eighty years later in 1840, the population of France
increased to 3.4 million, an increase of 62 percent. But the increase in food
production was even faster. In 1840, the average output of food grain per
60
 5. The Widening Gap between the Rich and the Poor in Capitalist Society
capita was 832 liters, an increase of 85 percent. The data of many other capi-
talist countries also showed that the increase in population did not exceed
the increase in the means of livelihood. On the contrary, the increase in the
means of livelihood exceeded the increase in population. But, even so, the
laboring people were very poor, and their lot miserable. Malthus’s defense
of the evils of the capitalist system by means of the so-called absolute sur-
plus population was a futile effort.
The pernicious influence of Malthus’s An Essay on the Principle of
Population was widespread in the old China. Imperialists and Kuomintang
reactionaries all along used Malthus’s An Essay on the Principle of Popula-
tion as a tool to oppose the Chinese people’s revolution. Prior to the libera-
tion, they uttered nonsense like the Chinese people were poor because there
were too many of them, and they attempted to blame Nature for the evils of
imperialism, feudalism, and bureaucratic capitalism. On the eve of the na-
tional liberation, they again talked nonsense, complaining that China had too
many people. According to them, the people’s government could not solve
the food problem and would not last more than a few months. Chairman
Mao sternly refuted this reactionary fallacy. He said, “The large population
of China is a good thing. We know how to handle an even larger population.
The solution is in production.” “Revolution plus production can solve the
food problem.” (6) The experience of socialist China since its establishment
has completely vindicated Chairman Mao’s scientific judgment. Under the
guidance of Chairman Mao’s revolutionary line, unemployment has been
eliminated in China. The socialist economy flourishes, and the people’s
standard of living steadily increases. A poor and backward China has estab-
lished a socialist country on its way to prosperity and growth. The imperial-
ist fallacies went thoroughly bankrupt.

Capital Accumulation Leads to the Impoverishment

of the Proletariat
The Polarization between the Rich and the Poor Is a General
Law of Capitalist Accumulation
Capital accumulation has entirely different consequences for the bour-
geoisie and the proletariat. To the bourgeoisie, the process of capital accu-
mulation is the process of capital addition and concentration and a process of
the bourgeoisie’s wealth expansion. To the proletariat, the process of capital
accumulation is a process whereby “machines displace workers,” and a pro-
cess whereby the ranks of the unemployed are swollen, the employed work-
ers are subject to increasing exploitation, and the living conditions of the
whole working class worsen steadily. The polarization between the rich and
the poor in capitalist society during capital accumulation will not shift ac-

61
Fundamentals of Political Economy
cording to human will. On one end of society is wealth accumulation; on the
other is poverty accumulation. Marx pointed out, “This is an absolute and
general law of capitalist accumulation.” (7)
The revelation of this law by Marx is very significant. It tells us that the
working and living conditions of the proletariat are determined by the capi-
talist production relations. Under the capitalist system, the development of
production will only lead to the impoverishment of the proletariat. This im-
poverishment is not only relative but also absolute.
The Steadily Declining Share of the Proletariat in the National
Income Leads to Relative Impoverishment
National income is the sum total of the newly created value of the whole
society in one year. In capitalist society, national income is first divided into
the part that goes to the workers’ wages and the part that is plundered by the
capitalists as surplus value. In the development of capitalism, what will hap-
pen to the income shares that go to the workers and to the capitalists respec-
tively?
National income is wholly created by the laborers and increases steadily
in the process of expanded reproduction. Under capitalism, the share of
wages received by the proletariat steadily declines, and the share of surplus
value received by the bourgeoisie steadily increases. This phenomenon is
called the relative impoverishment of the proletariat. According to figures
published by the United States government, the share of wages of American
workers in the national income was 45.6 percent in 1843, 43.5 percent in
1866, 42.7 percent in 1891, 37 percent in 1938, 33.3 percent in 1945, and
29.7 percent in 1956. From these figures, we can see that with capital accu-
mulation, the income of the workers declined steadily in relative terms,
while the wealth expropriated by the bourgeoisie increased steadily.
The Steady Deterioration of Labor Conditions and Living
Conditions Leads to the Absolute Impoverishment of the
Proletariat
In capitalist society, there exists not only the relative impoverishment of
the proletariat, but also their absolute impoverishment. This is what Lenin
pointed out: ‘The impoverishment of the workers is absolute. That is to say,
they become poorer and poorer, their lives more miserable, their meals
worse, and their stomachs less full. And they have to be crowded into base-
ments and attics.” (8)
The major manifestations of the absolute impoverishment of the prole-
tariat are as follows:
First, the existence of a large number of unemployed workers. Unem-
ployment is the constant threat faced by the worker in a capitalist country.

62
 5. The Widening Gap between the Rich and the Poor in Capitalist Society
Once he is unemployed, he loses his source of income. His livelihood be-
comes a serious problem. This is an important indicator of the deterioration
of the material living conditions of the proletariat. In the United States, the
number of unemployed in 1945 was 1.1 million; in 1955, 2.654 million; in
1968, 2.8 million; and in 1971, it rose to 5 million. In England, the unem-
ployment situation was also very serious. The number of unemployed work-
ers in 1952 was 500,000. By February 1972, it had increased to more than
1.6 million.
Second, the decline of real wages. The lot of the employed workers in a
capitalist country is not any better. The wage of the worker is often below
the value of labor power, so that it is difficult for the worker to maintain
normal livelihood. Sometimes through struggles with the capitalist, the nom-
inal wage may be increased a little. But since widespread inflation exists in
the capitalist countries, the increase in the money wage is often behind the
increase in prices. In the end, not only is the real wage not increased, it may
even decline. For example, according to official United States statistics,
from December 1969 to December 1970 the wages of manufacturing work-
ers increased by 2.6 percent. In the same period, the consumer price index
rose by 5.5 percent. Therefore, the real wage of the manufacturing workers
declined by 2.9 percent. Besides, there are numerous taxes in the capitalist
countries which take away a substantial portion of the income of the labor-
ing people. According to official United States statistics: In the thirty years
between 1940 and 1970, the amount of taxation increased by sixteen times.
The total private debt of the United States (including housing mortgages and
consumer credit) was 197.8 billion dollars, averaging $1,133 per capita. At
the end of 1970, the total private debt rose to 577.9 billion dollars, averaging
$2,832 per capita. In 1970, repayment of debts and payment of interest of
the American people amounted to an average of 22.3 percent of their annual
incomes. Taxation, repayment of debts, and payment of interest amounted to
about half of the annual income of the American people.
Third, poor living conditions. Because of low real wages, the worker in
a capitalist country must put up with poor living conditions. Poor living
conditions are especially pronounced with respect to housing conditions.
Due to the anarchic conditions of production in capitalist society and the
blind concentration of industrial production and population, the size of a few
cities gets larger and larger, and the housing conditions of the worker steadi-
ly deteriorate. Marx pointed out, “The faster the capital accumulation of an
industrial city or a commercial city, the faster the inflow of human material
available for exploitation, and the worse the temporary accommodations
arranged for them.” (9) Marx and Engels commented several times in their
works on the deterioration of the worker’s housing conditions under capital-
ism and described the extremely poor conditions of the slum areas in big
cities such as London. Today, the number of slums in the big cities of the
63
Fundamentals of Political Economy
capitalist countries is still increasing. In New York City, the biggest Ameri-
can city, the number of people living in slum areas was 1.664 million in
1950. By 1957, it had increased to 2.572 million. The total population of the
United States in 1959 was about 180 million, of which 22 million lived in
urban slums with 44 million people living in substandard dwellings.
Pollution hazards such as exhaust fumes, waste materials, and effluents
further degrade the worker’s housing conditions and adversely affect his
health. The more developed industry is, the more serious the urban pollution
is. The rich capitalists can live in their garden villas in the suburbs and leave
the working masses behind to suffer. In some big cities of the capitalist
countries which have serious air pollution, each inhabitant inhales a large
amount of poisonous gases. In these cities, the incidence of emphysema,
bronchitis, and asthma is very high, and the resulting casualty rate is corre-
spondingly high. In Europe, the United States, and Japan, the number of
workers who are dismissed because of emphysema is increasing.
In the United States, as far as medical care conditions are concerned,
“the front doors of the hospital are wide open, but there is no entry for the
sick who cannot afford to pay.” The registration fee for one visit amounts to
one- third of the daily wage of a worker with medium income. The operating
fee for appendicitis amounts to more than two months’ wages. An ordinary
worker’s family must save for several months before they can afford the
delivery fee. From 1965 to 1972, the annual increase in hospitalization fees
was 12.3 percent on the average. The consulting fee increased by an annual
average of 6.1 percent. Many workers go to work even when they are ill be-
cause they cannot afford to pay the consulting fee, and they die prematurely
as a result.
Fourth, excessive labor intensity and poor laboring conditions. With the
development of mechanization and automation in enterprises, not only are
workers increasingly converted into appendages of machines, but labor in-
tensity is also greatly increased. One American auto worker complained: “In
ancient Greece and the Roman Empire, even the unfortunate sailor could rest
beside his oar for a while when the wind was favorable. Now, the worker
working beside a conveyer belt cannot even take a breath when the machine
parts come rolling one after another.” As a result of the adoption of the “ac-
celeration system” to intensify exploitation and oppression of the worker,
some workers in American plants lose their labor capacity after working for
eight to ten years. Many more workers cannot adjust to fast work when they
reach forty years old. Because of the fast-working pace and the lack of labor
protection facilities, accidents at work are numerous. The United States gov-
ernment has to admit that at least 85 percent of American workers work un-
der the constant risk of injury. Every year 3 to 5 percent of American work-
ers die or are injured in industrial accidents. Thus, the advancements in sci-
ence and technology in the capitalist countries are achieved at the expense of
64
 5. The Widening Gap between the Rich and the Poor in Capitalist Society
the working class’s steady impoverishment and misery.
It is irrefutable, as demonstrated by the above-mentioned facts, that im-
poverishment does exist in capitalist society. The bourgeoisie and their
agents hidden in the ranks of the proletariat attempt in vain to deny the ex-
istence of the proletariat’s impoverishment by pointing to the phenomena of
some temporary, local, and partial improvements.
First, we must analyze the question of the impoverishment of the prole-
tariat from the class viewpoint. We must first eliminate those worker- aristo-
crats in the ranks of the proletariat who have been bought by the bourgeoi-
sie. A handful of worker-aristocrats has indeed enjoyed a higher standard of
living at the charity of the bourgeoisie. They are no longer members of the
workers’ ranks, but renegades of the proletariat.
On the issue of the impoverishment of the proletariat, we must analyze it
from an historical and concrete viewpoint. Since the standards of living at
different times and in different countries are not the same, it is impermissible
to make a simple comparison of the present with the past. In the past, even
an emperor could only use oil lamps. Today, most workers in the capitalist
countries use electric lights. One cannot say that since the workers have
electric lights there is no poverty. Would it not be absurd to claim that the
life of a worker today is better than that of an emperor?
On the issue of the impoverishment of the proletariat, we must take an
overall viewpoint. The so-called overall viewpoint means that we should not
judge the living conditions of the workers on the basis of an individual plant,
a special locality, or a specific period. We should judge the living conditions
of the working class over a long period of time. In other words, we must
look at not only the living conditions of the employed workers, but also at
the living conditions of the unemployed and semi-unemployed workers. We
must look at not only the living conditions of the working class in the impe-
rialist countries, but also at the living conditions of the working class in the
colonies. We must look at not only the living conditions of the working class
in times of illusory capitalist prosperity, but also at the working conditions
of the working class in times of economic crisis. Then, it is not difficult to
tell that while the living conditions of the workers might have improved in
individual plants and localities and at some particular times, the conditions
of the whole working class are steadily becoming poorer.

The Proletariat Is the Gravedigger of Capitalism

The process of capital accumulation is the process by which the bour-
geoisie gets richer and the proletariat gets poorer. It is also a process in
which the contradictions between the production relations and productive
forces of capitalism are increasingly more acute. In the development process
of the capitalist economy, scattered, isolated, and small-scale individual pro-

65
Fundamentals of Political Economy
duction is transformed into large-scale social production. The development
of social production under capitalism consists of two aspects: First, the capi-
talist plant is different from the small workshop of the individual handi-
craftsman. In the handicraft workshop, the handicraftsman single-handedly
completes the production process. In the capitalist plant, tens, hundreds, or
thousands of workers are distributed in various workshops and sections.
They complete the manufacture of commodities through division of labor
and cooperation under the orders of the capitalist and his agents. Second,
social division of labor steadily develops. Production becomes more special-
ized. The various departments and enterprises in social production are close-
ly associated and dependent on one another. With the development of intra-
plant and social division of labor, production is “transformed from a series
of individual actions into a series of social actions. Products are transformed
from individual products into social products.” (10) Lathes, automobiles,
cotton fabrics, and leather shoes are products of the joint labor of many
workers. Nobody can say, “This is my product.”
Production becomes social in nature. But the means of production and
the products from social labor do not belong to society. They belong to the
capitalist himself. Thus, contradictions between social production and capi-
talist private ownership arise. This is the basic contradiction of capitalism.
Capitalist private ownership severely restricts the development of large-scale
social production. Capitalist production relations increasingly restrict the
development of productive forces and become fetters to the development of
productive forces. Only by demolishing private ownership and establishing
socialist collective ownership and by substituting socialist production rela-
tions for capitalist relations can this basic contradiction be resolved. There-
fore, the extinction of capitalism and the emergence of socialism is an inevi-
table trend of historical development that cannot be changed by man’s will.
But the historical process in which socialism replaces capitalism cannot
be spontaneously realized. The bourgeoisie, which benefits from the capital-
ist system, will inevitably obstruct the social transformation. To realize this
transformation, there must be a social force that crushes the resistance of the
bourgeoisie. This social force is the proletariat. The proletariat is the repre-
sentative of advanced productive forces. It is oppressed and exploited, but it
is the most conscious class with the most thoroughly revolutionary nature.
Under the education of Marxism, it will surely rise to overthrow the capital-
ist system. “The contradiction between social production and capitalist pos-
session is expressed as the opposition between the proletariat and the bour-
geoisie.” (11) The proletariat matures and grows steadily in the process of
capital accumulation.
The process of capital accumulation and expanded reproduction is not
only the expanded reproduction of material means of livelihood, but also the
expanded reproduction of capitalist production relations. It produces bigger
66
 5. The Widening Gap between the Rich and the Poor in Capitalist Society
capitalists on the one hand and more hired laborers on the other. Therefore,
the process of capital accumulation not only prepares the material conditions
for the extinction of capitalism, namely large-scale production on a social
basis, but also produces the gravedigger of capitalism — the proletariat.
“The bourgeoisie not only has forged weapons for its own destruction, it has
also trained people who will use these weapons — modern workers, namely
the proletariat.” (12) The proletariat emerged with the appearance of capital-
ism and strengthened and became conscious in the process of capital accu-
mulation. With the development of capital accumulation, the ranks of the
proletariat gradually swell; with large-scale social production, organizational
discipline is instilled in the proletariat; and with the impoverishment of the
proletariat, the contradictions between the proletariat and the bourgeoisie
steadily deepen. Experienced in class struggle and armed with Marxism, the
proletariat becomes a forward-looking, selfless class richly endowed with
revolutionary thoroughness.
In the process of capital accumulation, the great development of social
production inevitably reaches a stage when it can no longer be accommodat-
ed in the capitalist bombshell. Marx confidently announced: “This bomb-
shell will explode. The knell of capitalist private ownership is about to toll.
The expropriator will be expropriated.” (13) Capitalism will surely pass
away, and socialism will triumph. This is an historical tendency of capital
accumulation.
Major Study References
Marx, Capital. Vol. 1, Part 7.
Marx, “The Impoverishment of the Capitalist Society.”
Chairman Mao, “The Bankruptcy of the Idealist Conception of History.”
Review Problems
1. What conclusions can we reach by the analysis of simple reproduc-
tion and expanded reproduction?
2. What are the reasons for worker unemployment and the impoverish-
ment of the proletariat in capitalist society?
3. Why do we say that the proletariat is the gravedigger of capitalism?
Notes
* Tzu-pen-chu-i she-hui ti p’in fu yiieh lai yu’eh hsiian-shu — tzu-pen
chi-lei ho wu- ch’an chieh-chi p’in-k’un-hua.
1) Marx, Capital. Vol. 1, Complete Works of Marx and Engels. Vol. 23,
p. 625.
2) Ibid., p. 649.
3) Ibid., pp. 649-650.

67
Fundamentals of Political Economy
4) Ibid., p. 672.
5) Ibid., p. 692.
6) “The Bankruptcy of the Idealist Conception of History,” Selected
Works of Mao Tse-tung. Vol. 4, Jen-min ch’u-pan-she, 1968, pp. 1400-1401.
7) Marx, Capital. Vol. 1, Complete Works of Marx and Engels. Vol. 23,
p. 707.
8) “The Impoverishment of the Capitalist Society,” Complete Works of
Lenin. Vol. 18, p. 430.
9) Marx, Capital. Vol. 1, Complete Works of Marx and Engels. Vol. 23,
p. 725.
10) Engels, Anti-Dühring. Selected Works of Marx and Engels. Vol. 3,
Jen-min ch’u- pan-she, 1972, p. 309.
11) Ibid., p. 311.
12) Communist Manifesto. Selected Works of Marx and Engels. Vol. 1,
Jen-min ch’u- pan-she, 1972, p. 257.
13) Marx, Capital. Vol. 1, Complete Works of Marx and Engels. Vol.
23, pp. 831-832.

68
6. The Process of the Movement of Capital Is
the Process of Exploiting and Realizing
Surplus Value
The Circular Flow of Capital, the Turnover of
Capital. and the Reproduction of Social Capital*
Capital must be in constant motion to play its role. It passes from the
exchange process to the production process and then from the production
process to the exchange process in an endless repetition.
In the previous two chapters, we temporarily ignored the exchange pro-
cess and looked at capital in the production process. In this chapter, we shall
analyze the motion of capital and its inherent contradictions from the ex-
change viewpoint.

The Circulation of Capital Passes through Three

Phases and Takes Three Forms
The Three Phases of Capital Circulation Represent the Unity
between the Production Process and the Exchange Process
In its motion, capital passes successively through three phases and takes
three corresponding forms.
In the first phase of capital motion, the capitalist must first take out a
certain amount of money to purchase means of production and labor force in
the market. Using G to represent money, W commodities, A labor force, and
Pm means of production, this process can be illustrated as follows:
A

G—W

Pm.
In this phase, the money in the capitalist’s hands serves as a means of
purchase and a means of payment. However, at the same time, it also serves
as capital because what the capitalist purchases are the labor force and
means of production needed to extract surplus labor from the laborer. Here
money becomes money capital. Through the purchase of means of produc-
tion and labor power, money capital is transformed into production capital.
Without money capital, there is no production capital and no production of
surplus value. The function of money capital is to prepare for the creation of
surplus value.
In the second phase of capital motion, the capitalist engages in produc-
69
Fundamentals of Political Economy
tion by combining the means of production with the labor force. Thus, the
exchange process of capital is terminated, and its production process is start-
ed. Through this process, labor power is consumed, raw materials are pro-
cessed, equipment is worn down, and a certain amount of commodities is
produced. Production capital is thereby transformed into commodity capital.
The commodity capital in this phase already embodies the surplus value
created by the worker. It not only looks different from the commodities
bought earlier but also has higher value than the original capital.
This process can be illustrated as follows:
A

W . . . P . . . W’.

Pm
Here P represents production capital in the production process. The dot-
ted lines before and after P denote the termination of exchange and the be-
ginning of production. W’ represents commodities with embodied surplus
value.
In this phase, the means of production and the labor force not only play
the role of factors of production but also the role of capital because these
means of production and labor force are combined in the hands of the capi-
talist for the production of surplus value. The function of production capital
is the production of surplus value.
In the third phase of capital motion, the capitalist must take the com-
modities which have thus been produced and embodied with surplus value to
the market for sale. Through the sale of commodities, commodity capital is
again transformed into money capital. Thus, capital is converted back to the
form of money.
This process can be illustrated as follows:
W'-G'.
Here G’ denotes money capital whose value has been augmented. It
consists of both the value of capital advanced by the capitalist and of the
realized surplus value. Therefore W’— G’ is not only a transformation pro-
cess in form between commodities and money, but more importantly, is also
a process in which the surplus value embodied in the commodities and ex-
propriated by the capitalist is realized. The function of commodity capital is
to realize surplus value.
The three phases and three forms of capital show that capital in each of
the phases and forms performs an independent function. After a certain func-
tion has been performed, it passes into another phase and takes another form.
This capital which goes through these successive transformations is industri-
70
 6. Movement of Capital Is Process of Exploiting and Realizing Surplus Value
al capital. This so-called industrial capital not only includes manufacturing
capital, but also the capital in other material production sectors such as agri-
culture and construction. This capital changes its form successively and
passes through three phases to increase its value and then returns to its start-
ing point. This motion is the circulation of capital. Its entire process can be
shown as follows:
A

G—W . . . P . . . W’– G’
Pm
In the circulation of industrial capital, the first and third phases are ex-
change processes; the second is a production process. The production pro-
cess plays the determining role in these three phases because it is the only
process which can produce surplus value. In the first and third phases, mere-
ly the form of capital is transformed; its value remains constant. However,
the exchange processes are indispensable for the circulation of industrial
capital. Without the exchange processes, the capitalist would not be able to
produce and realize surplus value. Therefore, the circular flow of industrial
capital is the unity between the production and exchange processes. Because
of this, the three phases of circulation in industrial capital must be interrelat-
ed, and capital must pass from one phase to another. If the circulation of
capital is hindered in the first phase (G—W), it becomes hoarded money and
cannot play the role of capital. If its circulation is hindered in the second
phase, there will be no production of surplus value. If its circulation is hin-
dered in the third phase, then the surplus value created cannot be realized.
The Circulation of Industrial Capital Represents the Unity
among Three Circular Flows
To extract surplus value continuously, the capitalist must ensure the
continuous circulation of capital. Thus, the formula for the circulation of
industrial capital is endless:

The above formula shows that the continuous motion of industrial capi-
tal assumes not merely one, but three, circular flows, namely, (l) circulation
of money capital: G ... G’; (2) circulation of production capital: P...P; and (3)
71
Fundamentals of Political Economy
circulation of commodity capital: W’—W’. To ensure the continuous circu-
lation of capital, the capitalist must ensure that his capital exists simultane-
ously in three forms and that the capital in its three forms circulates continu-
ously according to the circulation flows. For example, say a capitalist has
60,000 yuan of capital. He divides it into three parts, with 20,000 yuan in the
form of money capital, 20.000 yuan in the form of production capital, and
20,000 yuan in the form of commodity capital. They are made to circulate
along their respective courses. Thus, while this capitalist transforms 20,000
yuan of commodity capital into money capital, 20,000 yuan of production
capital is being transformed into commodity capital and 20,000 yuan of
commodity capital into production capital. If all 60,000 yuan were in one
form, production could not be carried on continuously, but only intermittent-
ly. If the circulation of capital in any one of the three forms is hindered in its
motion so that circulation is interrupted, for example, if commodities cannot
be sold and commodity capital cannot be transformed into money capital,
then the circulation of the whole capital is destroyed, and the motion of capi-
tal interrupted. Thus, the capitalist is forced to close down production.

The Turnover of Capital Is the Continual Production

and Realization of Surplus Value
The Length of Production and Exchange Time Determines the
Speed of Capital Turnover
The circulation of capital continues in an endless repetition. The contin-
uous circulation of capital is called the turnover of capital. Marx pointed out,
“When the circulation of capital is regarded as a periodic process and not as
isolated incidents, it is called the turnover of capital.” (1) The turnover of
capital passes through the production and exchange spheres. The period
when capital is in the production sphere is called the production time of
capital. The period when capital is in the exchange sphere is called the ex-
change time of capital. The sum of these two constitutes the turnover period
of capital.
The production period of capital includes the following three parts:
First, the period when the means of production perform their function in
production. This is primarily the labor time spent by the laborer on objects
of labor to produce certain products. The length of labor time is determined
by two factors. One is the nature of the production sector. For example, a
yarn mill can spin a certain amount of cotton into yarn in one day; but a
shipyard takes several months or years to build a ship. Thus, the latter re-
quires longer labor time than the former. Another is the labor productivity of
the enterprise. Among enterprises producing the same kind of product, the
enterprise with higher labor productivity takes a shorter time to produce the

72
 6. Movement of Capital Is Process of Exploiting and Realizing Surplus Value
product. On the other hand, a longer time is required by enterprises with
lower labor productivity. In some production sectors, the period when the
means of production perform their function in the production process also
includes time needed for natural forces to act on the objects of labor as well
as labor time. For example, wine brewing requires time for fermentation,
timber takes time to dry, and crops take time to grow.
Second, the period when production is interrupted but the means of pro-
duction still stay at the production sites. For example, when machines and
equipment are idle at night or because they are out of order.
Third, the period when the means of production have already passed in-
to the production sphere but not into the production process. For example,
the time when raw materials are stored.
Among these periods, labor time is the most important. Only in this pe-
riod can the worker create value and surplus value. Therefore, the capitalist
always tries his best to shorten the other times in order to make production
time approximate labor time and extract more surplus value from a given
amount of capital in a given period of time.
The exchange period of capital includes both the time for the transfor-
mation of money capital into production capital, that is, the time when the
capitalist purchases the means of production and labor force, and the time
for the transformation of commodity capital into money capital, that is, the
time when the capitalist sells his commodities.
The length of capital circulation is determined primarily by the supply
and demand conditions in the market, the distance between the point of pro-
duction and the market, and the conditions of transportation.
Because of the varying effects of the above factors on different produc-
tion sectors and enterprises, the production period and exchange period of
capital vary among them so that the turnover period of capital is not uni-
form.
Because of the differences in the turnover time of capital, the speed of
turnover also varies (the speed of capital turnover is calculated on an annual
basis). Suppose the capital of a certain capitalist takes one month to be trans-
formed from money to production capital and from commodity to money
capital and the capital production period is three months. Then it takes four
months for the capital to turn over once. Thus, the capital turns over three
times a year. Further suppose that the capital of another capitalist turns over
once every half a year. Then the annual rate of capital turnover is two.
From the above analysis, one knows that the rate of capital turnover is
determined ultimately by the production and circulation periods of capital.
The Effects of Capital Composition on the Rate of Capital
Turnover
In the above analysis, we assume that every part of the production capi-
73
Fundamentals of Political Economy
tal is transformed into commodity capital in one process. But, in fact, the
nature and mode of circulation of the various parts of the means of produc-
tion are all different. From this viewpoint, the composition of production
capital can be divided into fixed and working capital.
Fixed capital refers to capital in the form of plants, machines, and
equipment. It is paid for in one installment. Its material forms participate in
the production process in its entirety and are used more than once. But its
value is transferred to the new products gradually according to the rate of
depreciation. Because of the special way in which the value of this capital is
transferred, we call it fixed capital. For example, if one lathe costs 4,000
yuan and lasts for ten years, then every year 400 yuan of capital value is
transferred to the products produced. When the products are sold, 400 yuan
of capital value returns to the hands of the capitalist in the form of annual
depreciation. The value of this lathe will be completely transferred in ten
years.
Working capital refers to that part of the capital which exists in the form
of raw materials, fuel, and auxiliary materials or which is used to purchase
labor power. Raw materials, fuel, and auxiliary materials lose their material
forms in one production process, and their values are completely transferred
to the new products in one process. When the products are sold, the total
value of this capital returns to the hands of the capitalist in the form of mon-
ey. Therefore, capital used to buy raw materials, fuel, and auxiliary materials
is called working capital. That part of the working capital which is used to
purchase labor power does not have its value transferred to the new prod-
ucts. An equivalent value in the new products is created by the new labor of
the worker. Although this part of the working capital used to purchase labor
power has this characteristic, its mode of value circulation is similar to the
working capital used to purchase raw materials, fuel, and auxiliary materials.
Because the value produced by the worker in the production process which
is equivalent to the value of labor power is also transferred to the products in
one process and returns with the sale of products, the capital used to pur-
chase labor power is also working capital.
Now, we know that Marx classified capital into two categories. In the
chapter on the production of surplus value, we talked about the classification
of capital into constant and variable capital based on the different roles capi-
tal plays in the production of surplus value. This classification makes us un-
derstand that surplus value is produced by variable capital and reveals the
secret of the capitalist’s exploitation of the worker. In this chapter, the clas-
sification of capital into fixed and working capital is based on the nature and
mode of turnover of various parts of capital. This classification allows us to
understand the various factors affecting the speed of capital turnover from
the composition of capital.
These two classifications of capital can be illustrated as follows:
74
 6. Movement of Capital Is Process of Exploiting and Realizing Surplus Value

We mentioned above that the value of fixed capital is transferred gradu-

ally to new products according to its rate of depreciation. This depreciation
has direct effects on the size of the value of fixed capital being transferred
and the speed of turnover. To further study the characteristics of fixed capi-
tal turnover, we must also analyze the depreciation of fixed capital.
The depreciation of fixed capital can be classified as visible or invisible
according to the reasons for its occurrence. Visible depreciation is primarily
the result of use in the production process and secondarily of the action of
natural forces, such as the decay of timber and the corrosion of iron. There-
fore, this depreciation is also called material depreciation. Invisible deprecia-
tion is due to the improvement in production techniques which reduces the
socially necessary labor time to produce similar machines and thus reduces
the value of the original fixed capital. It is also due to the appearance of new
and better machines, leading to a decrease in the value of the original ma-
chines. The depreciation due to a decrease in the value of the original ma-
chines is called nonmaterial, or invisible, depreciation. To avoid such depre-
ciation, the capitalist endeavors to lengthen working hours, raise labor inten-
sity, and adopt shifts to accelerate the turnover of capital and increase the
exploitation of the worker in order to recover the value of fixed capital as
soon as possible.
Because of the differences in the speed of turnover between fixed and
working capital, the speed of capital turnover generally refers to the average
speed of capital turnover. The general turnover speed of capital advanced is
determined by the average turnover speed of various components of capital.
The formula to calculate it is to divide the total capital advanced into the
total capital turnover in one year. The following table shows the general
turnover of capital advanced. All figures are hypothetical.

75
Fundamentals of Political Economy
Components of Value Number of Total amount of turnover
Production capital (yuan) turnovers per year per year (yuan)
Fixed capital 100,000 1/10 10,000
Plants 30,000 1/30 1,000
Machines 60,000 1/10 6,000
Small tools 10,000 3/10 3,000
Working capital 50,000 4 200,000
Total capital
150,000 1.4 210,000
advanced
From the above table, we can see that dividing the total capital ad-
vanced, 150,000 yuan, into the total capital turnover, 210,000 yuan, gives us
the turnover speed of the total capital advanced as being equal to 1.4. We
can also see that the composition of production capital has an effect on the
speed of capital turnover. The turnover speed of fixed capital is low, while
that of working capital is high. If the share of fixed capital is large, the turn-
over speed of the total capital will be low. On the other hand, if the share of
working capital is large, then the turnover speed of the total capital is high.
The Capitalist Tries His Best to Accelerate the Speed of
Capital Turnover to Extract More Surplus Value
The speed of capital turnover has a direct bearing on the production of
surplus value. The acceleration of the speed of capital turnover not only can
reduce the amount of capital advanced, but can also accelerate the turnover
of variable capital in working capital so that more surplus value is produced.
Suppose two capitalists both have 2,000 yuan of variable capital and the rate
of surplus value is 100 percent for both of them. If the capital of A turns
over once a month and the capital of B turns over once every six months, A
can obtain 24,000 yuan of surplus value a year, but B can only obtain 4,000
yuan of surplus value a year. Even though their rates of surplus value are
equal, the annual rates of surplus value (the ratio between the surplus value
produced in one year and the total value of variable capital advanced in one
year) are different:
Capitalist A’s annual rate of surplus value = m/v = 24,000/2,000 = 1,200%
Capitalist B’s annual rate of surplus value = m/v = 4,000/2,000 = 200%.
Therefore, though the amount of variable capital advanced by capitalist
A and capitalist B is the same, the speed of capital turnover for capitalist A
is six times the speed of capital turnover for capitalist B. Consequently, the
surplus value obtained is also six times as great.
The capitalist always tries his best to shorten the turnover time of capi-
tal, namely, the production time and exchange time, to accelerate the turno-

76
 6. Movement of Capital Is Process of Exploiting and Realizing Surplus Value
ver of capital and obtain more surplus value. To achieve this objective, the
capitalist lengthens the worker’s labor time, raises labor intensity, and im-
proves production methods in the production sphere to shorten production
time. In the exchange sphere, he develops transportation, postal and tele-
communications services, and improves business organization to shorten
exchange time. However, the inherent contradictions of capitalism hinder the
improvement of techniques and impose difficulties on the sale of commodi-
ties. Therefore, the capitalist’s attempt to accelerate the turnover of capital is
not always successful.

Capitalist Reproduction Is Realized Spontaneously

amidst Antagonistic Contradictions
Social Capital Is the Sum of Individual Capital
There exist numerous capitalist enterprises in the capitalist society. Each
enterprise’s individual capital functions independently with respect to other
capital to augment value. However, this individual capital is not mutually
exclusive. It is interrelated and interdependent because every individual cap-
ital must be associated with other capital through the exchange process in
order to augment value. Take the example of a yarn mill. It has to be associ-
ated with enterprises that supply spinning machines and cotton. On the other
hand, it must also be associated with enterprises that consume its products,
such as the weaving enterprises. Therefore, close and mutually dependent
associations exist between various enterprises. Through these associations,
the individual capital forms an organic whole. The sum of this associating
individual capital constitutes the social capital. The sum of the movement of
the individual capital constitutes the movement of social capital.
Our earlier analysis of the circulation and turnover of capital was con-
ducted from the viewpoint of the reproduction of individual capital. It dealt
primarily with the production and realization of surplus value. We have not
analyzed where the capitalist sells his commodities, where he purchases his
means of production, and where the capitalist and the worker purchase their
means of subsistence. However, when we analyze the reproduction of social
capital, things are different. Because the social capital already comprises all
individual capital, material means consumed in its reproduction process can
only be replenished from the total social product. Thus, whether the gross
social product can replenish in kind the various inputs consumed in the cur-
rent production, and if so, how, constitutes an important problem concerning
how social reproduction proceeds. As Lenin pointed out: “The problem now
involves where do the worker and the capitalist obtain their consumer goods,
where does the capitalist obtain his means of production, and how can prod-
ucts satisfy these needs and permit expanded reproduction? Here it is not
only a question of ‘value replenishment, but also the replenishment of prod-
77
Fundamentals of Political Economy
ucts in kind.’” (2) Therefore, the reproduction of social capital must be ex-
amined in terms of replenishment in value as well as in terms of replenish-
ment in kind.
Marx clearly pointed out that the total social product of capitalism can
be divided, in value terms, into constant capital (c), variable capital (v), and
surplus value (m). In material terms, it can be classified according to its
function in the reproduction process into means of production and means of
consumption.
To correspond to the classification of products in kind, Marx divided the
whole social product into two sectors: the first was the production of means
of production (I), namely, the production of machines, equipment and raw
materials; the second was the production of means of consumption (II),
namely, the production of food, clothing and daily commodities. Within
each category, many production departments were included.
Necessary Conditions for Simple Reproduction
To facilitate exposition, we assume that there are only the bourgeoisie
and the proletariat in the capitalist society. The production cycle is one year,
and the total value of constant capital is transferred to new products in one
production cycle. All commodities are sold according to their values, and
there is no fluctuation in the values and prices of commodities; nor is there
foreign trade. Under these assumptions, the realization of total social product
under simple reproduction can be expressed as follows:
I. 4,000 c + 1,000 v + 1,000 m = 6,000
II. 2,000 c + 500 v + 500 m = 3,000.
Here we assume that in the first sector the constant capital is 4,000, the
variable capital 1,000, and the surplus value 1,000. The total value of prod-
ucts is 6,000. Its material forms are the means of production. In the second
sector, the constant capital is 2,000, the variable capital 500, and the surplus
value 500. The total value of products is 3,000. Its materials are means of
consumption.
To continue reproduction, the products of both sectors must be realized.
What is the realization of products? It is to say that things that have been
consumed must be replenished in value terms and at the same time be re-
placed in kind. In common language, it must be possible to sell them and
buy them back. In the following we will see how the products of these two
sectors are realized.
First are the internal exchanges within the first sector. In the beginning
of the year when the production process starts in the first sector, there are
means of production valued at 4,000. Suppose at the end of the year when
the production process is completed, all of them have been consumed. In
order to carry on simple reproduction in the second year, new means of pro-
78
 6. Movement of Capital Is Process of Exploiting and Realizing Surplus Value
duction valued at 4,000 must be replenished. Where can the capitalist obtain
these means of production? They can only be obtained by exchanging com-
modities within the sector because only the first category produces means of
production. For example, the capitalist of the machine-building plant buys
iron and steel from the capitalist of the iron and steel mill, the capitalist of
the iron and steel mill buys coking coal from the capitalist of the coking
plant and machines from the machine-building plant. Thus, through ex-
changes within the first sector, 4,000 c can be replenished and exchanged
both in value terms and in material forms. Just as Marx said, “These ex-
changes are between one type of constant capital and another; that is, be-
tween one type of means of production and another.” (3)
Next are the internal exchanges within the second sector. In the second
sector, when the production process is completed at the end of the year, the
worker receives 500 in wages to be spent on personal consumption. The cap-
italist gets 500 in surplus value. Under simple reproduction, there is no capi-
tal accumulation. The 500 in surplus value is also spent on means of con-
sumption. Then, where can they buy the means of production they want?
Only within the second sector because only the second sector produces
means of consumption. Through internal exchanges within the second sec-
tor, that part of the product representing 500 v and 500 m can be realized in
value terms as well as in material forms.
Finally, there are exchanges between the two sectors. After the above
two types of exchanges, products valued at 1,000 v and 1,000 m still remain
in the first sector. In the second sector, products valued at 2,000 c still re-
main in the second sector. These two remaining parts of products cannot be
realized within their own sectors because the 1,000 v and 1,000 m in the first
sector, in value terms, should be used for personal consumption by the
worker and capitalist. However, these products are means of consumption,
not means of production. In the second sector, the 2,000 c in value terms
should be used by the capitalist to replenish means of production consumed;
but these are means of consumption, not means of production. How can
these contradictions be resolved? They can only be resolved through ex-
changes between the two sectors. The result of these exchanges is that the
worker and the capitalist in the first sector obtain their means of consump-
tion and the capitalist of the second sector obtains means of production
needed for reproduction the next year. The exchanges between these two
sectors can be illustrated in the following chart:

79
Fundamentals of Political Economy
The result of the whole exchange process shows that under simple capi-
talist production there must be a given proportional relationship between the
two sectors; namely, the sum of variable capital and surplus value of the first
sector must be equal to the constant capital of the second sector in value
terms. In other words, I (1,000 v + 1,000 m) must be equal to II 2,000 c in
the above example. Only by maintaining such a proportional relationship can
simple capitalist reproduction be carried on. Therefore, I (v + m) = II c is the
condition for the realization of social product under simple capitalist repro-
duction.
Necessary Conditions for Expanded Reproduction
We know that the characteristic of capitalist reproduction is expanded
reproduction. To carry on expanded reproduction, the capitalist cannot con-
sume all his surplus value. He must continuously convert part of the surplus
value into capital to expand the scale of production. To do so, the capitalist
must use part of his newly created capital as constant capital to buy ma-
chines and raw materials needed for expanded reproduction. The rest is con-
verted into variable capital to hire additional workers. Therefore, to carry on
expanded capitalist reproduction, the total annual products of the first sector
must have surplus means of production in addition to those needed to replen-
ish what has been consumed in the first and second sectors during the year.
This condition can be expressed in terms of an inequality: I (c + v +
m ) > I c + I I c . Both sides of the inequality contain I c, showing
that means of production consumed in the first sector can be replenished
from within the same sector. If we cancel out internal replenishments and
concentrate on the relationship between the first and the second sectors, the
above formula can be expressed as I (v + m) > II c. This is to say that the
variable capital and surplus value of the first sector should be larger than the
constant capital of the second sector. This is a precondition for expanded
capitalist reproduction.
The following chart is used to show how the social product is realized
under conditions of expanded capitalist reproduction:
I. 4,000 c + 1,000 v + 1,000 m = 6,000
II. 1,500 c + 750 v + 750 m = 3,000.
The above are hypothetical production figures for the first year. They
meet the requirement for I (c + v + m) > I c + II c or I (v + m) > II c. Now
that the capitalist wants to expand reproduction, he cannot spend all the ex-
tracted surplus value on consumption. Suppose the capitalist in the first sec-
tor spends half of 1,000 m on personal consumption and converts the other
half as added capital in the same proportion as the original organic composi-
tion of capital, that is, 4:1 (4,000 c: 1,000 v). The distribution of 1,000 m is
as follows:
80
 6. Movement of Capital Is Process of Exploiting and Realizing Surplus Value

We know that the 400 for added constant capital in the first sector is
spent on means of production. Its material forms are also means of produc-
tion. Therefore, they can be obtained through internal exchanges within the
first sector. But the 100 for added variable capital in the first sector is used
to hire additional workers who will spend it on means of consumption.
However, its material forms are means of production. Therefore, it must be
exchanged with the second sector to obtain means of consumption.
Because the material forms of the added variable capital 100 in the first
sector are means of production and must be exchanged with the second sec-
tor for means of consumption, this creates conditions for expanded reproduc-
tion in the second sector. But it also requires the second sector to carry on
corresponding capital accumulation for expanded reproduction to meet the
increased demand for means of consumption from expanded reproduction in
both sectors. Suppose the capitalist of the second sector exchanges part of
his surplus value (100 m) for means of production from the first sector to be
converted into added constant capital and uses another 50 m as added varia-
ble capital in order to conform to the proportion of the original organic com-
position of capital in the second sector, namely 2:1 (1,500 c: 750 v). Then
750 m will be distributed as follows:

Through the above capital accumulation, the products of the two sectors
are rearranged as follows:
I. (4,000 c + 400 c) + (1,000 v + 100 v) + 500 m = 6,000
II. (1,500 c + 100 c) + (750 v + 50 v) + 600 m = 3,000.
Thus, the capital of the two sectors is larger than the original capital ad-
vanced, and the conditions for expanded scale of production in the following
years in both sectors are guaranteed.
Then, under the condition of expanded reproduction, how are the prod-
ucts of the two sectors realized?
Under the condition of expanded reproduction, the realization of social
production is carried on in three aspects just as in simple reproduction: in-
ternal exchanges within the first sector, internal exchanges within the second
sector, and exchanges between the two sectors. In terms of charts, it is:

81
Fundamentals of Political Economy

Through the above exchanges, the capital of each sector is larger than
the original capital advanced. The composition of capital in the second year
is as follows:
I. 4,400 c + 1,100 v = 5,500
II. 1,600 c + 800 v = 2,400.
If the rate of exploitation stays at 100 percent in this year, the produc-
tion of the two sectors in the second year is:
I. 4,400 c + 1,100 v + 1,100 m = 6,600
II. 1,600 c + 800 v + 800 m = 3,200.
Compared with the first year, expanded reproduction has been realized.
The Contradictions of Capitalist Reproduction Are
Antagonistic
Through the above analysis, we know the necessary conditions for the
realization of social product under capitalist simple and expanded reproduc-
tion. But this is not to say that these conditions always exist in the capitalist
society. In fact, these conditions are frequently violated in the capitalist soci-
ety. Just as Lenin pointed out: “Abstract theory of realization assumes, and
should assume, that products are distributed proportionally in the various
departments of capitalist production. But such an assumption does not imply
that products are, or can always be, distributed proportionally in the capital-
ist society.” (4) This is due to the fact that in the capitalist society, means of
production and products are privately owned by the capitalist and the whole
social production is governed by competition and chaotic production condi-
tions. Thus, the proportional relationship between the two sectors and among
production departments within each of the sectors is frequently violated.
Because of the antagonistic contradiction due to the immense increase of
productive forces in the capitalist society and the relative decrease of effec-
tive demand from the laboring masses, the necessary proportional relation-
ship between the two sectors cannot always be maintained. Therefore, capi-
talist reproduction cannot but encounter all sorts of difficulties and obstacles.
There exists a series of antagonistic contradictions in the capitalist re-
production process. These contradictions in due course inevitably lead to
economic crises.

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 6. Movement of Capital Is Process of Exploiting and Realizing Surplus Value

Major Study References

Marx, Capital. Vol. 2, chaps. 1, 2, 3, 7, 8, 20, 21.
Lenin, “On the So-called Problem of the Market,” Complete Works of
Lenin. Vol. 1.
Review Problems
1. How does the capitalist extract more surplus value through the circu-
lation and turnover of capital?
2. What are the conditions for the realization of capitalist reproduction?
Are these conditions always satisfied in the capitalist society? Why?
Notes
* Tzu-pen ti yun-tung kuo-ch’eng shih cha-ch’ii ho shih-hsien sheng-yii
chia-chih ti kuo-ch’eng — tzu-pen hsiin-huan chou-chuan ho she-hui tzu-
pen ti tsai sheng-ch’an.
1) Marx, Capital. Vol. 2, Complete Works of Marx and Engels. Vol. 24,
p. 174.
2) “The Development of Russian Capitalism,” Complete Works of Len-
in. Vol. 3, p. 31.
3) Marx, Capital. Vol. 2, Complete Works of Marx and Engels. Vol. 24,
p. 473.
4) “The Theory of Realization Once Again,” Complete Works of Lenin.
Vol. 4, p. 61.

83
7. The Entire Bourgeoisie Exploits and
Oppresses the Workers
The Division of Surplus Value*
In the capitalist society, the worker is subject to the exploitation and op-
pression not only of the capitalist of the enterprise to which he belongs, but
also of the whole bourgeoisie, consisting of the industrial capitalist, the
commercial capitalist, the banking capitalist, and the landed class. Industrial
profit, commercial profit, banking profit, interest, and land rent are all ex-
tracted from the worker and are all transformed surplus value. Then, how do
the various exploiting cliques divide up surplus value? And how is surplus
value transformed into profit, interest, land rent, and other concrete forms?
These are the problems we will be dealing with in this chapter.

Competition among the Industrial Capitalists Leads

to the Equalization of the Rate of Profit
Profit Is Transformed Surplus Value
The insatiable greed for surplus value is the nature of the capitalist. What
the capitalist exploits is the surplus value created by the surplus labor of the
worker. But in appearance, it is revealed as the capitalist’s profit. What then is
the distinction and connection between profit and surplus value?
We know that the capitalist must advance some capital in order to ex-
ploit the surplus value created by the worker. Of this capital, a part is used to
purchase means of production, and the rest is used to purchase labor power
for the capitalist production process. In Chapter 4. we stated that that part of
the capital used to purchase means of production is constant capital whose
value remains unchanged in the production process. That part of the capital
used to purchase labor power is variable capital which realizes value aug-
mentation in the production process and brings surplus value to the capital-
ist. Hence, surplus value is created by the working class and is a product of
variable capital. But when the capitalist computes his rate of profit, he com-
pares the surplus value with the total capital advanced as if surplus value is
the product of the total capital advanced. Thus, “surplus value, as a concep-
tual product to recompense total capital, is transformed into profit.” (l)
Just as surplus value is transformed into profit, the rate of surplus value
is transformed into the rate of profit. The ratio of surplus value to variable
capital is the rate of surplus value. Its formula is: surplus value/variable capi-
tal, or m/v. The ratio of surplus value to total capital is the rate of profit. Its
formula is: surplus value/total capital advanced, or m/c + v.
After surplus value is transformed into profit, the real source of surplus

84
 7. The Entire Bourgeoisie Exploits and Oppresses the Workers
value is concealed, as if constant capital can also bring surplus value to the
capitalist. And after the rate of surplus value is transformed into the rate of
profit, the degree of exploitation of the worker by the capitalist is concealed.
For example, a capitalist advances 10,000 yuan as total capital, of which
8,000 yuan is constant capital and 2,000 yuan is variable capital. Surplus
value extracted in one year is 2,000 yuan. The rate of surplus value is
2,000/2,000, or 100 percent. But the rate of profit is 2,000/(8,000 + 2,000),
or 20 percent, much lower than the rate of surplus value. Therefore, the pur-
pose of the capitalist in treating surplus value as the product of the total capi-
tal advanced is to conceal the real source of surplus value and the degree of
exploitation of the worker.
Competition among Capitalists of Various Sectors Equalizes
Profit
To go after profit is the class nature of the capitalist. The intent of the
capitalist is always to obtain the maximum amount of profit by advancing
the smallest amount of capital. The capitalists not only cruelly exploit the
worker, they also compete fiercely among themselves.
Competition among capitalists is carried on both among enterprises in
the same sector and among sectors. In the competition among enterprises in
the same sector, those capitalists adopting new techniques are in a favorable
position. The labor productivity of their enterprises is high, and the individu-
al labor time is below the socially necessary labor time so that excess surplus
value is obtained. This excess surplus value is transformed into excess profit
which is pocketed by the capitalist who adopts new techniques. A different
result is obtained in competition among sectors. It leads to a uniform rate of
profit among them. The capitalists of various sectors divide up the surplus
value created by the worker according to the principle of equal profit for
equal capital.
Let us now analyze how competition among the capitalists of various
sectors leads to a uniform rate of profit.
In the capitalist society, the rate of profit varies among production sec-
tors with their different organic composition of capital. The organic compo-
sition of capital is the ratio of constant capital to variable capital, and surplus
value is only the result of the augmentation of variable capital. Hence, under
the condition of a uniform rate of surplus value, the higher the organic com-
position of capital is, that is, the larger the share of constant capital and the
smaller the share of variable capital, the smaller the surplus value given an
equal amount of advanced capital. The rate of profit is also lower. On the
other hand, the lower the organic composition of capital, the higher the rate
of profit will be. Suppose shoemaking, spinning and weaving, and machine
building are the three sectors of society. The organic composition of capital
is 7: 3 in the shoemaking sector, 8: 2 in the spinning and weaving sector, and
85
Fundamentals of Political Economy
9:1 in the machine-building sector. The capital of each of these three sectors
is 10,000 (in units of thousands of yuan or ten thousands of yuan or any oth-
er convenient unit), and the rate of surplus value is 100 percent. To facilitate
analysis, we further assume the rate of capital turnover in these three sectors
is once a year. The value of constant capital is completely transformed in
one year to products of that year. Thus, with a 100 percent rate of surplus
value, the shoemaking sector obtains a profit of 3,000, the spinning and
weaving sector obtains a profit of 2,000, and the machine- building sector
obtains a profit of 1,000. The organic composition of capital is lowest in the
shoemaking sector. Its rate of profit is 30 percent. The organic composition
of capital is highest in the machine-building sector. Its rate of profit is the
lowest, only 10 percent. The organic composition of capital in the spinning
and weaving sector is in the middle with a rate of profit of 20 percent. It is
lower than that of the shoemaking sector, but higher than that of the ma-
chine-building sector.
Such a condition of equal investment with unequal profit cannot long
exist in capitalist society. The capitalist always tries to invest capital in the
production sector with the highest rate of profit. Therefore, the above condi-
tion must undergo changes. First of all, some capitalists of the machine-
building sector will withdraw from production and invest their capital in the
shoemaking sector for a higher rate of profit. Such a transfer of capital great-
ly boosts the output of the shoemaking sector. As supply gradually exceeds
demand, the price comes down. On the other hand, the output of the ma-
chine-building sector is gradually reduced. The supply of machines gradual-
ly falls short of the demand for them, and the price gradually goes up. A
combination of capital transfers and price adjustments leads to a more or less
uniform rate of profit. This is then the average rate of profit. It is the result
of comparing the total societal surplus value with the total societal capital. If
we take the three sectors as representing the total societal production, the
total societal surplus value is 6,000, and the total societal capital is 30,000.
The average rate of profit is 6,000/30,000 = 20 percent. The profit obtained
according to the average rate of profit is called the average profit. Marx
pointed out, ‘The average profit is merely the amount of surplus value dis-
tributed proportionally to each production sector according to its capital
share.” (2) The category of average profit reflects the relationship among the
capitalists of various sectors in dividing up the surplus value created by the
working class of society.
The formation of average profit further conceals the capitalist exploita-
tive relationship. The transformation of surplus value into profit already con-
fuses the source of surplus value. But the profit obtained by the capitalists in
various production sectors is still equal to the surplus value created by the
workers of the respective sectors. After the formation of average profit, the
capitalists of various sectors divide up surplus value so that the profit ob-
86
 7. The Entire Bourgeoisie Exploits and Oppresses the Workers
tained by the various sectors is no longer equal to their respective surplus
value produced. Now, provided that each sector possesses an equal amount
of capital, an equal amount of surplus value can be obtained. The size of
profit is entirely determined by the size of the capital advanced. This further
obscures the nature of profit and the exploitative relationship it reflects.

Commodity
Production Average Average production Production
sector Commodi-
Constant Variable Surplus ty value profit rate profit (6) price (7) = price minus
capital capital value (4) = (%) = [(l) + (l) + (2) + value (8) =
(1) (2) (3)} (l)+(2)+(3) (5) (2)]x (5) (6) (7) - (4)
Shoemaking 7,000 3,000 3,000 13,000 20 2,000 12,000 -1,000

Spinning and
8,000 2,000 2,000 12,000 20 2,000 12,000 0
weaving

Machine
building 9,000 1,000 1,000 11,000 20 2,000 12,000 +1,000

Total 24,000 6,000 6,000 36,000 20 6,000 36,000 0

The Equalization of the Rate of Profit Transforms the Value of

Commodities into Production Price
After the formation of average profit, the capitalist no longer sells com-
modities according to their values, but according to their production prices.
Production price is equal to cost plus average profit. Based on the earlier
assumptions, the formation process of production price is shown in the fol-
lowing table.
From the table, we can see that in the machine-building sector where the
organic composition of capital is high, the production price of the commodi-
ty is higher than its value, while in the shoemaking sector where the organic
composition of capital is lower, the production price is lower than value.
Only in the spinning and weaving sector where the organic composition of
capital is in the middle is the production price equal to value.
With the formation of average profit and the transformation of value in-
to production price, market price no longer fluctuates around value, but
around production price. Does the appearance of production price mean that
the law of value no longer matters? No. From the viewpoint of the individual
capitalists in various sectors, some sell their commodities at production pric-
es above value and obtain more profit than the surplus value created by their
sector, while others sell their commodities at production prices below value
and obtain less profit than the surplus value created by their sector. Howev-
er, from the viewpoint of the whole society, the total value of commodities is
87
Fundamentals of Political Economy
equal to the total production price. The total average profit obtained by the
industrial capitalists as a whole is equal to the total surplus value created by
the industrial workers as a whole. Therefore, production price is merely a
transformation of value.
Marx’s theory about average profit tells us: In capitalist society, the
worker is subject to the exploitation and oppression not only of the capitalist
in his own enterprise, but also of the industrial capitalists as a whole.

The Commercial Capitalists Share in the Surplus

Value through Commodity Transactions
The Role of Commercial Capital Is to Realize Surplus Value
In the above analysis, we suppose the surplus value created by the work-
ing class was monopolized by the industrial capitalist. In fact, the industrial
capitalist cannot monopolize it. He must transfer part of the surplus value
extracted from the worker to the commercial capitalist. The commercial cap-
italist does not engage in commodity production; he merely advances capital
to buy commodities in bulk from the industrial capitalist and sells them to
help the industrial capitalist in realizing surplus value. This surplus value
obtained by the commercial capitalist is called commercial profit.
Why does the industrial capitalist need the commercial capitalist to sell
commodities for him, and why is he willing to share a part of the surplus
value extracted with the commercial capitalist? Because with the develop-
ment of capitalism, the volume of commodities produced by the industrial
capitalist steadily increases, and the market for commodities steadily ex-
pands. If the industrial capitalist has to handle the business of commodity
sales, he must establish a large commercial organization and hire a large
number of shop assistants. This is not profitable for the industrial capitalist
because a large amount of capital would have to be tied down to the ex-
change process, thus adversely affecting his scale of production and compet-
itive power. If the sale of commodities is delegated to the commercial capi-
talist specializing in commodity transactions, he can benefit from the ad-
vantages of specialization in commodity transaction and save on exchange
expenses. In addition, because of the existence of the independent activities
of commercial capital, the industrial capitalist can sell his commodities to
the commercial capitalist in bulk and more quickly complete the transfor-
mation from commodity capital to money capital. Consequently, his capital
can be active in the production sphere and play the role of productive capital
longer for the extraction of more surplus value. Thus, though a part of the
surplus value has to be transferred to the commercial capitalist, it is still to
the advantage of the industrial capitalist after all. This is why commercial
capital is separated from industrial capital.

88
 7. The Entire Bourgeoisie Exploits and Oppresses the Workers

Commercial Capital Also Participates in the Formation of

Average Profit
By helping the industrial capitalist realize surplus value by investing in
commerce, the commercial capitalist not only requires commercial profit, he
also requires that this commercial profit not be lower than the average profit
of industrial capital. Otherwise, the commercial capitalist would rather in-
vest his capital in the production sector than engage in commerce.
Where does commercial profit come from? On the surface, it appears
that commercial profit is brought about by the sale of commodities above
their value. The bourgeoisie takes advantage of this illusion and says that
commercial profit arises from exchange. This is a distortion of the source of
commercial profit and a concealment of exploitation.
In fact, commercial profit is also a part of the surplus value extracted
from the worker by the industrial capitalist. Because the industrial capitalist
wants the commercial capitalist to sell commodities for him, he cannot sell
his commodities according to their production price, but must sell below
production price. The commercial capitalist then sells the commodities at
production price to the consumers. In this way, a part of the surplus value
extracted from the worker by the industrial capitalist is transferred to the
commercial capitalist.
For example, suppose the industrial capitalist in society invests 40 billion
yuan in a year, of which 30 billion yuan is constant capital, 10 billion yuan is
variable capital, and 10 billion yuan is surplus value. Suppose the production
cycle is one year, and the value of constant capital is completely transferred to
products in one year. Then, the total value of commodities, or the total produc-
tion price, is 30 billion yuan + 10 billion yuan + 10 billion yuan = 50 billion
yuan. The rate of profit is 10/40 = 25 percent. But the circulation of commodi-
ties must be handled by the commercial capitalist. Suppose the total value of
commercial capital is 10 billion yuan. Then the total capital in the production
and exchange spheres is 50 billion yuan. The 10 billion yuan of surplus value
must be shared equally between the 50 billion yuan of industrial and commer-
cial capital. The average profit rate can no longer be 25 percent, but instead is
20 percent. According to the average profit rate of 20 percent, the industrial
capitalist obtains 8 billion yuan, and the commercial capitalist obtains 2 billion
yuan. That the commercial capitalist can obtain this 2 billion yuan of profit is
because the industrial capitalist sells his commodities to the commercial capi-
talist at a price below their production price, that is, at the price of 48 billion
yuan (40 billion yuan in cost and 8 billion yuan in profit). And the commercial
capitalist sells the commodities according to the production price of 50 billion
yuan and obtains a 2 billion yuan profit. Thus, the 10 billion yuan of surplus
value created by the worker is shared proportionally according to the capital
advanced by the industrial and commercial capitalists respectively.

89
Fundamentals of Political Economy

The Commercial Capitalist Cruelly Exploits the Employee

The commercial employee is just like the industrial worker. He is a
hired laborer and subject to the exploitation of the bourgeoisie. The differ-
ence between them is that the industrial worker produces surplus value in the
production sphere for the capitalist under his supervision, while the com-
mercial employee realizes surplus value for the capitalist in the exchange
sphere under his supervision. Why do we say the commercial employee is
subject to exploitation just like the industrial worker? This is because the
commercial employee and the industrial worker earn their livings by selling
labor power. The value of their labor power has to be determined by labor
time needed to reproduce labor power. Although the commercial employee
does not create value or surplus value through his labor connected with
commodity transactions, the value of commodities and the surplus value
embodied must be realized through his labor. Therefore, the labor time of
the employee is also divided into necessary labor time and surplus labor
time. The part of surplus value realized in the necessary labor time through
the employee’s sale of commodities goes to compensate the variable capital
with which the commercial capitalist buys the labor power of the employee.
In the surplus labor time, the employee works for the commercial capitalist
for free in order to enable the commercial capitalist to share part of the sur-
plus value from the industrial capitalist as commercial profit. Therefore, the
commercial employee, like the industrial worker, is exploited.
The exploitation of the employee by the commercial capitalist is equally
cruel. To obtain more commercial profit, the commercial capitalist raises
labor productivity by lengthening labor time and increasing labor intensity.
He also resorts to deducting wages from the employee and other ruthless
means to intensify exploitation. Take the example of the capitalists in the old
Shanghai Hsieh-ta-hsiang Silk Goods Company. In order to intensify exploi-
tation of the employee, they set down 120 regulations. The employee was
required to work sixteen to seventeen hours a day at high labor intensity.
There were so many deductions from his wages that they were not sufficient
for a minimum level of subsistence. Under the bloodthirsty extractions of the
capitalist, the broad masses of employees, like the multitude of industrial
workers, sell not only their labor power but also their lives.

The Financial Capitalists Share in Surplus Value

through Loans and Borrowings
The Source of Interest Is Surplus Value
In the capitalist society, the financial capitalist, in addition to the indus-
trial and commercial capitalists, also shares in the surplus value.
There are certain objective necessities for the existence of capital loans

90
 7. The Entire Bourgeoisie Exploits and Oppresses the Workers
and borrowings because, in the capitalist reproduction process, the capitalist
may be short of capital. For example, when products have not been sold but
machines and raw materials have to be bought and wages paid, some money
capital has to be borrowed. Sometimes, there may also be idle money capi-
tal. For example, before fixed capital is replaced, the capitalist may have
some accumulated depreciation charges in money form. After commodities
have been sold but before raw materials have been bought and wages paid,
there may also be some idle money capital. Under these circumstances, those
capitalists who possess money capital can lend the temporarily idle money
capital to capitalists in need of money. The capitalists who borrow this mon-
ey capital will use it to produce or sell commodities to extract or realize sur-
plus value. Naturally, the owners of money capital will not lend it to other
capitalists without any compensation. They will demand a certain amount of
money from the borrowing capitalists as compensation for the loan. The bor-
rowing capitalist must share a part of the surplus value he extracts with the
lending capitalist. This part of surplus value is called interest.
Money capital that is lent for interest is known as loan capital. The ratio
of interest to loan capital is called the rate of interest. The highest level of
the interest rate cannot exceed the average profit rate. If this is not so, the
borrowing capitalists will not get any benefit from the loans and will not
borrow. The source of interest is surplus value. However, the apologists of
the bourgeoisie advance the false theory that “big money breeds little mon-
ey” and say that “interest comes from money itself” to conceal the nature
and source of interest and the capitalists’ exploitative relations.
Bank Profit Is Obtained from the Difference between the
Borrowing and Lending Interest
In the capitalist society, the borrowing and lending of money is largely
done through the bank. By attracting deposits, the bank collects idle capital
and funds which the people do not need for a period of time. It then lends the
money to the functioning capitalist. The bank pays interest to attract capital
and collects interest from loans. The lending interest rate is higher than the
deposit interest rate. This difference between the borrowing and lending in-
terest rates, after subtracting the operating expenses of the bank, constitutes
bank profit. Like interest, bank profit also comes from the surplus value cre-
ated by the worker in production. The banking capitalist shares in the surplus
value created by the worker by obtaining the interest differential through
borrowings and loans.
The purpose of the banking capitalist in advancing capital to operate the
bank is to obtain profit. Therefore, bank profit cannot be lower than the av-
erage profit obtained by other functional capitalists. If bank profit is below
average profit, he will not run the bank but will instead run plants and shops
himself.
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Fundamentals of Political Economy

The Appearance of Stocks Is a Reflection of the Intensification

of the Parasitic Nature of Capitalism
With the development of capitalist production, the scale of enterprises
expands. The large amount of capital needed to run large enterprises cannot
be afforded by individual capitalists. There arises a need for many individual
capitalists to form joint-stock corporations. The joint-stock corporation is an
enterprise with pooled capital. It is an important means which big capital
uses to control medium and small capital and to manipulate capital.
The joint-stock company issues stocks, and those who purchase the
stocks become stockholders. Stockholders have a right to share part of the
enterprise’s profit according to the amount of stock owned. Income from
stocks is known as dividends.
The capitalist who owns stocks does not have to work. He can loaf all
day long and lead an extravagant life on dividends. The stockholder may
also speculate in stocks. The stock exchange is full of dishonest competition.
The appearance of people who live on interest by clipping interest coupons
and speculating in stocks reflects the intensification of the parasitic nature of
capitalism.

The Landed Class Reaps without Sowing

Capitalist Monopoly Operation of Land Leads to Differential
Rent
Landowners are another exploitative class in the capitalist society. They
own land and rent it out to the industrial and agricultural capitalist in order
to share in the surplus value. To reveal the nature of capitalist rent, we start
from the two forms of capitalist rent, namely, differential rent and absolute
rent.
Land is the basic means of production for agricultural production. But
unlike other means of production, its quantity is limited. This limited quanti-
ty of land includes superior, medium, and inferior land with respect to fertili-
ty. In the capitalist society, this limited supply of land leads to the capital-
ist’s monopolistic operation of land.
With capitalist monopoly of land, some agricultural capitalists operate
superior and medium land; other agricultural capitalists operate inferior land.
Because the produce of the superior and medium land cannot fully satisfy
the market demand, the price of produce must rise in response to the short-
age of supply vis-a-vis demand. It will continue to rise until the agricultural
capitalists who operate the inferior land can obtain an average profit. Marx
pointed out, “The production price from the poorest land is always the regu-
lating market price.” (3) Thus, those agricultural capitalists who operate the
superior and medium land will obtain excess profit. This excess profit con-

92
 7. The Entire Bourgeoisie Exploits and Oppresses the Workers
stitutes differential rent.
There are two forms of differential rent. One arises from the difference
in fertility and location and is known as Differential Rent I. The other arises
from successive investments on the same piece of land and is known as Dif-
ferential Rent II.
Let us first take the example of three pieces of crop land of equal size
but different fertility (see table below).
The capital invested in each of the three pieces of land is 200 yuan.
Suppose the capital is completely transferred to products. The cost will be
200 yuan in each case. But labor productivity of the agricultural worker is
different on land of different fertility. The agricultural output is 4,000 chin,
5,000 chin, and 6,000 chin respectively. If the average profit is 20 percent,
then the production price (cost + average profit) of the total output for each
piece of land is 240 yuan. But because the output is different for the different
pieces of land, the production price of unit output is different. With inferior
land, it is 0.060 yuan. With medium land, it is 0.048 yuan. And with superior
land, it is 0.040 yuan. The social production price in the market is deter-
mined by the unit production price of inferior land, that is, 0.060 yuan per
chin. Thus, the agricultural capitalist who operates inferior land obtains 240
yuan. After deducting 200 yuan of cost, an average profit of 40 yuan re-
mains. There is no excess profit or differential rent. The agriculturalists who
operate medium and superior land obtain 300 yuan and 360 yuan respective-
ly. After deducting 200 yuan as cost, they get 60 yuan and 120 yuan respec-
tively as excess profit in addition to 40 yuan of average profit. This excess
profit constitutes Differential Rent I.
Unit: yuan
Individual Social
production production
price price
Differential Rent I (8)
Capital invested

Average profit

(7) = (6)X (3)

(5) = (4)-r(3)
Total output

Total output
Output (chin)

(4) = (l)+(2)

Unit output

Unit output

Type of
(6)
(1)

(2)

land
(3)

Inferior 200 40 4,000 240 0.060 0.060 240 0

Medium 200 40 5,000 240 0.048 0.060 300 60

Superior 200 40 6,000 240 0.040 0.060 360 120
Let us now take the example of continually investing on the same piece
93
Fundamentals of Political Economy
of crop land to explain the emergence of Differential Rent II. For example,
the agricultural capitalist who operates inferior land invests successively on
the same piece of land. He invests 200 yuan the first time. The output of
produce is 4,000 chin, and the average profit is 40 yuan with no excess profit
or differential rent. If this capitalist invests another 200 yuan the second time
to construct water control facilities, add fertilizers, buy new machines, hire
more agricultural workers, and increase labor productivity, he may get 5,000
chin more of produce (that is, he invests 400 yuan in total and obtains 9,000
chin). With an unchanged social production price for produce, the total price
of the 5,000 chin obtained from the second investment is 300 yuan. After
deducting 200 yuan as cost and 40 yuan as average profit, he still has 60
yuan of excess profit. This 60 yuan is Differential Rent II.
We must point out here that the amount of rent was already determined
when the agricultural capitalist signed a contract with the landowner. There-
fore, within the current contract, the excess profit obtained from successive
investment will accrue to the agricultural capitalist. But when the contract
expires and is renegotiated, the landowner may again raise the rent. In the
end, this excess profit will be transferred to the landowner in the form of
Differential Rent II. Marx pointed out: “Differential rent possesses a certain
attribute: the ownership of land merely takes away surplus profit. Under a
different condition, this surplus profit may be taken away by the tenant. And
within the currency of a contract, it is in fact taken away by the tenant.” (4)
Therefore, the agricultural capitalist always attempts to have a longer con-
tract. But the landowner tries his best to shorten the duration of a contract.
Both sides fight to obtain this excess profit. This contradiction between the
agricultural capitalist and the landowner makes the agricultural capitalist
plunder the fertility of the land as much as he possibly can before the expira-
tion of a contract.
Monopolistic Private Landownership Leads to Absolute Rent
Inferior land does not provide differential rent. But if the owner of infe-
rior land does not get any rent, he would prefer to let the land remain uncul-
tivated rather than let others use it. In fact, the agricultural capitalist who
operates inferior land must also pay rent to the landowner. This rent arising
from the monopoly of private landownership is called absolute rent.
If the agricultural capitalist who operates inferior land must also obtain
an average profit, where does the rent come from?
In the capitalist society, agricultural technology is always behind manu-
facturing technology. The organic composition of capital in agriculture is
always lower than that of manufacturing. We know that surplus value comes
from variable capital. Since the organic composition of capital is lower in
agriculture than in manufacturing, an equal amount of capital can bring more
surplus value in agriculture than in industry. Suppose the average organic
94
 7. The Entire Bourgeoisie Exploits and Oppresses the Workers
composition of capital in manufacturing is 8:2 and the rate of surplus value
is 100 percent. Then, in every 100 yuan of capital, there is 20 yuan in varia-
ble capital bringing about 20 yuan in surplus value. The average rate of prof-
it is 20 percent. The value of commodities and the production price are 120
yuan. And suppose the organic composition of capital in agriculture is 6:4
and the rate of surplus value is 100 percent. Then for every 100 yuan, there
is 40 yuan in variable capital bringing about 40 yuan in surplus value. The
value of produce is 140 yuan, and the rate of profit is 40 percent. In the capi-
talist society, agricultural produce can be sold at its value (140 yuan). But
the agricultural capitalist can only obtain an average profit equal to that of
the industrial capitalist, namely, 20 yuan. The production price of produce is
therefore 120 yuan. Now agricultural produce is sold above its production
price. In addition to an average profit of 20 yuan, the agricultural capitalist
still has 20 yuan surplus which is the difference between the value of agri-
cultural produce and its production price. This constitutes absolute rent.
Why can agricultural produce be sold above its production price? This is
because of the existence of monopolistic private landownership. In manufac-
turing, the organic composition of capital in various departments is not all
the same. It is natural for departments with lower organic composition of
capital to produce more surplus value. But as a result of interdepartmental
competition and the transfer of capital, all industrial capitalists can obtain
only an average profit. So industrial products can be sold only at their pro-
duction price. But, agricultural production is different from manufacturing
production. There is one obstacle in agriculture, namely, monopolistic pri-
vate ownership, which prevents the unconditional transfer of capital to agri-
culture. This prevents the surplus value in the agricultural sector from partic-
ipating in the process of profit equalization. And agricultural produce can be
sold at a value higher than its production price.
Therefore, in agriculture, even inferior land can obtain more surplus
value from an equal amount of capital. This surplus value is not shared with
manufacturing. It remains in agriculture and is converted into absolute rent
for the landowner.
Capitalist Rent Is Also a Part of Surplus Value
Although the formation of differential and absolute rent arises from dif-
ferent causes, their substance and source are the same. As a result of capital-
ist monopolistic operation of land, the price of produce is determined by the
production price on inferior land. The agricultural capitalist who operates
superior and medium land thus reaps excess profit. This excess profit has no
connection with private landownership. Even if there is no private landown-
ership, the agricultural capitalist who operates superior and medium land
will still obtain this excess profit. Marx pointed out, private landownership
“is not the cause of this surplus profit, but the cause of its transformation
95
Fundamentals of Political Economy
into rent.” (5) As a result of the existence of private landownership, this ex-
cess profit is transformed into differential rent. Also because of the existence
of monopolistic private landownership, the price of agricultural produce can
be set at a value above its production price. Even the agricultural capitalist
who operates inferior land can obtain excess profit which is transformed into
absolute rent for the landowner. The source of differential rent and absolute
rent is excess profit. This excess profit is created by the agricultural worker,
just as is the whole surplus value in agriculture. The agricultural capitalist
rents land from the landowner, buys means of production, hires agricultural
workers to engage in production, and extracts surplus value from the agricul-
tural workers. From this surplus value, the agricultural capitalist obtains an
average profit. The surplus value over and above the average profit is trans-
formed into rent. Therefore, the substance of rent is also surplus value.
However, the landowner and his spokesman, in order to conceal the ex-
ploitation of the agricultural worker by the landowner and the agricultural
capitalist, seize upon the superficial differences between the output of pro-
duce from superior and inferior land to insist that “rent is brought about by
land itself.” This explanation is entirely groundless. Good and superior land
only provide favorable conditions for the increase of labor productivity and a
natural basis for the creation of surplus profit. But without the labor of the
agricultural worker, even the best land cannot create any value. Marx point-
ed out, “All rent is surplus value and is all a product of surplus labor.” (6)
Marx’s theory of rent thoroughly exposes the fallacious explanation of the
landowner and his spokesman.
Capitalist rent and feudal rent are a result of private landownership, but
their respective exploitative relations are different. Feudal rent is the total
surplus labor or surplus produce that the feudal landlord obtains from the
peasant. Capitalist rent is the surplus value over and above an average profit
obtained by the agricultural capitalist from the agricultural worker. Feudal
rent manifests the exploitative relation between the feudal landlord and the
peasant. Capitalist rent manifests the exploitative relation between the land-
owner and the agricultural capitalist on the one hand and the agricultural
worker on the other.
Through the above analysis, we can see that in the capitalist society the
bourgeoisie is divided into different exploitative groups. There are the manu-
facturing, agricultural, commercial, and banking capitalists. The landowner
is another exploitative class in the capitalist society. They are all foxes of the
same ilk sharing among themselves the surplus value created by the working
class and concertedly exploiting and oppressing the working class. There-
fore, in the capitalist society, the bourgeoisie is on top of the working class.
The contradiction between the worker and the capitalist is the contradiction
between the whole working class and the whole bourgeoisie. This is the
basic contradiction of the capitalist society. If the working class wants to
96
 7. The Entire Bourgeoisie Exploits and Oppresses the Workers
liberate itself, it must unite as a class, take up guns to make revolution, over-
throw the whole bourgeoisie, and destroy the capitalist exploitative relation-
ship.
Major Study References
Marx, Capital. Vol. 3, chaps. 1, 2, 9, 17, 21, 38. 45.
Chairman Mao, “The Analysis of Chinese Social Classes.”
Chairman Mao, “The Chinese Revolution and the Chinese Communist
Party,” chap. 2, sections 2, 4.
Review Problems
1. How do the various exploitative groups in the capitalist society ex-
ploit the surplus value created by the working class?
2. What is the significance of Marx’s theory on the division of surplus
value?
Notes
* Po-hsiieh ho ya-p’o kung-jen ti shih cheng-ke tzu-ch’an chieh-chi —
sheng-yii chia- chih ti kua-fen.
1) Marx, Capital. Vol. 3, Jen-min ch’u-pan-she, 1966, p. 16.
2) Ibid., p. 180.
3) Ibid., p. 772.
4) Ibid., p. 881.
5) Ibid., p. 759.
6) Ibid., p. 744.

97
8. The Incurable Disease of Capitalism
Economic Crises*
Economic crises are the natural product of capitalist economic develop-
ment. They are pronounced manifestations of the intensification of various
contradictions in capitalist production, exchange, distribution, and reproduc-
tion. How do capitalist economic crises arise? What are their effects on capi-
talist development? We will talk about these problems in this chapter.

Economic Crises Are a Product of the Intensification

of the Basic Contradictions in Capitalism
Capitalist Economic Crises Are Crises of Overproduction
Before capitalism (for example, in the long history of China’s feudal soci-
ety), there were also many social, economic, and livelihood crises. Because of
the cruel exploitation of the peasant by the landlord class, the ravages of war,
and natural calamities such as floods, droughts, insect pests, and hailstorms,
agricultural production suffered serious damage, the laboring people lost their
homes, and hundreds of thousands died of hunger and plagues. Social, eco-
nomic, and livelihood crises at those times were characterized by insufficient
food grain production. Capitalist economic crises are not characterized by in-
sufficient production, but by overproduction. The most notable features con-
nected with capitalist economic crises are: large quantities of commodities
cannot be sold, factories close down, banks fold up, values of stocks fall, un-
employment figures rapidly increase, productive forces suffer severe damage,
and the whole economy is paralyzed and chaotic.
Capitalist economic crises are crises of overproduction. But the so-
called “overproduction” is not an absolute overproduction; it does not mean
that things produced by society are more than what the masses can consume.
In economic crises, the phenomena described below are widespread. Textile
workers receive dismissal notices saying that there is an overproduction of
yarns and fabrics without sales outlets so production has to be cut back and
workers dismissed. However, the textile workers and their families are inad-
equately clothed. Those who produce fabrics cannot afford them. Miners
receive dismissal notices saying that there is an overproduction of coal ne-
cessitating production and employment cutbacks. Yet, the miners and their
families have to shiver in the cold for lack of money to buy coal. Therefore,
capitalist overproduction is relative overproduction. In other words, social
production is excessive only in relation to the purchasing power of the mass-
es. During economic crises, inventories pile up in the warehouses of the cap-
italist for lack of demand. Commodities may be rotting away or even artifi-
cially destroyed. On the other hand, the broad laboring masses are too poor

98
 8. The Incurable Disease of Capitalism
to afford food and clothing and are struggling on the verge of starvation.
The economic crisis of overproduction is a special feature of the capital-
ist economy. Nevertheless, the possibility of economic crises is latent in the
development process of the commodity economy from the beginning. When
the commodity producer sells his commodities, he does not always immedi-
ately use the money obtained to buy means of production or required daily
commodities. However, if he does not buy, then those commodity producers
who trade with him cannot sell. Here dislocations between sales and pur-
chases may arise, and the possibility of crises exists. However, when com-
modity production was carried on by petty commodity producers and based
on individual ownership, the purpose of production was to trade for other
commodities to maintain production and satisfy personal consumption
needs. Therefore, sales were usually followed by purchases. At the same
time, the productive forces were low, and the scale of production small. So-
ciety’s division of labor was not well developed, and production interde-
pendencies were not very close. Even if dislocations between sales and pur-
chases arose, their effects were local and would not lead to economic crises
affecting the whole society. Therefore, even though commodity production
itself embodies the possibility of crises, the inevitability of crises can only be
found in the capitalist economic system itself.
The Source of Economic Crises Lies in the Basic Contradiction
of Capitalism
Economic crises in the capitalist society are inevitable. This is deter-
mined by the basic contradiction of capitalism. Stalin pointed out: ‘The
source and cause of economic crises of overproduction lie in the capitalist
system itself. The source of crisis lies in the contradiction between the social
nature of production and the capitalist ownership of products.” (l)
Why does the basic contradiction of capitalism inevitably lead to eco-
nomic crises?
First of all, the basic contradiction of capitalism inevitably manifests it-
self in a contradiction in which the productive forces greatly increase while
the purchasing power of the laboring people relatively decreases. Capitalist
large-scale social production is very different from individual handicraft
production. Individual production is characterized by simple reproduction.
Even under very favorable market conditions, its growth in production is
slow. Capitalist production is production by big machines and is capable of
rapid growth. The capitalist tries his best to expand production in search of
more profit because the larger the scale of production, the more surplus val-
ue he can extract. At the same time, the capitalist must also try to improve
his techniques and expand his scale of production in order to avoid being
squeezed out by other capitalists. With the expansion of production, the
standard of consumption must also be increased so that the increased pro-
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Fundamentals of Political Economy
duction of commodities can be sold and social production continued. But
under the condition of private ownership of the means of production, the
capitalist always tries to reduce wages to the lowest possible level. The de-
velopment of capitalist production and the adoption of new techniques inevi-
tably keep a large number of workers outside the factory gates and expand
the ranks of the unemployed. Capitalist competition inevitably renders a
large number of peasants and handicraftsmen bankrupt so that small capital
is squeezed out or swallowed by big capital. Thus, on the one hand there is
an immense growth of production, and on the other hand there is a relative
decrease in the purchasing power of the laboring people. This contradiction
makes the economic crises of overproduction inevitable.
The basic contradiction of capitalism also inevitably leads to economic
crises because the contradiction inevitably manifests itself in a contradiction
in which the production of individual factories is organized while social pro-
duction is chaotic. As production becomes social, the relationship and inter-
dependency among production sectors and among various enterprises are
increasingly close. For example, the cotton required by the textile mill is
supplied by the agricultural sector, and spinning and weaving machines by
the machine-building industry. Therefore, in a given period of time, there
must be a unified plan and arrangement to determine the necessary amount
of cotton, cloth, and spinning and weaving machines so that social produc-
tion can be smoothly carried out. However, capitalist private ownership of
the means of production divides the whole society into numerous autono-
mous capitalist enterprises. From the viewpoint of one enterprise, its work-
ers are all controlled by one capital, and its internal production is organized.
But from society’s viewpoint, what and how much the various enterprises of
different capitalists produce are the private business of individual capitalists.
Nobody else can say anything about it. Therefore, the production of the so-
ciety as a whole is carried on under anarchic conditions. Because social pro-
duction is uncoordinated, individual capitalists cannot possibly know the
actual demand for a certain commodity. Provided that there is profit, capital-
ists will compete among themselves to expand production. At the same time,
capitalist commercial activities may also create false demand that conceals
the society’s actual purchasing power. Even though production actually ex-
ceeds the purchasing power of the masses, as long as the market price con-
tinues to go up, commercial capitalists will still order from industrial capital-
ists, and financial capitalists will still extend credit to industrial and com-
mercial capitalists to facilitate industrial capitalists to expand production,
thus creating false prosperity in the market. This false prosperity conceals
the existence and development of overproduction. When overproduction is
finally exposed, it is revealed through an avalanche of economic crises.
Thus we see that the source of economic crises lies in the capitalist sys-
tem itself and in the basic contradiction of capitalism in which production is
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 8. The Incurable Disease of Capitalism
social but means of production are privately owned. As long as capitalism
exists, economic crises are bound to explode. To eliminate crises, the capi-
talist system must first be destroyed.
Marxist Theory of Economic Crises Demolishes All Fallacious
Theories of the Bourgeoisie Designed to Conceal Crises
The bourgeoisie and its apologists harbor extreme fear and hatred of the
scientific conclusions about capitalist economic crises reached by Marxism.
They have racked their brains to fabricate various lies in a vain attempt to
dissociate crises with the capitalist system in order to deceive the working
people and maintain the capitalist exploitative system. For example, some of
them attribute the source of crises to “underconsumption” and propose to use
“consumption stimulation” to eliminate crises. In fact, underconsumption by
the laboring people did not come into existence after the appearance of capi-
talism. It has been in existence ever since the human society was divided
into the exploiting and the exploited classes. But overproduction appears
only in the capitalist society. It is, therefore, easy to see that economic crises
cannot be explained by “underconsumption.”
After the Second World War, the militarization of the national economy
led to temporary false prosperity in some capitalist countries. The apologists
of the bourgeoisie seemed to have a lifesaving straw. They made the nonsen-
sical statement that “those who hold the view that the capitalist countries
would inevitably run into great economic crises are all mistaken.” They saw
the increasing participation of the governments of capitalist states in national
economic activities as being “automatic regulators” which would, to a cer-
tain extent, enable the development of the capitalist economy to “automati-
cally tend toward stability.” This is also a lie. We know that the capitalist
state machinery serves the bourgeoisie. Whatever the bourgeois state does to
militarize the national economy or to regulate economic life, it does through
various measures in order to intensify the exploitation of the people so that
the capitalist can get richer. As Lenin pointed out long ago: “Whether in the
United States or Germany, the result of ‘regulating economic life’ is to cre-
ate military hard-labor camps for the worker (and part of the peasantry) and
to build havens for the banker and the capitalist. The regulating measures of
these countries consist in tightening the belt of the worker to the verge of
starvation while on the other hand guaranteeing (using secret and reactionary
bureaucratic methods) that capitalist profit is higher than before the war.” (2)
The regulation of economic life in the bourgeois countries has not only not
made the capitalist economy “automatically tend toward stability,” on the
contrary, it has impoverished the laboring people and diminished the market
while enriching the capitalists. The basic contradiction of capitalism has
steadily intensified, and the economic crises of capitalism have become
more serious.
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Fundamentals of Political Economy

The Worsening Tendency of Capitalist Economic

Crises
Capitalist Economic Crises Explode Periodically
As long as the capitalist system exists, the basic contradiction of capital-
ism will play its role. Capitalist economic crises are not problems which
break out once or twice, but inevitably appear periodically. Looking at histo-
ry, we see that the first large-scale economic crisis appeared in 1825 in Eng-
land. After that, economic crises appeared repeatedly in 1836, 1847, 1857,
and 1867. They occurred on the average of once every ten years. After these,
they continued to explode with ever greater severity.
The cycle of economic crisis is the period of time between two succes-
sive crises. It consists in general of the four phases of crisis, depression, re-
covery, and boom. Of these, the phase of crisis is basic. It is the end of the
last cycle and the beginning of a new cycle.
The Crisis Phase: Crises often strike suddenly. Before their arrival, there
is widespread false prosperity in the market, and “business is thriving” in
various industries. Although production already exceeds actual needs, plants
are still working at full speed to fill up the warehouses and meet orders be-
cause of the credit system and active speculative activities. All of a sudden,
an economic crisis arrives due to a dislocation in one of the links in the capi-
talist economy. Once overproduction in one field is revealed and sales be-
come difficult, other fields are soon affected, leading to a chain reaction. For
example, production cuts or suspension in the automobile industry due to
overproduction inevitably affect the coal, electric power, and transportation
industries. Commercial speculators who initially help boost the false pros-
perity now turn around to unload their stocks at reduced prices, thus worsen-
ing the situation. Now the warehouses are overstocked, sales are difficult,
and prices drop rapidly. To arrest the drop of prices, the capitalist may even
resort to destroying large quantities of commodities. Under the blow of slow
sales and falling prices, many medium and small enterprises go bankrupt en
masse, and many banks close down. Those plants which continue to operate
reduce their scale of production. At this time, the number of unemployed
workers from all industries rapidly increases, and the whole economic situa-
tion rapidly worsens.
The Depression Phase: After the stormy assaults in the crisis phase, the
tide of insolvency among industrial and commercial enterprises subsides.
Those enterprises which survive the crisis conduct their activities on a
smaller scale. Although shops are brightly decorated and their salesmen
shout loudly, business is still very poor. A large number of workers are still
unemployed with no means of livelihood. Capitalist industry, commerce,
and banking are in the doldrums. However, in this phase, social consumption

102
 8. The Incurable Disease of Capitalism
is still carried on. Stockpiles of commodities, after much damage, are sold
slowly at very low prices. Under the surface of the doldrums, factors pro-
moting the recovery of production slowly accumulate.
The Recovery Phase: With the reduction in stockpiles, prices slowly re-
cover, and profits increase gradually. The capitalists step up their exploita-
tion of the worker on the one hand and improve techniques and purchase
new equipment on the other. Thus, production in the first category such as
electric power, iron and steel, and machine building is the first to expand
step by step. Employment gradually increases in this category. And the in-
crease in employment leads to an increase in demand for consumer goods,
thus stimulating the development of production in the second category. In
this way, production gradually recovers, and the number of unemployed de-
creases. The once depressed capitalist economy is again gradually on its way
to recovery.
The Boom Phase: The basic characteristics of this phase are rapid sales
of commodities in the market, high profit, quickening activities in produc-
tion and exchange, and the revival of credit and speculative activities. There
is widespread ’’prosperity” in the market. The capitalists all try hard to ex-
pand production. Thus, under the surface of widespread “prosperity,” new
factors for another crisis steadily accumulate. Engels described this lively
phenomenon of the capitalist economy as: “Motion is quickened; slow steps
turn into quick steps. Industrial quick steps turn into running steps. Running
steps in turn become a sprint in a handicapped race in industry, commerce,
credit, and speculative activities. In the end, after several final, desperate
jumps, it falls into an abyss of collapse.” (3)
Crisis — depression — recovery — boom — crisis characterizes the cy-
clical nature of economic crises. It also manifests the cyclical nature of capi-
talist production. It shows that capitalist production cannot progress contin-
uously, but can only advance on a zigzag course.
Capitalist Economic Crises Worsen Steadily
In the development process of capitalist production, economic crises re-
peatedly appear. But each crisis is not a simple recurrence of the previous
crisis. Capitalist economic crises tend to worsen steadily. Especially after the
Second World War, economic crises have become more frequent and more
severe. This is manifest in the following aspects:
First, the cycle of economic crises has shortened, and economic crises
are becoming more frequent.
Before the Second World War, economic crises occurred once every ten
years. In the twenty-odd years after the Second World War, the cycle of
economic crisis shortened markedly.
We can clearly see from the following tables that after the Second
World War there were five economic crises in the United States and Japan.
103
Fundamentals of Political Economy
The average time between the first and the fifth crisis was less than five
years in the United States and less than four years in Japan. After the Second
World War, the cycle of economic crises markedly shortened because, under
the rule of monopoly capital, the laboring people are subject to increasing
exploitation, their purchasing power is reduced relatively, and problems of
the domestic market are intensified. Furthermore, because of the external
aggression and expansion of various imperialist countries, the contradictions
between imperialism and the people of colonies and satellite countries are
intensified. This promotes national revolutions in the colonies and satellite
countries and consequently reduces the size of the foreign markets. Sales
become a chronic problem. Thus, the contradiction between production and
consumption is steadily intensified. All these show that the basic contradic-
tions of capitalism are becoming ever more acute, and the capitalist produc-
tion relation imposes an ever more serious obstacle to the development of
the productive forces.
Second, the blind replacement of fixed capital makes the ratio of capital-
ist reproduction more out of balance. Before the Second World War, when-
ever economic crises exploded, investment in fixed capital usually dropped
rapidly. However, after the Second World War, investment in fixed capital
was generally higher than before the war. Even during crises, the level of
investment still remained relatively high. In the fifth economic crisis in the
United States after the war, investment in fixed capital not only did not fall,
it went up instead. There was an increase of 3.5 percent between 1969 and
1970. In the fifth economic crisis in Japan after the war, investment in fixed
capital in 1971 was 3.2 percent higher than in 1970.
The higher level of investment in fixed capital after the war shows that,
on the one hand, the monopoly bourgeoisie uses the state machinery to in-
crease its exploitation of the laboring people and transforms the surplus val-
ue extracted from the worker into capital. This speeds up capital accumula-
tion but also speeds up the impoverishment of the proletariat and further
reduces the purchasing power of the people. On the other hand, it shows that
investment in fixed capital in the United States after the war consisted pri-
marily of military orders and demands related to armaments and war prepa-
rations. Not only was a large amount of social resources wasted, but also the
first category of industries was expanded without any control. As a result,
the ratio of social reproduction was even more out of balance, and the con-
tradiction of capitalist reproduction became more acute. And capitalist eco-
nomic crises became more frequent and more severe.

104
 8. The Incurable Disease of Capitalism

Postwar Economic Crises – The United States

Number of
bankruptcies
Manufacturing output during manu-
Highest facturing pro-
Highest Lowest Months unemployment duction
Crisis before during Reduction of (10,000 reduction
period crisis crisis (percent) reduction persons) (units)
First 1948- August July
49 8.6 11 410 9,246
1948 1949
Second July April
1953-54 9.9 9 370 7,724
1953 1954
Third March April
1957-58 14.8 13 520 15,579
1957 1958
Fourth January January
1960-61 7.5 12 571 15,668
1960 1961
Fifth 1969- September November
70 8.1 14 550 13,629
1969 1970

Postwar Economic Crises — Japan

First December August
1953-54 5.0 8 68 565
1953 1954
Second July June
1957-58 10.7 11 92 1,565
1957 1958
Third January December
1962 2.7 11 62 1,653
1962 1962
Fourth December May
1964-65 2.0 5 54 2,464
1964 1965
Fifth July May
1970-71 5.7 10 80 8,427
1970 1971

Third, manufacturing crises are interwoven and interact with agricultural

crises, intensifying the whole economic crisis. Under the capitalist system,
economic crises occur not only in manufacturing but also in agriculture.
When agricultural crises explode, they are reflected in rapidly increasing
stocks in the warehouse of the agricultural capitalist, falling wholesale pric-
es, shrinking cultivated acreage, increasing unemployment of agricultural
workers, falling wages among those still employed, and mass bankruptcy
among individual farmers. It can be seen that agricultural crises, like manu-

105
Fundamentals of Political Economy
facturing crises, arise because of overproduction and are caused by the basic
contradiction of capitalism. As long as the capitalist system exists, agricul-
tural overproduction crises are just as inevitable as manufacturing overpro-
duction crises.
But, compared with manufacturing crises, agricultural crises last much
longer. In the twenty-three years since the agricultural crisis exploded with
the manufacturing crisis in 1948, agriculture has never been able to free it-
self from overproduction.
The intertwining and interaction between industrial and agricultural cri-
ses has become a serious problem in the postwar United States economy.
Manufacturing crises lead to insolvency in a large number of enterprises,
production cutbacks, unemployment, and falling wages. As a result, demand
for agricultural products is reduced, aggravating the crisis of agricultural
overproduction. At the same time, agricultural crises also damage agricultur-
al production and impoverish agricultural laborers. Consequently, demand
for agricultural means of production and manufacturing products is reduced
and crises of manufacturing overproduction are intensified. Under the influ-
ence of manufacturing and agricultural crises, capitalist economic crises in-
evitably worsen.
Fourth, the crisis of capitalist overproduction is interwoven with the fis-
cal and financial crisis. After the Second World War, at the same time when
the cycle of capitalist economic crises shortened, the explosion of fiscal and
financial crises became more frequent. Fiscal and financial crises often occur
along with economic crises. Fiscal and financial crises, like economic crises,
are an inevitable result of a further intensification of the basic contradiction
of capitalism. Their major features are: budgetary deficits, indiscriminate
expansion of money supply, rising prices, balance-of-payments deficits,
dwindling gold reserves, and currency devaluation.
After the Second World War, in order to free themselves of the worsen-
ing economic crises, the imperialist powers vainly attempted to resort to ar-
mament and war preparations to stimulate national economic growth. How-
ever, military expenses and production expenses of the defense industry rose
steadily, leading to chronic budget deficits. To pay for the huge defense ex-
penses, imperialist countries have tried hard to increase taxation, negotiate
foreign loans, issue currency, and engineer inflation, leading to fiscal crises.
From the fiscal year 1946 to 1971, the United States budget deficits amount-
ed to 137.9 billion dollars. The public debt reached 424.1 billion dollars.
Even United States government officials claimed in dismay that the “United
States public debt was larger than those of all other countries combined.” “If
we converted these public debts into United States one dollar notes, they
could form a belt 35 feet wide encircling the equator 1,520 times.”
As inflation worsens, the value of money falls steadily, leading to ever-
rising prices. In the past, before the explosion of an economic crisis, in gen-
106
 8. The Incurable Disease of Capitalism
eral the price level would fall. But since the Second World War, the capital-
ist countries have been bent on adopting the militarization of the national
economy and have pursued a policy of inflation. As a result, prices not only
have not fallen during crises, but have gone up instead. For example, there
have been five economic crises in the United States since the Second World
War. With the exception of the crisis in the 1948-49 period, prices in the
other four periods all rose. This indicated that purchasing power fell. The
devaluation of a currency inside a country inevitably affects its external
credit standing. United States imperialism launched successive aggressive
wars. With large increases in the army stationed overseas and in military
expenditures, the huge outflow of United States dollars sent its international
credit standing plummeting. Since the Second World War, financial crises
have occurred repeatedly in the financial market of the capitalist world.
Massive sales of United States dollars and rushes for gold have forced the
United States government to devaluate the dollar twice: once at the end of
1971 and again in February 1973. The hegemony of the United States dollar
in the capitalist world has disintegrated.
The concurrence of economic and financial crises has bogged down the
capitalist economy in a deep quagmire. On the one hand, economic crises
have led to a plunge in production and a steady impoverishment of the labor-
ing people and have reduced the revenues of the capitalist countries, result-
ing in large deficits in federal budgets and in balance-of-payments which
aggravate fiscal and financial crises. On the other hand, with the fiscal and
financial crises worsening, inflation, higher taxation, falling real wages, and
relative reduction in the purchasing power of the masses have inevitably
further aggravated the economic crises of overproduction.
We can thus see that the cyclical nature of capitalist economic crises
forms a vicious circle which gets worse and worse. The inherent antagonistic
contradiction in capitalism is further intensified. Crises on top of crises have
shaken the whole capitalist world like so many wild rainstorms.

Economic Crises Undermine the Basis of Capitalist

Rule
Economic crises further intensify the basic contradiction of capitalism.
During crises, competition among capitalists becomes more acute. Many
medium and small enterprises, unable to compete with big enterprises, are
the first to go bankrupt. To pay off their debts, many medium and small en-
terprises are forced to be auctioned off at losses. A few big enterprises which
are more competitive take the opportunity to buy in at low prices. Therefore,
after each crisis in the capitalist society, capital becomes more concentrated
in the hands of a few capitalists. Concentration of production and capital is
hastened. The increasing concentration of production and capital implies that

107
Fundamentals of Political Economy
the basic contradiction of capitalism, namely, the contradiction between so-
cial production and capitalist private ownership, is becoming more acute.
Economic crises intensify class contradictions in the capitalist society.
To reduce their own losses during crises, the capitalists inevitably take the
knife to the laboring people. They dismiss workers en masse, cut wages,
resort to inflation, increase taxation, and try their best to shift the burden of
the crises onto the shoulders of the laboring people. At the same time, during
crises, the exploitation of agriculture by capitalist manufacturing and of the
rural areas by the urban areas also increases, resulting in mass bankruptcy
among the peasants. Therefore, capitalist economic crises inflict severe
hardship on the working class and other laboring people and intensify the
contradiction between the workers and peasants on the one hand and the
bourgeoisie and big landowners on the other, causing the proletariat’s tide of
struggle against the bourgeoisie to get higher and higher. Thus, the founda-
tion of capitalist rule is continually rocked.
Economic crises fully expose the transitory nature of the capitalist sys-
tem, revealing the existence of antagonistic contradictions between capitalist
production relations and productive forces. The capitalist production relation
is too confining for the huge social productive forces. It severely restricts the
development of productive forces. During crises, only after immense de-
struction of productive forces and drastic reductions in production can the
contradiction between production and consumption be temporarily and for-
cibly resolved. But at the same time, factors leading to another crisis are
gradually accumulating. In the development process of the capitalist econo-
my, there is a tendency for economic crises to get worse. This indicates that
the capitalist production relation is decaying and must be replaced by anoth-
er, new production relation which can adapt to the developmental needs of
new productive forces, namely, the socialist production relation.
Major Study References
Engels, Anti-Dühring. pt. 3, chap. 2.
Lenin, ‘The Lessons of Crises,” Complete Works of Lenin. Vol. 5.
Review Problems
1. What is the source of capitalist economic crisis?
2. Why do we say that economic crises hasten the downfall of capital-
ism?
Notes
* Tzu-pen chu-i chih-tu ti “pu chih chih cheng” — ching-chi
wei-chi.
1) “Political Report to the Sixteenth Congress of the Central Committee

108
 8. The Incurable Disease of Capitalism
of the Communist Party of the Soviet Union (Bolshevik),” Complete Works
of Stalin. Vol. 12, p. 214.
2) “Where Is the Way Out in the Face of an Impending Catastrophe?”
Complete Works of Lenin. Vol. 25, p. 324.
3) Engels, Anti-Dühring. Selected Works of Marx and Engels. Vol. 3,
Jen-min ch’u- pan-she, 1972, p. 316.

109
9. The Unchanging Nature of Imperialism
Imperialism Is Monopoly Capitalism*
Before the 1870s, capitalism was in a stage of free competition. From
the 1870s onward, free competition steadily developed into monopoly. At
the end of the nineteenth century and in the beginning of the twentieth centu-
ry, capitalism completed its transition from free competition to monopoly
and developed into imperialism. Lenin gave a complete and precise defini-
tion to imperialism: ‘Imperialism is a special stage of capitalism. This spe-
cial nature is manifested in three ways: (l) imperialism is monopoly capital-
ism; (2) imperialism is parasitic and decaying capitalism; and (3) imperial-
ism is moribund capitalism.” (1) This chapter first deals with the basic at-
tributes of imperialism as monopoly capitalism.
Lenin pointed out that there are five basic characteristics in the econom-
ic aspect of imperialism. They are: “(l) production and capital concentration
have been developed to such an extent that economic life is dominated by
the monopoly organization; (2) banking capital and manufacturing capital
have merged, and a financial oligarchy has emerged on the basis of this ‘fi-
nancial capital’; (3) capital export, as distinct from commodity export, as-
sumes special significance; (4) an international monopoly alliance has been
formed; and (5) the most powerful capitalist powers have dismembered the
territories of the world.” (2) Lenin’s theory concerning imperialism is our
telescope and microscope for understanding the reactionary nature of impe-
rialism.

Monopoly Is the Deep-rooted Economic Basis of

Imperialism
Monopoly Is an Inevitable Development of Capitalism
The transition from free competition to monopoly is the most marked
economic phenomenon in the development of capitalism into imperialism.
Other characteristics of imperialism are all related to monopoly and devel-
oped on the basis of monopoly. Therefore, imperialism is often known as
monopoly capitalism. The birth of monopoly capitalism passed through
three basic stages.
In the first stage in the 1860s and 1870s, free competition in capitalism
reached its zenith of development. In manufacturing, the electric motor, the
internal combustion engine, and a new steel-refining method were invented.
The development of productive forces shifted the relative share of light and
heavy industry in favor of heavy industry. With the development of heavy
industry characterized by a higher organic composition of capital, concentra-
tion of capital was accelerated. Monopoly organizations began to emerge.

110
 9. The Unchanging Nature of Imperialism
In the second stage after the explosion in 1873 of the most severe eco-
nomic crisis in the nineteenth century, competition among enterprises be-
came more acute. Many medium and small enterprises closed down, making
way for the extensive development of monopoly organizations. In the United
States, in 1879 Rockefeller set up the first trust (the Standard Oil Company).
In 1880, the total production of anthracite coal was monopolized by seven
companies. However, monopoly was still not in a dominant position. Most
monopoly agreements were short-term and unstable. In the last thirty years
of the nineteenth century, the steam turbine, the automobile, and the diesel
locomotive were invented one after another. Productive forces were highly
developed. The relative share of heavy industry was further increased. Con-
ditions for a transition to the monopoly stage were basically completed.
In the third stage at the end of the nineteenth century and the beginning
of the twentieth century, the accumulation and concentration of capital great-
ly accelerated. More and more capital was concentrated in the hands of big
enterprises. Monopoly organizations rapidly developed to gain control over
various major manufacturing sectors and formed the basis of all economic
life. In the beginning of the twentieth century, United States monopoly or-
ganizations controlled 70 percent of the metallurgical industry, 66 percent of
the iron and steel industry, 81 percent of the chemical industry, 85 percent of
the aluminum production, 80 percent of the tobacco and sugar refining in-
dustries, and 95 percent of coal and oil production. From this time on, free
competition capitalism grew into monopoly capitalism, and capitalism was
transformed into imperialism. Hence, Lenin said, “Monopoly is the deep-
rooted basis of imperialism.” (3)
The transition from free competition capitalism to imperialism has not
changed the fundamental nature of capitalism. Its economic basis is still cap-
italist private ownership of the means of production. Its class contradiction is
still the contradiction between the proletariat and the bourgeoisie.
Longstanding economic laws such as competition and chaotic production are
still playing their active roles. Chairman Mao pointed out: ‘When the free
competition stage in capitalism has developed into imperialism, the funda-
mental contradictions between the proletariat and the bourgeoisie, as well as
the nature of the capitalist society, have not changed.” (4) In the imperialist
stage, some new features emerged, intensifying and magnifying the existing
contradictions of capitalism.
Monopoly Organization Guarantees the Extraction of High
Monopoly Profits
Monopoly organization is either the largest capitalist enterprise or an al-
liance of capitalist enterprises. They control the production and distribution
of certain products and set monopoly prices by virtue of their monopoly po-
sition in order to extract high monopoly profits. The economic pulses of cap-
111
Fundamentals of Political Economy
italist countries are under their manipulation.
Monopoly organizations assume many forms: some are “short-term
price agreements” in which various enterprises collude to fix prices; some
are “cartels” in which the enterprises are independent in production but have
agreements concerning how to share the market, set up quotas, and fix pric-
es; some are “syndicates” in which the enterprises are independent in pro-
duction but cooperate in purchasing inputs and selling final products; others
are “trusts” in which the enterprises producing identical goods merge; and
some are “consortia” which consist of enterprises of different trades (manu-
facturing and mining, trading companies, transport and shipping companies,
as well as banks). The development of monopoly organizations of various
kinds gradually controls all economic sectors and the economic pulses of
capitalist countries. Especially since the end of the Second World War, so-
cial production and social wealth have been increasingly concentrated in the
hands of a few monopoly capitalists. This is manifested by:
1) A continuous expansion in the size of enterprises and increasing mo-
nopolization. Take the United States as an example. There was only one
company with capital assets exceeding one billion dollars in 1901. In 1960,
this had increased to 96 companies. In 1970, it had again increased to 282
companies.
2) Increasing control of industrial fields by a few monopoly capitalists.
In many industrial fields, a few big companies control a major share of the
production or even the whole production. In the United States, in 1969 the
big automobile companies monopolized 78.1 percent of the nation’s total
automobile production. In England, in 1970 one iron and steel company mo-
nopolized 93 percent of the steel output. In Japan, in 1970 seven big monop-
oly organizations controlled 95.5 percent of the total shipbuilding tonnages
of the country. In France, in 1968 one electric power company controlled the
electric power generation for the whole country.
3) Increasing concentration and monopolization of agricultural produc-
tion. In 1939, there were 6.097 million farms in the United States. In 1959,
this was reduced to 3.701 million. In 1971, only 2.800 million were left. An
average of 90,000 farms went bankrupt each year. In fact, in the United
States fewer than 50,000 big monopoly farms, or 2 percent of all the farms,
produce and market more than 80 percent of the total United States agricul-
tural produce.
4) Increasing diversification of the monopoly organization. In the past,
many companies produced only one or two products. But by the end of the
1960s, their operations extended to many areas. For example, the United
States International Telephone and Telegraph Company was established in
1920. During the first forty years, its primary business was to manufacture
telecommunications equipment. But during the last decade, it has purchased
50 companies unrelated to telecommunications equipment. Its operations
112
 9. The Unchanging Nature of Imperialism
have extended to bread, artificial fibers, construction, hotels, and insurance.
It controls 150 companies all over the world, and its distribution networks
have spread over more than 100 countries and regions.
Though there are differences among various forms of monopoly organi-
zation and further changes may develop, their nature is identical. They all
seek to guarantee high monopoly profit to the monopoly capitalist by mo-
nopolizing production and markets.
High monopoly profit is profit well in excess of average profit which is
obtained by the monopoly capitalist through his monopoly position. Where
does high monopoly profit come from? It still comes from the surplus value
created by the worker in the monopoly enterprise. The monopoly organization
adopts various blood and sweat labor systems to increase labor intensity and
exploit the worker. In addition, the monopoly capitalist also transfers part of
the income of the worker and other people into his own hands by raising pric-
es of consumer goods. Taking advantage of his monopoly position, the capital-
ist depresses the purchasing price of agricultural produce and raises the selling
price of manufactured products to extract part of the value created by the
peasant. Through monopoly pricing, he grabs part of the profit of the capital-
ists outside the monopoly organization. By nonequivalent exchanges, the mo-
nopoly capitalist plunders the people of colonies, satellites, and other coun-
tries. This shows that what the monopoly organization gains in the form of
high monopoly profit is exactly what the worker, the small producer, and the
people of colonies and satellites lose. A small part is extracted from non-
monopoly medium and small capitalists. From the viewpoint of the capitalist
world as a whole, therefore, monopoly pricing has not changed the sum of the
value nor the surplus value created in the capitalist world. In other words, mo-
nopoly pricing has operated within the sphere of the law of value; it has mere-
ly changed the form in which the law manifests itself. Similarly, the law of
surplus value, the fundamental economic law of capitalism, is still functioning
in the monopoly stage; only its effects and forms have changed. Prior to the
monopoly stage, it was manifested through the average profit; in the monopo-
ly stage, it is manifested through high profit.
The rising of monopoly profits implies that the working class and the
laboring people are subject to increasingly heavier exploitation and that the
exploitative measures of the monopoly capitalists have become more ruth-
less than ever before. From 1940 to 1949, the United States monopoly com-
panies obtained an average of 24.356 billion dollars of high monopoly profit
every year. From 1960 to 1969, this increased to 67.47 billion dollars. In
Japan, the rate of surplus value in manufacturing amounted to 182 percent in
1930; it increased to 313 percent in 1954 and 345 percent in 1960. From
these two sets of figures, we can see the acute polarization between the rich
and the poor in the capitalist country.

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Fundamentals of Political Economy

Monopoly Leads to More Intense Competition

Free competition leads to monopoly. But monopoly cannot eliminate
competition. On the contrary, it intensifies competition because competition
is a product of capitalist private ownership. Monopoly has not changed the
nature of capitalist private ownership and therefore cannot eliminate compe-
tition. This is especially true because means of production are increasingly
concentrated in the hands of a few oligopolists. In order to eliminate their
opponents, the monopoly organizations resort to any conceivable means to
discourage their competitors. Competition becomes more acute and cruel. In
the imperialist stage, life and death struggles among capitalists and capitalist
cliques are manifested in the following ways:
Competition between monopoly organizations and non-monopoly or-
ganizations. Under capitalist conditions, no matter how concentrated produc-
tion is, it is impossible to achieve absolute monopoly. A certain number of
non-monopoly organizations always exists. Even in countries where monop-
oly capitalism is most developed, a large number of medium and small en-
terprises still exists. For example, in the United States, of her 4 million man-
ufacturing enterprises, medium and small enterprises account for more than
3 million. Life and death struggles between monopoly and non-monopoly
enterprises are inevitable.
Intense competition also exists among monopoly organizations in their
fight for sources of raw materials, markets, and transportation facilities.
There also exists among various enterprises in the same monopoly or-
ganization competition for markets and higher production and sales quotas.
This kind of competition may even lead to the disintegration of some mo-
nopoly organizations and results in new monopoly organizations and new
competition.
In trusts and consortia, the struggle among various big capitalists for
leadership, stock control, and share of profits never ceases.
Therefore, monopoly capitalism is not “organized capitalism” as the
bourgeoisie and the revisionists claim. On the contrary, monopoly intensifies
competition and aggravates the capitalist contradiction between social pro-
duction and private ownership and between the organized production of in-
dividual enterprises and the chaotic conditions of social production. Lenin
pointed out long ago, “Monopoly arising from free competition cannot elim-
inate competition. It is superimposed on competition and coexists with com-
petition, consequently leading to many very acute contradictions, frictions,
and confrontations.” (5) “The combination of the two contradicting ’princi-
ples’ of competition and monopoly represents the true nature of capitalism.
It is exactly this combination that leads to disintegration, namely socialist
revolution.” (6)

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 9. The Unchanging Nature of Imperialism

Financial Capital Is an Omnipotent Monopolist

Financial Capital Is Formed by a Merger of Banking Capital
and Manufacturing Capital
The first economic attribute of imperialism is monopoly. The second is
the formation of financial capital and the rule of financial oligopoly. With
the emergence of monopoly in manufacturing, monopoly also appears in the
banking industry. When free competition is dominant, the bank serves as a
middleman. It pools idle funds in society for the use of manufacturing and
commercial capitalists through short-term loans. With the arrival of the im-
perialist stage, the bank is transformed from a middleman into an all-
powerful monopolist. Monopoly in the banking industry leads to a funda-
mental change in the relation between the bank and the manufacturing indus-
try. Big banks infiltrate the manufacturing industry by purchasing manufac-
turing stocks. Manufacturing monopoly organizations infiltrate the banks by
purchasing banking stocks. As a result, monopoly banking capital and mo-
nopoly manufacturing capital gradually merge to form financial capital.
“The concentration of capital; the development of monopoly from concen-
tration; the merger between the banks and the manufacturing industry or
their mixed growth — these are the origins of financial capital and the con-
tent of this concept.” (7) “The characteristic of imperialism is not manufac-
turing capital, but financial capital.” (8) The few largest capitalists who con-
trol a large amount of financial capital are the financial oligopolists. The
chief means by which financial capital controls the national economy is the
“participation system.” Through a major joint-stock company (“mother
company”) which the financial capitalist controls, stocks of other joint-stock
companies are purchased. Once their stocks are under control, they become
“son companies.” These “son companies” use the same method to control
more “grandson companies.” In this way, a relatively small amount of capi-
tal can control and manipulate capital many times the amount of the original
capital. The national economy and most of the wealth created by the labor-
ing people are thus under the control of a few financial oligopolists. In 1968,
eighteen financial groups in the United States controlled capital assets worth
678.4 billion dollars. Of these, the Morgan and Rockefeller groups were the
two biggest monopoly financial organizations. They had the most economic
power and their influence covered the whole capitalist world. As of 1970,
these two financial groups controlled capital assets totaling 330.4 billion
dollars, representing about half of the capital assets controlled by the eight-
een United States financial monopoly organizations and exceeding all the
capital assets controlled by the financial monopoly organizations of Eng-
land, France, Japan, and West Germany combined. Enterprises controlled by
the Morgan group covered various departments of the national economy,

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Fundamentals of Political Economy
especially basic industries such as iron and steel, electricity and gas, elec-
tronics, and chemicals. In public utilities and transportation, the Morgan
group’s position was even stronger, playing a vital role in the United States
economy. Enterprises controlled by the Rockefeller group were more con-
centrated. Its five major oil companies controlled 94.1 percent of the oil ex-
traction in the United States in 1967. The two groups exercise a decisive
influence in the United States economy.
Financial Capital Directly Controls State Political Power and
Other Superstructures
Lenin pointed out, “Once monopoly is formed, controlling vast amounts
of capital, it inevitably infiltrates into various aspects of society’s life.” (9)
To further exploit and oppress the laboring people for high monopoly profit,
financial capital seeks control not only of the economic lifeblood of the state
but also of state political power. Financial oligopolists bribe high-level offi-
cials and state legislators to serve as their spokesmen for the control of the
state machinery. Sometimes they personally occupy the leadership positions
of the state. Take the postwar Eisenhower administration as an example.
Eisenhower came into power with the support of the Rockefeller and Mor-
gan groups. Of the 272 high-level officials in his administration, 150 were
big capitalists. Among them, Secretary of State Dulles was a trustee of the
Rockefeller Foundation, Defense Secretary Wilson was a general manager
of the General Motors Company, Gates, another defense secretary, was an
important person in the Morgan group and served as the director of the Mor-
gan Guaranty Trust Company in 1965, and Secretary of the Treasury
Humphrey was a responsible official of the Han-na Mining Company which
was a major enterprise of the Cleveland group. The financial oligopoly con-
trolled not only state political power but also various spheres of the super-
structure. The newspaper, publishing, broadcasting, television, and movie
industries were all under the control of monopoly capital and financial oli-
gopoly. The Rockefeller group also owned the largest “philanthropic enter-
prises,” various foundations, learned societies, museums, hospitals, “welfare
organizations,” and “cultural” centers. These were all tools used by the
Rockefeller financial group to expand into various aspects of social life.
State Monopoly Capitalism Pushes the Relation between
Capital and Labor to the Ultimate
Engels once prophesied that when capitalism develops to a certain stage,
“the real agent of the capitalist society, the state, must take the responsibility
for managing production.” (10) In the imperialist stage when the productive
forces have been greatly developed, some monopoly capital groups are
shown to be increasingly incapable of controlling the productive forces.

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 9. The Unchanging Nature of Imperialism
Consequently, the phenomenon arises in which “the state merges ever closer
with the alliance of capitalists which possesses enormous power. Its scan-
dalous oppression of the laboring people becomes more severe.” (11) This is
state monopoly capitalism. State monopoly capitalism is monopoly capital-
ism based on capitalist ownership and the merger of monopoly capital with
state political power.
The rapid development of state monopoly capitalism is a prominent fea-
ture of contemporary imperialism. Since the Second World War, imperialist
countries have implemented so-called “nationalization” by having the state
purchase private enterprises; or the state has invested directly in so- called
“state enterprises.” These state monopoly capitalist enterprises constitute a
very high proportion of capitalist enterprises. In 1968, the share of state mo-
nopoly capitalist enterprises in four major countries in Western Europe was
as follows:

Percentage share in staff Percentage share in

Countries and workers assets

France 11.2 33.5

West Germany 8.7 22.7
Italy 11.6 28
United Kingdom 8.5 17

The development of United States state monopoly capitalism had its

own characteristics. During the Second World War, the United States gov-
ernment established a large number of “state enterprises.” After the war,
they were sold to the monopoly capital groups at very low prices. At the
same time, the United States government adopted the “blood transfusion”
technique of supporting the monopoly capital groups by means of taxes ex-
tracted from the people.
The services rendered by the imperialist countries to the monopoly
bourgeoisie, in addition to “nationalization” and “state enterprises,” assumed
the following forms, assuring the monopoly groups high monopoly profits:
(l) Using federal treasury funds and the people’s taxes to subsidize the capi-
talists when they undertook the risks of investment; (2) redistributing a large
part of the national income in favor of the monopoly capital organization
through state legislation and budgets; (3) creating facilities conducive to the
monopoly capitalist’s concentration and accumulation of capital and to his
absorption of medium and small enterprises; and (4) though the means by
which the imperialist countries serve their monopoly bourgeoisie are differ-

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ent, their objective is always the same, namely, the strengthening of the capi-
talist enslavement of the proletariat. “The more of the productive forces
which the bourgeois state takes into its possession, the more it becomes a
truly total capitalist, and the more it exploits the people. The worker is still a
hired laborer and a proletarian. The capitalist relation has not only not been
eliminated, it has been elevated to its ultimate.” (12) Contrary to the claims
of the bourgeois apologists and the modern revisionists, state monopoly cap-
italism does not have any “socialist element” which can exercise planned
leadership over the national economy. On the contrary, state monopoly capi-
talism has not changed the capitalist nature of production relations a bit. It is
merely a tool of the imperialist countries to serve the monopoly organization
and strengthen the rule of the financial oligopoly. State monopoly capitalism
strengthens the exploitation of the working class and the laboring people by
monopoly capital, strengthens the plunder of the people of the colonies by
monopoly capital, accelerates armament and war preparations, and intensi-
fies competition and chaos so that the inherent contradiction in the capitalist
society becomes more acute. It runs into increasing opposition from the pro-
letariat and the broad laboring people and, at the same time, goes a step fur-
ther in preparing the material conditions for the proletarian revolution.

Capital Export Leads to World Domination by

Financial Capital
Capital Export Is an Indication of Relative Capital Surplus
“The characteristic of the old capitalism in which free competition was
dominant is commodity export. The characteristic of the newest capitalism in
which monopoly is dominant is capital export.” (13) Capital export exists in
the pre-monopoly stage of capitalism; but it is widespread and significant only
in the stage of monopoly capitalism. This is because the cruel exploitation of
the domestic laboring people by the monopoly organization in the imperialist
countries helps accumulate a large amount of capital. However, since almost
all profitable business has already been monopolized inside the country and
high monopoly profit cannot be guaranteed in other, less developed, domestic
sectors, a large amount of accumulated capital thus becomes “surplus capital.”
Where can profitable outlets be found for this “surplus capital”? In those de-
veloping countries where capital is scarce, wages are low, land and raw mate-
rials are cheap, and high profit can be obtained. Therefore, capital is exported
for high monopoly profits through direct investment (mining, manufacturing,
railroads, shops) and indirect investment (loans), greedily exploiting the broad
laboring people of the developing countries. Capital export has developed rap-
idly only since the beginning of the twentieth century. In 1970, the total capital
export from major capitalist countries reached more than 300 billion dollars,
an increase of more than five times over that of 1914.
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 9. The Unchanging Nature of Imperialism

Capital Export Is an Imperialist Tool to Exploit and Oppress

the People of Various Countries
In the search for monopoly profits and external expansion, capital export
is an important tool used by the monopoly capitalist to exploit and plunder
the people of various countries, especially the peoples of the developing
Asian, African, and Latin American countries. Take old China as an exam-
ple. On the eve of the Anti-Japanese War, foreign capital in China totaled
4.3 billion dollars. Near the end of the war, it increased to 9.8 billion dollars,
of which, the share of investment by Japanese imperialism was the highest,
amounting to 6 billion dollars. This foreign capital controlled 70 percent of
China’s modern industry and transportation, 95 percent of the iron and steel
and petroleum industries, 75 percent of the electric power and coal industry.
More than half of the food processing industry was operated by foreign capi-
tal. In 1945, after imperialist Japan surrendered, United States imperialism
replaced Japanese imperialism as the dominant power in China. In 1948, the
American imperialist investment in China (including so-called “United
States aid”) represented 80 percent of foreign investment in China. The in-
vasion of foreign capitalism “not only played a role in undermining China’s
feudal economic basis, but also created certain objective conditions and pos-
sibilities for the development of capitalist production in China.” (14) How-
ever, “the purpose of the imperialist powers in invading China was definitely
not to transform feudal China into a capitalist China. Their purpose was just
the opposite. They wanted to transform China into their semi-colony or col-
ony.” (15) The influx of a large amount of foreign capital on a long-term
basis seriously undermined the social productive forces of China and
brought extreme poverty to the livelihood of the Chinese people, reducing
China to a semicolonial and semifeudal status.
After the Second World War, there was a large increase of capital export
from the capitalist countries, and the United States became the largest capi-
tal-exporting country. In 1914, the United States exported only 3.5 billion
dollars of capital. In 1970, it rapidly rose to 155.5 billion dollars, an increase
of more than forty-three times in fifty-six years. With the rapid increase in
capital export, there were also large increases in the high monopoly profits
of the monopoly capitalists. From 1950 to 1970, the profit from United
States private direct investment in foreign countries amounted to 88.77 bil-
lion dollars, or 14 percent higher than the total United States private direct
investment in foreign countries up to the end of 1970. Profit from invest-
ments made by imperialism in Asia, Africa, and Latin America was aston-
ishingly high. For example, in 1970 United States direct investment in Asia,
Africa, and Latin America accounted for 27.3 percent of her total foreign
direct investment. In the same year, profit extracted from Asia, Africa, and
Latin America accounted for 43.5 percent of the total profit from all foreign

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direct investment. At the present time, imperialism has become the greediest
bloodsucker of the people over a large area of the world.
After the Second World War, in addition to further developing private
capital export, the imperialist countries paid increasing attention to state cap-
ital export. The major form of this state capital export was foreign “aid.”
From mid-1945 to mid-1971, the total amount of United States foreign aid
reached 149.6 billion dollars. This foreign “aid” was classified into so-called
“grants” and ’loans.” “Grants” were nominally free; but in fact, they were
the strings by which the grantee countries were controlled. Chairman Mao
long ago exposed the reactionary political objective of United States imperi-
alist “aid”: “Gifts, yes; but with conditions. What conditions? You have to
follow my footsteps.” (16) In recent years, the proportion of loans from the
imperialist countries is increasing, and the proportion of “grants” is corre-
spondingly decreasing. These so-called loans all have interest rates exceed-
ing 5 percent per annum. The highest rate reached 8 percent per annum. In
addition, many political, economic, and military strings are attached. It is not
only a bloodsucking straw but is also an important tool for the implementa-
tion of the aggressive and expansionary policies of imperialism and the fight
for world hegemony.
Capital export from the imperialist countries inflicts severe hardships on
the colonial and semicolonial countries and their people. However, the impe-
rialists and revisionists try their best to defend these aggressive acts. They
claim that capital export can “help” the economically underdeveloped coun-
tries to reach economic prosperity. The Soviet revisionist renegades even
unabashedly suggested that imperialism could spend all the money saved
through total disarmament to “help” the economically underdeveloped coun-
tries in Asia, Africa, and Latin America create a new era. All nations and
people of the world who have been subject to exploitation and slavery have
had their full share of the hardship brought about by the so-called “aid” of
imperialism. The market is shrinking for such arguments of the Soviet revi-
sionist renegades.

The International Monopoly Alliance Carved up the

World Economically
The International Monopoly Alliance Is a Super-monopoly
The monopoly organizations of a country first carve up the domestic
market. Under capitalism, the domestic market is closely related to the for-
eign market. With increasing capital export and the expansion of the interna-
tional association and the sphere of influence of the largest monopoly alli-
ance, a few large monopoly organizations of several countries can control
most of the world’s production and distribution of some commodities. These
large monopoly organizations are comparable in power and may, out of self-
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 9. The Unchanging Nature of Imperialism
interest and under certain conditions, make temporary international agree-
ments and form alliances to set international monopoly prices, divide up
sources of raw materials and distribution markets, limit production quotas,
and thus form an international monopoly organization. These monopoly or-
ganizations have already exceeded the boundary of one country. Lenin
called them “super-monopolies.”
These super-monopoly organizations appeared as early as the 1870s and
developed rapidly in the twentieth century. After the Second World War,
new international monopoly organizations were formed, and some old inter-
national monopoly organizations disintegrated. According to statistics, up to
1968 the total foreign capital assets (accounting value) of international mo-
nopoly companies amounted to 94 billion dollars. The annual production
value of their foreign subsidiary companies was 240 billion dollars. The five
largest international monopoly organizations were: the General Motors
Company, the New Jersey Standard Oil Company, the Ford Motor Compa-
ny, the British-Dutch Shell Oil Company, and the General Electric Compa-
ny. As a result of the rapid development of international monopoly compa-
nies, the monopoly financial groups’ monopoly of world production and
trade is strengthened. Some manufacturing fields in the capitalist world such
as rubber tires, oil, tobacco, pharmaceuticals, and automobiles are almost
completely controlled by international monopoly organizations. In recent
years, there have been new developments in regional international monopoly
alliances. The Common Market and the European Free Trade Area of West-
ern Europe are, economically speaking, regional international monopoly
alliances of sorts. Their development and expansion provide checks and bal-
ances to the vain attempts of the United States and the Soviet Union to di-
vide up the world.
The Struggle among International Monopoly Alliances Is
Intensifying
In the imperialist stage, the enormous development of monopoly organi-
zations requires more supplies of resources and markets for commodities
and more areas for capital investment. Take 1969 for instance: the propor-
tion of raw materials which the United States imported from Asia, Africa,
and Latin America was as follows: tin ore, close to 100 percent; manganese
ore, 91.9 percent; copper ore, 78.2 percent; petroleum, 62.9 percent; chromi-
um and others, 41.6 percent. The proportion of raw material imports by Ja-
pan, West Germany, and the United Kingdom from Asia, Africa, and Latin
America was also high. The struggle for sources of raw material supply
among international monopoly organizations, therefore, has become increas-
ingly severe. To fight for oil in the Middle East, the monopoly capitalists of
many countries tried very hard to get into this area, and consequently, the
struggle was especially acute and complex.
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Fundamentals of Political Economy
The struggle among the monopoly organizations of various countries for
markets to sell commodities is also very acute. After the Second World War,
the United States dominated the capitalist world market for some time. Her
total volume of exports accounted for one-third of the total capitalist world
exports. But with the rising economic power of Western Europe and Japan,
the United States hegemony began to decline. In 1971, her share of the capi-
talist world exports was reduced to only 14.2 percent. In Asia, Africa, and
Latin America, the monopoly organizations of Western Europe, North
America, and Australasia repeatedly engaged in intense struggle for markets.
Faced with the influx of Japanese automobiles on the West Coast of the
United States, Henry Ford II, the president of the Ford Motor Company, la-
mented: “This is only the beginning. These Japanese will soon invade the
heart of America.” Lenin pointed out profoundly: “The dismembering of the
world among the capitalists is not due to their specific vicious character.
Rather, it occurs because concentration has reached such a stage that they
cannot but take this path to obtain profit.” (17)
The international monopoly alliance is originally an international mo-
nopoly organization set up by the monopoly capitalists of various countries
to divide up the world market for high monopoly profits. But agreements
and alliances among the monopoly capitalists of various countries to divide
up the world are at best temporary and relative. Their pursuit of high mo-
nopoly profits guarantees that the struggle among them will go on forever.
Imperialism and revisionism hold that the internationalization of capital will
bring the possibility of peace to nations. This wishful thinking has been
sharply criticized by Lenin. Lenin pointed out: “The form of struggle among
international monopoly organizations may change frequently for various
comparatively local and temporary reasons. But the nature of the struggle
and the class content of the struggle will never change as long as classes
exist.” (18) The history of the last half-century or so has fully confirmed
Lenin’s scientific judgment.

Competition among the Imperialist Powers for the

Division and Redivision of the World
Colonies Are Important Conditions for the Existence of
Imperialism
In the imperialist era, the economic division of the world by monopoly
capital must inevitably be followed by the territorial division of the world
into colonies. The implementation of the colonial policy and the seizure of
colonies began in the stage of primitive accumulation. But only in the impe-
rialist stage is the “climax” of struggle for colonies begun, and the struggle
to divide the world’s territories among imperialist countries intensified. This

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 9. The Unchanging Nature of Imperialism
is because:
First, colonies are the most important source of raw materials for impe-
rialism. Monopoly leads to large-scale production. The larger the scale of
production, the more raw materials are needed, and the more important it is
to control the sources of raw materials. Lenin pointed out, “The more ad-
vanced capitalism is, the scarcer raw materials are, and the more acute the
struggle for the world’s sources of raw materials becomes, the more intense
the struggle to colonize is.” (19)
Second, colonies are the most profitable outlets for the capital exports of
imperialism. In colonies, the monopoly organizations of the suzerain can
exploit and enslave the laboring people more ruthlessly. They can more easi-
ly eliminate competitors through monopolistic means and guarantee high
monopoly profits for the exported capital.
Third, colonies are the most profitable sales market for the monopoly
organizations. The suzerain can use protective tariffs to guarantee their mo-
nopolist position.
Fourth, colonies are also military strategic bases in the struggle for
world hegemony among imperialist countries. The suzerain can establish a
large number of military bases there, plunder large quantities of strategic
materials, and recruit large numbers of soldiers to serve the military policies
of imperialism.
In sum, colonies are important conditions for the existence of imperial-
ism. “Only by occupying colonies can the triumph of the monopoly organi-
zation be fully secured.” (20) Therefore, the imperialist countries are always
fighting for more colonies. After the 1870s, the struggle to divide the
world’s territories among the imperialist powers reached an extremely acute
degree. Up to 1914, the colonies occupied by England, Russia, France, Ger-
many, the United States, and Japan reached 65 million square kilometers,
and they ruled 523 million people. Among them, the area of the colonies
owned by the czar of Russia was second only to that of England. At that
time, out of Russia’s 22.8 million square kilometers, 17.4 million square
kilometers were colonies. Lenin pointed out clearly, ‘The czarist government
expressed more vividly than other national governments the reactionary na-
ture of war, plundering, and enslaving peoples.” (21) Czarist Russia was the
“prison of various nationals.” (22)
China had long been fiercely carved up by the imperialist powers. From
the latter part of the nineteenth century, the imperialist countries who invad-
ed China marked out their respective spheres of influence according to their
economic and military power in China and reduced her to a semi-colony. For
example, the provinces in the middle and lower reaches of the Yangtze River
were under British influence; Yunnan, Kwangtung, and Kwangsi provinces
were under French influence. After the Russo-Japanese War in 1905, the
southern part of northeast China was brought under Japanese influence. In
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Fundamentals of Political Economy
the process of imperialism’s slaughter of China, czarist Russia was the first
“to stretch out her grisly hands.” (23) The old czar invaded China ‘like a
thief” (24) and occupied more than 1.5 million square kilometers of Chinese
territory, equal to three times the area of France or twelve times that of
Czechoslovakia.
The Division and Redivision of Colonies Inevitably Leads to
Wars
To obtain high monopoly profits, imperialism must engage in aggres-
sion and expansion and fight for the division and redivision of world territo-
ries. The outcome of such competition is determined by the relative strength
of the imperialist countries. The mightiest holds world hegemony. The high-
est form of resolving conflicts through strength is war. As long as imperial-
ism exists, wars are inevitable. Imperialism fights for colonies and world
hegemony and obtains high monopoly profits through wars. Lenin pointed
out, “Modern wars are created by imperialism.” (25) The two world wars in
the first half of the twentieth century were caused by the division and redi-
vision of the world and the struggle for world hegemony among the imperi-
alist powers.
Economic monopoly inevitably intensified the fundamental contradic-
tions of imperialism and accentuated the political and economic crises of
capitalism. To free themselves from political and economic crises, to reduce
domestic class contradictions, and to save the capitalist system, the imperial-
ist powers ran the risk of wars, engaging in moribund struggles. Chairman
Mao pointed out, “The outbreak of imperialist world wars was an attempt by
the imperialist countries to extricate themselves from new economic and
political crises.” (26)
Once we understand the economic reality of imperialism, we will under-
stand Lenin’s famous statement that “on the economic basis of private own-
ership of means of production, imperialist wars are inevitable.” (27) United
States imperialism prospered through wars. In the two world wars, the Unit-
ed States monopoly organization engaged in large-scale rearmament transac-
tions and obtained windfall gains from wars. In the First World War, United
States monopoly capitalists obtained 38 billion dollars as windfall profit; in
the Second World War, they obtained 117 billion dollars as windfall profit
and became the dominant power in the capitalist world. From then on, the
United States monopoly bourgeoisie looked all the more to wars as shortcuts
to prosperity and continuously waged aggressive wars. According to statis-
tics, in the aggressive war in Korea, United States monopoly capital obtained
115.4 billion dollars as a windfall profit; in the aggressive war in Vietnam,
in 1964 and 1965 alone, the windfall profit amounted to 76 billion dollars.
Every dollar in the pocket of the United States millionaires is stained with
the blood of the laboring people. As long as imperialism exists, the source of
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 9. The Unchanging Nature of Imperialism
modern wars exists. To eliminate wars, we must eliminate the imperialist
system.
However, the imperialist and revisionist always fabricate all sorts of
nonsense to deceive the people in order to protect the imperialist system. A
typical absurdity is found in On Super-imperialism, a work which the chief
of the Second International, Kautsky, fabricated on the eve of the First
World War. Purposely overlooking the fact that the external expansion and
aggression of imperialism are determined by the substance of monopoly cap-
italism, he vigorously contended that those were the imperialists’ conscious
policies. Hence, he alleged: “These policies of neo-super-imperialism would
replace international financial struggles with international cooperation to
exploit the world.” As a result, a permanent peace would emerge. Pointedly
exposing this fallacy, Lenin asserted: “Kautsky’s On Super-imperialism is
aimed at creating an illusion that permanent peace could be achieved under
capitalism. It is an extremely reactionary idea attempting to dupe the masses;
it is a means to detract people’s attention from contemporary acute contra-
dictions and outstanding problems to an illusory future of the so-called ‘neo-
super-imperialism.’” (28) Since the fabrication of Kautsky’s On Super-
imperialism, all revisionists have treated it as a most valuable treasure. They
repeatedly propagated this “theory” under different guises and conditions.
Modern Soviet Russian revisionists headed by Brezhnev described certain
relative, temporary agreements between the two contemporary superpowers
as so-called “structures for permanent peace,” vainly attempting to conceal
the deep-seated contradictions between them and to deceive the people and
tranquilize the opposite side in order to facilitate their own imperialist ex-
pansion. Within imperialism, there is both competition and collusion. Collu-
sion is for the purpose of larger competition. Competition is absolute and
long-term, and collusion is relative and temporary. Temporary agreements
today set the stage for larger competition tomorrow.
Monopoly is the most deep-seated economic basis of imperialism. It de-
termines the aggressive and plundering nature of imperialism and will not
change. Just as Chairman Mao pointed out: ‘When we say that ‘imperialism
is very dangerous,’ we mean that its nature cannot change. Imperialist ele-
ments will never put down their weapons or transform themselves into Bud-
dhas until their extinction.” (29)
Major Study References
Lenin, Imperialism, the Highest Stage of Capitalism, chaps. 1-6.
Chairman Mao, “On New Democracy.”
Chairman Mao, “Cast Away Illusions and Prepare for Struggle.”
Review Problems
1. What are the basic characteristics of imperialism? Why do we say
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Fundamentals of Political Economy
monopoly is the most deep-seated economic basis of imperialism?
2. Why do we say the nature of imperialism will never change? Criticize
On Super-imperialism and its disguised versions.
Notes
* Ti-kuo-chu-i ti pen-hsing shih pu hui kai-pien ti — ti-kuo-chu-i shih
lung-tuan ti tzu-pen-chu-i.
1) ‘Imperialism and the Split in the Socialist Movement,” Selected
Works of Lenin. Vol. 2, Jen-min ch’u-pan-she, 1972, p. 883.
2) Ibid., p. 808.
3) Ibid., p. 817.
4) “On Contradiction,” Selected Works of Mao Tse-tung. Vol. 1, Jen-
min ch’u-pan-she, 1968, p. 289.
5) Imperialism, the Highest Stage of Capitalism. Selected Works of Len-
in. Vol. 2, Jen- min ch’u-pan-she, 1972, pp. 807-08.
6) “Materials for the Amendment of the Party Charter,” Complete Works
of Lenin. Vol. 24, pp. 431-32.
7) Imperialism, the Highest Stage of Capitalism. Selected Works of Len-
in. Vol. 2, Jen- min ch’u-pan-she, 1972, p. 769.
8) Ibid., p. 810.
9) Ibid., p. 779.
10) Engels, Anti-Dühring. Selected Works of Marx and Engels. Vol. 3,
Jen-min ch’u- pan-she, 1972, p. 317.
11) State and Revolution. Selected Works of Lenin. Vol. 3, Jen-min
ch’u-pan-she, 1972, p. 171.
12) Engels, Anti-Dühring. Selected Works of Marx and Engels. Vol. 3,
Jen-min ch’u- pan-she, 1972, p. 318.
13) Imperialism, the Highest Stage of Capitalism. Selected Works of
Lenin. Vol. 2, Jen-min ch’u-pan-she, 1972, p. 782.
14) “The Chinese Revolution and the Chinese Communist Party,” Se-
lected Works of Mao Tse-tung. Vol. 2, Jen-min ch’u-pan-she, 1968, p. 589.
15) Ibid., p. 591.
16) “Farewell, Leighton Stuart! “Selected Works of Mao Tse-tung. Vol.
4, Jen-min ch’u-pan-she, 1968, p. 1384.
17) Imperialism, the Highest Stage of Capitalism. Selected Works of
Lenin. Vol. 2, Jen-min ch’u-pan-she, 1972, p. 795.
18) Ibid., p. 795.
19) Ibid., pp. 802-03.
20) Ibid., p. 802.
21) “Socialism and War,” Complete Works of Lenin. Vol. 21, pp. 313-
14.
22) “The Revolutionary Proletariat and National Self-Determination,”
Complete Works of Lenin. Vol. 21, p. 392.
126
 9. The Unchanging Nature of Imperialism
23) “Chinese Wars,” Complete Works of Lenin. Vol. 4, p. 335.
24) Ibid., p. 336.
25) “Draft Decisions of the Left Zimmerwaldists,” Complete Works of
Lenin. Vol. 21, p. 324.
26) “The Current Situation and the Party’s Tasks,” Selected Works of
Mao Tse-tung. Vol. 2, Jen-min ch’u-pan-she, 1968, p. 578.
27) “Preface to the French and German Editions of Imperialism, the
Highest Stage of Capitalism.” Selected Works of Lenin. Vol. 2, Jen-min
ch’u-pan-she, 1972, p. 733.
28) Imperialism, the Highest Stage of Capitalism. Selected Works of
Lenin. Vol. 2, Jen-min ch’u-pan-she, 1972, p. 836.
29) “Cast Away Illusions and Prepare for Struggle,” Selected Works of
Mao Tse-tung. Vol. 4, Jen-min ch’u-pan-she, 1968, pp. 1375-76.

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10. Imperialism Is the Eve of Proletarian
Socialist Revolution
Imperialism Is Decaying and Moribund Capitalism*
After capitalism develops from free competition to the monopoly stage,
its various contradictions intensify. These contradictions, like volcanos,
threaten the existence of imperialism. The life of imperialism is then limited.
Despite its fierce facade, imperialism is a paper tiger. Imperialism is the eve
of socialist revolution.

Imperialism Is Parasitic or Decaying Capitalism

The Stagnating Tendency of the Development of Production
and Technology
When capitalism develops into imperialism, it begins to decay and de-
cline. Imperialism is parasitic or decaying capitalism. The decaying nature
of imperialism is brought about by monopoly rule. Monopoly is the econom-
ic basis of the decaying nature of imperialism.
The decaying nature of imperialism is primarily manifested in the seri-
ous obstruction of the development of productive forces by the monopoly
organization. It artificially prevents technical progress and ushers a stagnat-
ing tendency into the development of production and technology. Before
monopoly, the capitalist cannot neglect technological advancement in his
pursuit of excess profits at the expense of his competitors. In the monopoly
stage, because the monopoly capitalist controls an absolute majority of some
production sectors, he can obtain high monopoly profits by setting monopoly
prices. Thus, the motive to adopt advanced technology is weakened to a cer-
tain degree. Under monopoly rule, the capitalist is afraid that advanced tech-
nology may weaken his monopoly position. He often artificially obstructs
the development of new technology.
Why is the monopoly capitalist so afraid of advanced technology and
why does he obstruct it? First, the widespread adoption of new technology
and new equipment almost certainly reduces the cost of products and in-
creases output. But it will also result in capital loss or the obsolescence of
his original machines and equipment and bring about invisible depreciation;
second, the adoption of new technology and equipment will lead to competi-
tion from similar and cheaper commodities which may threaten his monopo-
ly position. The monopoly capitalist often reduces production to maintain
monopoly prices and extract high monopoly profits. Therefore, many new
techniques and inventions beneficial to the development of production are
put aside once their patents have been bought by the monopoly capitalist.
For example, the technology of artificial petroleum is detrimental to the mo-
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 10. Imperialism Is the Eve of Proletarian Socialist Revolution
nopoly of the petroleum companies and has been put aside for exactly twen-
ty years. The invention of atomic energy is a great scientific achievement,
but it is used by imperialism to make atomic weapons for aggression and not
fully used as motive power for industry.
The obstruction of the development of production and technology by
monopoly results in a gradual decline in the rate of capitalist expanded re-
production. Take the United States as an example. Its industrial production
increased by about 3.9 times during the thirty years from 1871 to 1900. But
in the thirty years [sic] from 1901 to 1929, it increased by only 2.7 times. In
the thirty years from 1930 to 1959, the average (annual) rate of increase in
industrial production was only 4.4 percent. The decreasing rate of develop-
ment in United States production fully exposes the decaying nature of impe-
rialism.
The appearance of a stagnating and decaying tendency in the develop-
ment of production and technology in the imperialist stage does not mean
that the development of production technology in the imperialist countries
has come to a standstill. Lenin pointed out: “Should we think that this decay-
ing tendency precludes any rapid development of capitalism, we would be
mistaken. No, in the imperialist phase, individual industrial fields, individual
bourgeois classes or strata, and individual countries will manifest in different
degrees first this tendency and then that tendency.” (l) This is because free
competition leads to monopoly. But monopoly by no means eliminates com-
petition. It only makes competition more acute or ruthless. In competition,
various monopoly capital groups adopt violence, bribery, deception, and
fraud to eliminate competitors. At the same time, the relative economic
strength among various major capitalist countries may change. Under the
general tendency of frustrated development of productive forces, the posi-
tion of some capitalist countries may deteriorate, but the position of others
may improve. Therefore, in the monopoly stage, the development of produc-
tion and technology in the imperialist countries suffers a general stagnating
tendency. But this by no means precludes the possibility of more rapid de-
velopment in the production technology of a particular period, individual, or
sector.
In the imperialist phase, the production technology of individual coun-
tries may undergo more rapid development. But, it is often temporary and
exceptional. Take Japan as an example. In the 1950-1971 period, Japan’s
national product increased by an average annual rate of more than 10 per-
cent. This trend cannot long be maintained. This faster development of Ja-
pan’s production was a result of substantial help from United States imperi-
alism to the monopoly capital of Japan. The aggressive wars against Korea
and Vietnam by United States imperialism brought windfall profits to the
monopoly capitalists of Japan. During the aggressive war against Korea in
the 1950-53 period, United States imperialism paid Japan at least 2 billion
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Fundamentals of Political Economy
dollars for military “special needs” orders. During the aggressive war against
Vietnam, United States imperialism’s payment to Japan for “special needs”
amounted to 300-400 million dollars per year in the first half of the 1960s.
From 1965 onward, it increased to 500-600 million dollars per year. United
States imperialism also gave large quantities of loans to the monopoly capi-
tal of Japan, invested directly in Japan’s heavy industry, and exported a large
number of technical patents to Japan. At the same time, Japanese monopoly
capital cruelly exploited the domestic laboring people and received large
amounts of subsidies from the state budget. All these also contributed to the
fast development of Japan’s industry. The undervalued Japanese yen made
Japanese goods very competitive in the world market. The above shows that
the factors that promoted the development of Japan’s industry cannot last
long. The fast development of the Japanese economy is not only temporary
but also abnormal and without foundations. First, along with the blind de-
velopment of Japanese industry, agricultural production steadily declined.
After the Second World War, the production of wheat cereals in Japan
plummeted, the production of beans decreased substantially, and rice pro-
duction has declined since 1968. From 1960 to 1970, the self-sufficiency
rate of Japan’s food products fell from 90 percent to 73 percent. Second, raw
materials are largely imported and commodities depend heavily on the ex-
port market. The import ratio of ten major items of raw materials, including
copper, aluminum, iron ore, petroleum, and coal, was 71 percent in 1960 and
increased to 90 percent in 1970. The export ratio of Japanese industrial
products increased from 18.3 percent in 1950 to 30.1 percent in 1969, in-
cluding 46.4 percent of synthetic fiber woven goods, 67.4 percent of sewing
machines, and 68.9 percent of ships. These facts show that the foundation of
Japan’s economic development is very shaky. It is impossible to sustain de-
velopment at present rates on a long-term basis. The tendency toward stag-
nation will inevitably dominate.
The Militarization of the National Economy Seriously
Undermines the Social Productive Force
The militarization of the national economy runs into a blind alley that
imperialist economic development must ultimately follow. It is an inevitable
result of the development of the inherent contradictions of capitalism and is
also a concrete manifestation of the increasingly decaying nature of imperi-
alism. To reduce the contradiction between the growth of capitalist produc-
tive forces and inadequate effective demand for the laboring masses and to
avoid economic crises and redivide the world to obtain high monopoly prof-
its, imperialism madly expands rearmament to prepare for wars. An increas-
ing amount of the national income is used to support a large army, make
weapons, support war-related research, and engage in imperialist aggressive
wars.
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 10. Imperialism Is the Eve of Proletarian Socialist Revolution
The militarization of the national economy in the imperialist countries is
first expressed in the increase of military expenditures. After the Second
World War, the share of military defense expenditures in the United States
budget steadily increased. From 1946 to 1970, direct United States military
expenditures totaled 1,100 billion dollars, averaging 45 billion dollars a year.
In the 1972-73 fiscal year, direct military expenditures totaled 78.3 billion
dollars. With 11.7 billion dollars as subsidies for veterans and 3.2 billion
dollars for the space program, the three items added up to 93.2 billion dol-
lars. It was also manifested in the increasing shares of industrial production
and scientific research in armament industries and military scientific re-
search. A large amount of the labor force was transferred from the produc-
tion sphere of social wealth to armament industries and military scientific
research fields. In 1967-68, the level of employment in United States arma-
ment production in several sectors and its ratio to the total labor force were:
126,900 in electronic equipment, or 33.8 percent; 256,900 in radio equip-
ment, television sets, and telecommunications tools, or 38.6 percent; and
615,900 in aircraft and accessories, or 72.4 percent. Of the total United
States scientific and technical manpower, two-thirds is related to armament
and space research. In the United States labor force of 77 million (excluding
armed forces), about 20 percent depends on armament orders from the De-
fense Department.
The general militarization of the national economy in the imperialist
countries led to serious unfavorable consequences. In recent years, the Unit-
ed States has spent about 100 billion dollars on armament and aggression.
The products are either used to murder people in the battlefield and destroy
social wealth or, if stored away, soon become scrap. They may become “ob-
solete” before even leaving the plant when new weapons are invented. The
militarization of the national economy has brought about strange results: the
inflationary expansion of the armament industry and the deflationary con-
traction of civilian industries. In the past twenty years, the production of
guided missiles, aircrafts, and space vehicles in the aeronautics and space
industries in the United States has increased its value by six times. On the
other hand, the development of civilian industries has been slow. Some in-
dustries have had to reduce production. Take the textile industry as an ex-
ample. The output in 1970 was only 88 percent that of 1950. The policy of
aggression and wars pursued by imperialism and the militarization of the
national economy led to an immense waste of manpower, goods, and wealth
and to great destruction of social wealth. This is a notable feature of the de-
caying nature of imperialism.
The Bourgeoisie Increasingly Becomes a Stratum That Thrives
Solely on Interest
The parasitic and decaying nature of imperialism is further manifested
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Fundamentals of Political Economy
by the bourgeoisie’s increasingly becoming a stratum that thrives solely on
interest. This so-called stratum that thrives on interest refers to those who
have lost all connection with the production process and ‘live on interest.”
The bourgeoisie has never been engaged in production labor and has led an
extravagant life by exploiting the worker. In the stage of imperialism, the
parasitic nature of the bourgeoisie develops further. Capitalist enterprises are
wholly managed by specialized managerial personnel. The bourgeoisie, es-
pecially the monopoly bourgeoisie, is completely divorced from the produc-
tion process and lives a parasitic life solely on income from stocks and
shares. Lenin pointed out long ago, “Imperialism is simply a great concen-
tration of money capital in a few countries,” “and thus the stratum of people
who live on interest and do not work increases rapidly.” (2) For example, the
income from dividends and individual interest in the United States in 1950
totaled 19.5 billion dollars. In 1963, it reached 50.3 billion dollars, an in-
crease of 157 percent. The national income increased by only 102 percent in
the same period. In 1970, the income from dividends and individual interest
in the United States reached 89.7 billion dollars. The United States monopo-
ly bosses lead extravagant lives with the income from exploitation. Some
bosses of financial groups not only build villas, golf courses, and hunting
grounds, using a lot of land for their own pleasure, but also show off their
riches to each other. In 1964, one big United States monopoly capitalist
named Ford spent half a million dollars for a party to celebrate his daugh-
ter’s birthday. Not too long afterward, another big monopoly capitalist
named Mellon spent a million dollars on a party to introduce his daughter to
“society” to impress Ford. This incident fully exposed the parasitic nature of
the monopoly bourgeoisie.
Another feature of imperialism is a rapid increase in capital export. With
the increase in capital export, a few rich countries can become interest- earn-
ing countries that specialize in exploiting the people of colonies and satellite
countries, being parasites on many economically underdeveloped countries.
According to statistics, from 1950 to 1970 the interest from direct private
United States investment reached 88.77 billion dollars, 14 percent higher
than the total amount of direct private foreign investment up to the end of
1970. Direct United States investment in Latin America was 3 billion dollars
in 1946 and increased to 11.7 billion dollars in 1969. But in these twenty-
four years, interest derived from direct investment in Latin American coun-
tries which was paid to the United States alone amounted to 23.49 billion
dollars, much higher than the net amount of direct United States investment.
United States interest derived from overseas is largely remitted annually
to the United States to be spent by a handful of monopoly bourgeoisie. In the
1960-1970 period, remitted interest reached 43.4 billion dollars. During this
period, unremitted interest amounting to 19 billion dollars was used for rein-
vestment to increase foreign exploitation. Thus, with United States imperial-
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 10. Imperialism Is the Eve of Proletarian Socialist Revolution
ism’s annual increase in foreign investment and interest, its parasitic nature
also increased yearly.
All this shows that capital export is a solid foundation for imperialism’s
oppression and exploitation of the majority of nations and countries and a
solid foundation for the parasitic capitalism of a few rich countries.
The Appearance of Worker-Elites Is Another Manifestation of
the Parasitic Nature of Capitalism
The parasitic nature of imperialism is inevitably reflected in the labor
movement. The formation of worker-elites and the appearance of revision-
ism are reflections of the parasitic nature of imperialism in the labor move-
ment. Lenin pointed out: “Interest-earning countries are parasitic and decay-
ing capitalist countries. This condition cannot but have effects on all social
and political conditions of these countries, especially on two basic factions
in the labor movement.” (3) The monopoly bourgeoisie plunders and ex-
ploits the proletariat of colonies, satellite countries, and their own countries
to obtain large amounts of high monopoly profits. To suppress opposition
from the toiling masses, they use a small part of the huge monopoly profits
to bribe a number of scabs to become agents of the monopoly bourgeoisie.
These are worker-elites who get high salaries and live like the bourgeoisie,
serving the monopoly bourgeois class. They mingle with the workers and
specialize in selling out the interests of the working class and subverting
worker movements. These worker-elites are loyal running dogs of the mo-
nopoly bourgeoisie of the imperialist countries.
High profits from monopoly capital is the economic basis of revisionism
in the labor movement. Under imperialist conditions and with the appear-
ance of the worker-elites, a revisionist theory and line to protect imperialist
rule emerges. The worker-elites are bourgeois elements disguised as work-
ers. Revisionism is a bourgeois class theory under the guise of Marxism. The
worker-elites and revisionists are the most treacherous hidden enemies in the
labor movement, and they may be regarded as boils on the body. If these
boils are not completely removed, imperialism will maintain its decaying
condition for a longer period of time. But, just as Lenin pointed out, “The
rapid and vicious development of opportunism does not assure its victory.”
(4) Lenin further pointed out, ‘If the struggle against imperialism is not
closely associated with the struggle against opportunism, then it is just so
many empty words.” (5)
Toward Total Political Reaction and the Steady Increase in the
Severity of Social Crises
In the stage of capitalist free competition, the bourgeoisie still uses
“democracy,” “freedom,” “equality,” and “universal love” as guises to con-

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ceal the truth of bourgeois dictatorship. In the stage of imperialism, these
thin “veils” are steadily trimmed down. Whoever opposes oppression and
exploitation will be cruelly suppressed. Lenin pointed out: “The political
superstructure of this new economic order, namely, monopoly capitalism
(imperialism is monopoly capitalism), is transformed from democracy to
political reaction. Free competition requires democracy, but monopoly re-
quires political reaction.” (6) In the United States, not only people who op-
pose violence were suppressed, but people who championed nonviolence
have also been slaughtered. In 1968, a black American minister named Mar-
tin Luther King was murdered by the United States imperialists because he
opposed racial discrimination and fought for civil rights. In line with total
political reaction, imperialism has also degenerated in its ideology and cul-
ture. In imperialist countries, publications and movies devoted to violence
and sex have flooded the market. In California, there have been thirty com-
panies specializing in making sex movies. In the capitalist world, strange
clothing, modern dances, and “Beatles” music bands have been common,
and exhibitions of “impressionist” art painted by monkeys have been much
in vogue. International contests of women “crying” and crawling races for
babies under a year old are reported to have taken place. The culture and art
under imperialism have been rotten to the core. Criminal activities such as
theft and robbery and gangsterism and drug abuse have reached crisis pro-
portions.
Facing this rotten society, many youths perceive a spiritual void, feeling
that life is empty and meaningless and without a future. Some United States
historians think that the United States “faces a situation in which the people
have lost faith in their ideals, system, and future” and “are plagued by nu-
merous crises.” Some are even more blunt: “Our crises, which are spiritual
in nature, can be traced to the obvious failure of our self-inflating capitalist
social system” (Newsweek, July 6, 1970). Amidst the profound contradic-
tions of imperialism, a few progressive elements gradually wake up to ac-
cept Marxism and reestablish the Marxist party and organization, unite the
masses, and engage in resolute struggle against the imperialist system.
The parasitic and decaying nature of imperialism which results from the
basic characteristic of imperialism, namely, monopoly, reveals that imperial-
ism is merely a paper tiger. It looks fierce, but in fact it does not have much
strength. The masses are the ones with real power, not imperialism or reac-
tionaries. Just as Chairman Mao pointed out, “From a strategic viewpoint, or
a long-run viewpoint, or looking at their substance, we must in effect treat
imperialism and all reactionaries as paper tigers.” (7)

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 10. Imperialism Is the Eve of Proletarian Socialist Revolution

Imperialism Is Dying Capitalism

The Intensification of the Contradiction between the
Proletariat and the Bourgeoisie within the Imperialist
Countries
Stalin said: “Lenin called imperialism ‘dying capitalism.’ Why? Be-
cause imperialism carries the contradictions of capitalism to their end. What
follows is the beginning of revolution.” (8) When capitalism develops into
the monopoly stage, the basic contradictions between the proletariat and the
bourgeoisie and the capitalist nature of society have not changed. However,
in the imperialist stage, monopoly has not only pushed social production to a
larger scale but has also brought about even more concentration of the pri-
vate ownership of the means of production. The development of the basic
contradictions of capitalism intensifies all external and internal contradic-
tions of imperialism. Chairman Mao pointed out, “The intensification of the
contradiction between the two classes (the proletariat and the bourgeoisie),
the development of contradictions between monopoly and competitive capi-
tal, the intensification of contradictions between the suzerain and the colo-
nies, and the acute manifestation of contradictions among imperialist coun-
tries due to their uneven development lead to a special stage of capitalism,
namely, imperialism.” (9) Because of the serious intensification of all exter-
nal and internal contradictions in imperialist countries, imperialism becomes
dying capitalism, and the eve of proletarian socialist revolution draws near.
To pursue high monopoly profits, the monopoly bourgeoisie doubles its
efforts to exploit and plunder the workers and push millions of laboring
masses to the brink of starvation. The monopoly bourgeoisie devises various
intensive labor systems, raises labor intensity, worsens labor conditions, and
indiscriminately and incessantly increases its exploitation of the workers.
The bourgeoisie also consciously relies on inflation to reduce real wages and
lower purchasing power. For example, in the 1963-1970 period, prices and
the cost-of-living increased yearly in major capitalist countries because of
inflation. In this period, the United States’ cost of living increased 26.8 per-
cent. In Britain, it increased 35.3 percent; in France, 30.9 percent; in West
Germany, 20.6 percent; and in Japan, 44.4 percent. Wages, however, did not
increase sufficiently to offset inflation and the increasing cost of living. The
livelihood of the laboring people worsened further. Through the government,
monopoly capital plundered the laboring masses even more with excessive
taxation. In the 1940-1970 period, tax revenue in the United States increased
by sixteen times, from 16.5 billion dollars in 1940 (20 percent of the national
income) to 278 billion dollars in 1970 (35 percent of the national income).
Heavy taxation weighed down the laboring people, choking them breathless.
To protect its economic interests, monopoly capital inevitably resorts to

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Fundamentals of Political Economy
fascist dictatorship to intensify the suppression of the workers through the
state machinery. Overall political reaction is a natural political reflection of a
monopoly capitalist economy. To implement fascist dictatorship and to sup-
press the people, imperialism expands the reactionary government machin-
ery to a horrifying extent. Take the United States for example, where one out
of every twenty people is an employee of the reactionary state machinery.
The ruthless economic exploitation and bloodthirsty political suppres-
sion of the proletariat by the monopoly bourgeoisie intensify the contradic-
tion between the proletariat and the bourgeoisie. The heavier the oppression,
the stronger the resistance. The daily awakening of millions of members of
the proletariat and the laboring masses continuously wages revolutionary
struggle against the capitalist system.
Since the Second World War, especially in recent years, strong and
massive worker movements have come into existence. The struggle against
imperialism is intensifying. According to obviously deflated official United
States figures, in 1970 United States workers were on strike 5,600 times and
3.3 million workers participated. In 1971, both a nationwide strike involving
500,000 telephone workers and a strike involving 160,000 railway workers
occurred. In the strikes, the workers chanted the combat slogan of “oppose
(aggressive) wars, oppose poverty, oppose oppression,” and they increasing-
ly combined economic struggle with political struggle. According to official
data from Britain (also obviously deflated), in 1970 there were 3,888 strikes
with 1.65 million workers participating. In 1971, 13.5 million workdays
were lost in connection with strikes in Britain. The revolutionary struggles
of the Japanese working class have also gathered strength. According to of-
ficial Japanese statistics, the number of so-called “labor-capital disputes”
(actually struggles of the worker against the capitalist) increased from 1,345
in 1955 to 5,283 in 1969, an increase of 2.9 times. In the same period, the
number participating increased from 3.748 million to 14.483 million, an in-
crease of about three times.
The mushrooming development of worker movements is a revolt by a
vital organ of imperialism. It promotes the further deterioration of capitalist
economic and political crises and incessantly deals serious blows to the rule
of monopoly capital. The fate of imperialism is increasingly precarious.
The Contradiction between Imperialism and the Oppressed
Nations Widens
“Colonies were seized with gunpowder and swords.” (10) After it has
seized colonies and semi-colonies with force, imperialism ruthlessly exploits
and enslaves these areas and nations. To exercise political control, it but-
tresses puppets, stations armed forces, and establishes military bases. To
facilitate economic exploitation, it forcibly opens trading ports, controls cus-
toms and external trade, monopolizes money and finance, and forcibly seizes
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 10. Imperialism Is the Eve of Proletarian Socialist Revolution
the rights to mine, operate factories, and navigate on inland waterways. To
obtain high monopoly profits, the imperialist country ruthlessly exploits and
oppresses the people of the colonies and semi-colonies. The contradictions
between imperialism and the oppressed nations are aggravated to an unprec-
edented degree. Imperialism controls the economic pulse of the colonies and
semi-colonies and colludes with local feudal power and comprador capital to
restrict the development of their national economies. Imperialism also re-
sorts to various measures to force the national economies of the colonies and
semi-colonies to be “simplified,” that is, to produce only a few commodities
required by foreign monopoly organizations, and thus cause their economic
development to be lopsided and abnormal. As a result, the economies of
these areas cannot be independent or self-sufficient, but can only rely on
imperialism.
Since the Second World War, new upsurges have been appearing con-
tinuously in the national liberation movements of Asia, Africa, and Latin
America. Many countries and areas have freed themselves from the fetters of
imperialism and colonialism and have started on their independent roads.
However, imperialism will never automatically retreat from the large areas
of Asia, Africa, and Latin America. In addition to their usual colonial
measures, they have increasingly resorted to neocolonial measures and have
vainly attempted, under the guise of economic “aid,” to further their vicious
scheme of controlling these newly emerging independent countries. Through
“aid,” the capitalists have sought to dump their surplus goods and have used
“aid” as a means of selling commodities. Through “aid,” they have sought to
control the economic policy of the recipient countries and control the devel-
opment of these national economies. When some countries have refused to
buy this imperialist trick, the imperialists have resorted to aggression and
subversion and have gathered reactionary forces to instigate coups d’état and
overthrow progressive governments that have opposed imperialism and in-
sisted on national independence.
The cruel plunder and bloodstained enslavement have widened and in-
tensified the contradictions between the imperialists and the oppressed na-
tions and peoples. From the day when the imperialist bandits set their feet on
the sacred land of Asia, Africa, and Latin America, the oppressed nations
and people who dearly treasure their freedom and independence have taken
up stones, bows and arrows, spears, and artilleries to deal blows to imperial-
ism. The heavier the exploitation and the tighter the oppression by imperial-
ism, the more intense has become the resistance struggle of the oppressed
nations and peoples. After the October Revolution, the national liberation
movement ushered in a new historical era, constituting part of the proletarian
socialist world revolution. The national liberation movements and the prole-
tarian revolutionary movements in the imperialist countries are interrelated
and mutually supporting. The colonies and semi-colonies, once the reserve
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Fundamentals of Political Economy
army of imperialism, have now become the reserve army of the proletarian
world revolution. Just as Chairman Mao pointed out, “The revolutionary
storm which has swept over Asia, Africa, and Latin America will surely deal
a decisive and demolishing blow to the whole old world.” (11)
The Intensification of Contradictions among Imperialist
Countries
Imperialism’s struggle to divide the world economically and territorially
has intensified the contradictions among the imperialist countries. Their
struggles for hegemony and territory and their mutual fighting and massa-
cring will really help the oppressed and exploited nations rise up to revolt.
The increasingly uneven economic and political development among
capitalist countries in the imperialist stage further intensifies the contradic-
tions among the imperialist countries.
Lenin pointed out, “Uneven economic and political development is the
absolute law of capitalism.” (12) In the capitalist world, some countries de-
velop faster, and others slower. Some countries even advance by leaps and
bounds in certain periods of time. The uneven economic development
among the capitalist countries inevitably leads to uneven political develop-
ment. In other words, uneven economic development must inevitably lead to
changes in the relative strength of the imperialist countries.
The law of uneven economic and political development has played a
role in the whole history of capitalism. However, in the imperialist period,
this uneven development of capitalism intensifies. In the second half of the
nineteenth century, England, an old capitalist country, seized a great number
of colonies and assumed a monopoly position in the world. Her relatively
easy and complacent position of manipulating high profits from her territo-
ries all over the world lulled her into stagnation in technology and produc-
tion. Meanwhile, armed with new technology, the capitalist countries which
arose later, especially the United States and Germany, accelerated their de-
velopment. In the 1880s, the United States had already caught up with Eng-
land and had taken the lead in world industrial production, and by the early
twentieth century, Germany had also surpassed England, assuming second
place in world industrial production. The shift in the relative positions of
economic strength had brought about a relative shift in political power. Fol-
lowing the shift of the balance of power, the countries began to struggle to
redivide their spheres of influence and colonies.
Since the Second World War, the law of uneven economic and political
development among imperialist countries has continued to play a role. Its
characteristics have been: the decline of the United States, the continued
decline of England, the rapid ascension of West Germany and Japan, and the
substantial gains of Italy and France. In the twenty years from 1949 to 1969,
the annual average growth rates in the national product of these countries
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 10. Imperialism Is the Eve of Proletarian Socialist Revolution
were: the United. States — 3.9 percent in the first ten years and 4.3 percent
in the second ten years; England — 2.5 percent in the first ten years and 3
percent in the second ten years; West Germany — 7.4 percent in the first ten
years and 5.2 percent in the second ten years; France — 4.5 percent in the
first ten years and 5.9 percent in the second ten years; Italy — 6.1 percent in
the first ten years and 5.6 percent in the second ten years; Japan — more
than 10 percent for the whole period. New and uneven conditions appeared
in their relative strength in terms of industrial production, capital and com-
modity exports, and international financial positions. The intensification of
uneven economic and political development among the imperialist countries
inevitably intensified the struggles among them for markets and supply ba-
ses for raw materials and for outlets for capital exports.
The operation of the law of uneven economic and political development
inevitably led to wars and slaughter among the imperialist countries, thus
revealing their weak links. These then became favorable conditions for the
proletariat and the revolutionary peoples to bury imperialism. In his study of
the laws of imperialist development, Lenin arrived at an important conclu-
sion: Because of their uneven economic and political development, the im-
perialist battlefront will be smashed at its weakest link, and socialist revolu-
tion will first triumph in one or several countries. Lenin not only created a
revolutionary theory for our achievement of victory, he also set a brilliant
example of how to carry out revolution. In the First World War, Russia was
the focal point of all contradictions in imperialism at that time and was also
the weakest link in the imperialist chain. Lenin seized this link and led the
Russian proletariat to launch the great socialist October Revolution, over-
throw the Russian bourgeois dictatorship with revolutionary violence, estab-
lish the world’s first socialist country under proletarian dictatorship, and
usher in a new era in human history. After the Second World War, the great
victory of the national revolutions in China and other countries of Asia and
Europe further confirmed the accuracy of Lenin’s scientific theory.
The outbreak of the two world wars, the victorious march of the prole-
tarian socialist revolutions, and the upsurge of national liberation move-
ments further aggravated imperialism’s political, economic, and social cri-
ses.
Although immense changes have occurred in the world, the imperialist
period is not yet over. Chairman Mao often teaches us: We are still in the
period of imperialism and proletarian revolution. Lenin’s scientific analysis
of imperialism based on the fundamental principles of Marxism is entirely
correct. The basic principle of Leninism is not outdated; today it still re-
mains the theoretical basis of our thought.
The life of imperialism will not be long. It is parasitic and dying capital-
ism on the eve of proletarian socialist revolution. But, it will never retreat
from the historical stage of its own free will. The nature of imperialism de-
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Fundamentals of Political Economy
termines that the closer it draws to the end of its life, the more desperately it
will struggle for survival. We must realize that imperialism is basically
weak, a paper tiger. We must cultivate a bold spirit, daring to struggle and
being good at struggle. And we must unite the revolutionary peoples of the
world to carry the struggle against imperialism to the end. “Make trouble,
fail, make trouble again, fail again until doom — this is the logic used by
imperialism and all reactionary groups of the world to deal with the people’s
uprisings. They will never deviate from this logic (13) Making trouble is an
expression of the desperate struggle of imperialism; to be doomed to failure
until its elimination is the inevitable destiny of imperialist development. No
one can change this law of history.

Major Study References

Lenin, Imperialism, the Highest Stage of Capitalism, chaps. 7-10.
Lenin, “Imperialism and the Split in the Socialist Movement.”
Chairman Mao, “Talk with American Correspondent Anna Louise
Strong.”
Review Problems
1. Why do we say that imperialism and all reactionaries are paper tigers?
2. Why do we say that imperialism is the eve of proletarian socialist
revolution?
Notes
* Ti-kuo-chu-i shih wu-ch’an ch’ieh-chi she-hui-chu-i koming ti ch’ien-
yeh — ti-kuo- chu-i shih fu-hsiu ho ch’ui-ssu ti tzu-pen-chu-i.
1) Imperialism, the Highest Stage of Capitalism. Selected Works of Len-
in. Vol. 2, Jen- min ch’u-pan-she, 1972, p. 842.
2) Ibid., p. 818.
3) Ibid., p. 820.
4) Ibid., p. 843.
5) Ibid.
6) “On the Ridicule of Marxism and ‘Imperialist Economism,” Com-
plete Works of Lenin. Vol. 23, p. 34.
7) Notes on “Talk with American Correspondent Anna Louise Strong,”
Selected Works of Mao Tse-tung. Vol. 4, Jen-min ch’u-pan-she, 1968, p.
1088.
8) “On the Basis of Leninism,” Complete Works of Stalin. Vol. 6, p. 65.
9) “On Contradiction,” Selected Works of Mao Tse-tung. Vol. 1, Jen-
min ch’u-pan-she, 1968, p. 289.
10) “Socialism and War,” Selected Works of Lenin. Vol. 2, Jen-min
ch’u-pan-she, 1972, p. 672.

140
 10. Imperialism Is the Eve of Proletarian Socialist Revolution
11) Chairman Mao, “A Congratulatory Telegram to the Fifth Congress
of the Labor Party of Albania,” quoted in Jen-min jih-pao [People’s Daily],
November 4,1966.
12) “On the Slogan of European Alliance,” Complete Works of Lenin,
Vol. 21, p. 321.
13) “Cast Away Illusions and Prepare for Struggle,” Selected Works of
Mao Tse-tung. Vol. 4, Jen-min ch’u-pan-she, 1968, p. 1375.

141
11. Soviet Revisionist Social Imperialism Joins
the Ranks of World Imperialism
Social Imperialism Is Socialism in Name But
Imperialism in Substance*
In the process of imperialism’s gradual extinction, there emerged, in the
mid-twentieth century, Soviet social imperialism. Under the leadership of
Lenin and Stalin, Russia was once a great socialist country. But after Stalin
passed away, the renegade clique of Khrushchev and Brezhnev launched a
counter-revolutionary coup, seized Party and government power, restored
capitalism in a big way, and transformed the Soviet Union into a social im-
perialist country.
During the First World War, Lenin denounced Kautsky, the head of the
German Social Democratic Party at that time, as being a “‘social imperial-
ist,’ that is, one who is nominally a socialist, but actually an imperialist.” (l)
The renegade clique of Brezhnev, like Kautsky, is also social imperialist.
The only difference is that it not only peddles revisionism, but also defends
imperialism. What is more, it controls state power, and has transformed a
great country created by Lenin himself into a social imperialist country. So-
cial imperialism is imperialism with a “socialist” label. The fact that it
emerged in the Soviet Union, Lenin’s homeland and once a great socialist
country, makes it more deceptive and dangerous. It is a very vicious imperi-
alism indeed.

State Monopoly Capitalism Is the Main Economic

Basis of Social Imperialism
The Formation of the Soviet Union’s State Monopoly
Capitalism
Whether it is capital imperialism or social imperialism, they are identi-
cal in their basic economic characteristics. Their main economic basis is
monopoly capitalism. But, in capital imperialist countries, there are two
forms of monopoly capitalist economy, namely, private and state monopoly
capitalism. In social imperialist countries, monopoly capitalism always takes
the form of state monopoly capitalism. State monopoly capitalism is the
main economic basis of social imperialism. This difference between social
and capital imperialism is determined by the different historical conditions
under which monopoly capital was created.
The monopoly capital of the capital imperialist countries was formed
gradually in the process of acute competition in the private capitalist econo-
my through capital accumulation and concentration. There, private monopo-

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11. Soviet Revisionist Social Imperialism Joins the Ranks of World Imperialism
ly capitalism appeared first and existed on a large scale. Only after private
monopoly capitalism had developed to a certain extent and when monopoly
capital and state power had combined with the state machinery to serve mo-
nopoly capital did state monopoly capitalism arise. State monopoly capital-
ism in the social imperialist country appeared when the people in power tak-
ing the capitalist road usurped the Party and government power in the social-
ist country and, in the process, transformed the socialist economy to restore
capitalism.
After the Soviet renegade clique usurped the Party and government
power in the Soviet Union, the Russian bourgeois privileged stratum greatly
expanded its own political and economic power, assuming a dominant posi-
tion in the Party, government, military, and economic and cultural spheres
and forming a bureaucratic monopoly bourgeoisie which controls the whole
state machinery and social wealth. This new bureaucratic monopoly bour-
geoisie used the state power under its control to transform socialist owner-
ship into ownership by those taking the capitalist road and to transform the
socialist economy into a capitalist economy and a state monopoly capitalist
economy.
The nature of a society’s economy cannot be determined by its label, but
by the ownership of the means of production. In other words, it must be de-
termined by who owns the means of production, who allocates it, and whom
it serves. After the renegade clique of Khrushchev and Brezhnev usurped
Party and government power in the Soviet Union, it exercised total control
over political and economic power and pursued a thoroughly revisionist line
in the economic sphere. It extolled the “ruble as a measure of labor merit”
and “the ability to earn a profit as the best criterion for evaluating Com-
munist Party members in charge of operations and management.” Under the
support of the Soviet revisionist renegade clique, Liberman, an economist of
revisionism, proposed a scheme of state enterprise management that relied
on profit and material incentives, and the “experiment” was widely dissemi-
nated. Since Brezhnev succeeded Khrushchev, the “new economic system”
has been instituted nationwide. The profit principle of capitalism has been
legally affirmed to strengthen the exploitation of the laboring people by the
bureaucratic monopolist oligarchy. With these “transformations,” the means
of production which formerly belonged to the people of the Soviet Union are
now owned by and at the service of the new bureaucratic monopoly bour-
geoisie. The worker and peasant of the Soviet Union have been deprived of
their means of production and reduced once more to hired laborers. Alt-
hough the Soviet Union may still carry the socialist label, the original social-
ist ownership system has in fact been transformed into an ownership system
of the bureaucratic monopoly bourgeoisie.
In socialist society, the state-operated economy based on socialist state
ownership is a leading element in the national economy. Once the revisionist
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Fundamentals of Political Economy
renegade clique usurps the leadership of the socialist economy, it is naturally
transformed into a state monopoly capitalist economy. This is because the
more productive forces the new bureaucratic monopoly bourgeoisie puts
under state ownership representing its interests, the more it can control the
whole society’s wealth in the name of the “state.” This way, it not only can
continue using the state label to deceive the laboring people, but through
state capitalism can also tightly control the national economy. Therefore, the
outstanding characteristic of the Soviet Union’s capitalist economy is that
state monopoly capitalism controls and commands everything. This situation
is rare in the capital imperialist country. In the capital imperialist country,
although state monopoly capitalism has undergone sizable development, it
has not yet reached the state which prevails in the Soviet Union. Because of
exploitation and oppression, the Soviet working class, especially the mass of
laboring people, has suffered heavily. Lenin once pointed out: “Under pri-
vate ownership of the means of production, more monopolization and na-
tionalization will inevitably lead to greater exploitation and oppression of
the laboring masses and to greater difficulties in staging revolts. Similarly,
any strengthening of the reactionary military dictatorship will inevitably re-
sult in raising the capitalist profits exploited from other classes and in inflict-
ing decades of suffering on the working class who will have to pay the capi-
talists for the billions of dollars which the military dictatorship has bor-
rowed.” (2)
As we read this passage by Lenin, it sounds like an accurate economic
analysis of Soviet state capitalism. Nekarsov, a well-known Russian poet,
denounced in grief and anger the black rule of the old czar, “In Russia, who
can be happy or free?” Today in Russia, the children of the heroes of the
October Revolution are suffering multiple hardship with no joy or freedom
to speak of. But the bureaucratic monopoly bourgeoisie headed by Brezhnev
plunder the state treasury, lead extravagant lives, exercise cruel and arbitrary
rule, and suck the blood and sweat of the people of the Soviet Union at will.
The bureaucratic monopoly bourgeoisie headed by Brezhnev is the class
basis of social imperialism and a “personification” of state capitalism.
The Trust Is the Basic Form of the Monopoly Organization of
Soviet Revisionism
An important form of organization in the state capitalism of Soviet revi-
sionism is the “trust.” The ways in which trusts are established differ from
the monopoly organization of capitalist countries. They are formed by merg-
ing the big enterprises with many medium and small enterprises through the
use of state coercion.
The trust as a form of monopoly organization developed rapidly in the
Soviet Union. In 1961, there were only 2 such trusts. Ten years later, in June
1971, there were 1,400 such trusts with more than 14,000 enterprises and 7.7
144
11. Soviet Revisionist Social Imperialism Joins the Ranks of World Imperialism
million employees. Nearly one-third of the mining enterprises were trusts. At
the “Twenty-fourth National Congress” of the Soviet Union, Brezhnev ex-
claimed, “The policy to establish trusts and merged enterprises must be carried
out more resolutely — in the future, they should become the basic economic
accounting unit in social production.” Following the order of the Soviet revi-
sionist leadership group, since 1971 the trust system has extended its sphere of
dominance to include all the Soviet Union’s manufacturing sectors.
There are three basic types of Soviet revisionist trusts:
First, the absorbed enterprises “lose their independence and status as le-
gal persons.” The trust becomes “the basic economic accounting unit of so-
cial production” and possesses all the rights over its subordinate enterprises.
Second, some absorbed enterprises lose their legal independence, while
others “maintain relative independence.”
Third, the absorbed enterprises are “still independent,” but are adminis-
tered by the trust.
Of the above three types of trusts, Soviet revisionism emphasized the
development of the first type. It was modeled after that of Western monopo-
ly capitalist enterprises and “used” their “organization system chart.” Soviet
revisionism publicized the trust as “embodying a compressed and dormant
future structure of Russian industries” and as being a type of “special Rus-
sian consortium.” The trust not only engages in production, but also deals
with the supply of raw materials and the distribution of products. The differ-
ence between the trust and the Western monopoly capitalist enterprise is that
the alliance between the Russian trust and state power is much closer. It is
not only a basic economic accounting unit, it also carries out part of the
functions originally exercised by the General Control Bureau or even the
Ministry of Control with respect to planning, production, supply, and distri-
bution. Large and regional trusts are “not only an integrated production unit
but also an economic management organ.” There are no middle organs be-
tween the various ministries in charge of economic control and the trusts.
The managers of the trust, like the secretaries and deputy secretaries of gov-
ernment ministries, are listed as “leading members of the national economy”
of Soviet revisionism. They are important members of the bureaucratic mo-
nopoly bourgeoisie headed by Brezhnev. Therefore, the trust is an entity that
unifies the state organ and the monopoly organization and is an important
form in the administrative system of state monopoly capitalism.
Apart from the fact that the trust is a monopoly organization, the state
enterprise of Soviet revisionism has long been capitalistic. In the state enter-
prise of Soviet revisionism, the working masses have long been reduced
from being the masters of the enterprise to slaves of the bureaucratic mo-
nopoly bourgeoisie. The leaders of the enterprise are the agents of the lead-
ership group of Soviet revisionism. According to the codes of the “Regula-
tions of Socialist State Production Enterprises,” the manager of the enter-
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Fundamentals of Political Economy
prise exercises the “power to recruit and dismiss personnel and makes deci-
sions regarding rewards and punishment for the enterprise’s personnel.” He
has the authority to determine the wages and bonuses of the staff and work-
ers and to resell or rent the enterprise’s means of production. In sum, even
without the trust, the manager and the plant director are already rulers pos-
sessing all the power in state enterprises, and the broad masses of workers
are already slaves of the bureaucratic monopoly bourgeoisie. Now, with the
trust as a monopoly organization, the bureaucratic monopoly bourgeoisie
can further strengthen its control over the pulse of the national economy in
the Soviet Union. This new-style big bourgeoisie, using the state enterprises
and trusts it controls and availing itself of the name of the state, has used
taxation and surrendered profits to unrestrainedly plunder the fruits of the
Russian worker’s labor in order to support the extravagant lives of a few
monopoly capitalists, suppress the Soviet people, launch aggression, and
pursue its social imperialist policy.
While the renegade clique of Brezhnev was developing monopoly or-
ganizations in manufacturing and mining in a big way, various types of mo-
nopoly organizations were also developed in agriculture. They included: (l)
the agricultural trust which is a trust organization of specialized state farms
such as the poultry, livestock, and vegetable trusts; (2) the agricultural trust
which is an organization of several state farms or collective farms or be-
tween state farms and collective farms; and (3) the agricultural-industrial
complex, also called the agricultural-industrial joint enterprise which is a
trust by which the agricultural enterprise directly operates processing plants
for agricultural produce. Through these agricultural monopoly organizations,
the bureaucratic monopoly bourgeoisie strengthened their control and plun-
dered the broad Soviet countryside.
The “Shchekino Experiment” Was the Model of the
Oppressive System Implemented by Soviet Revisionist
Monopoly Enterprise
The neo-monopoly capitalist bureaucrats, having put the national econ-
omy under their control and totally restored the capitalist hired-labor system,
stepped up their exploitation and oppression of the broad masses. Since
1967, the so-called “Shchekino experiment” has amply confirmed the resto-
ration of capitalism in the Soviet Union.
Shchekino was a chemical enterprise located near Moscow which had
more than 7,000 employees and produced chemical fertilizers and other
chemical products. In August 1967, tailored to the demands of the Soviet
revisionist bureaucratic monopoly bourgeoisie, the enterprise began a so-
called “economic experiment to strengthen the employees’ concern for in-
creasing production, raise labor productivity, and reduce the number of per-

146
11. Soviet Revisionist Social Imperialism Joins the Ranks of World Imperialism
sonnel.” This “experiment” continuously increased the workers’ labor inten-
sity through the measures of concurrent jobs, combined categories of work,
and expanded scopes of service and achieved the goal of reducing personnel
and raising labor intensity. At the same time, it was decided to freeze the
enterprise’s total wage fund for several years, and the wage fund thus saved
by personnel retrenchment was left largely to the discretion of a handful of
the privileged class in the enterprise. Brezhnev boasted that the “experi-
ment” was a perfect remuneration model, and it has since been disseminated
throughout the Soviet Union.
The heart of the “Shchekino experiment” is to “reduce the labor force to
increase labor productivity” in order to push the enterprise to “tap its poten-
tial.” How was labor productivity increased? The “Shchekino experiment”
proved that it could be achieved by increasing labor intensity. According to
the statistics of June 1971, since the Shchekino chemical joint enterprise
implemented this “experiment,” more than 1,000 workers had been dis-
missed, or more than one-seventh of the total staff and workers. Of these, 68
workers, or 6 percent, were dismissed due to either greater mechanization or
the consequent reduction in labor intensity; while more than 90 percent of
the workers were dismissed because of an increase in labor intensity. Marx
pointed out, “The crucial problem of the whole capitalist production system
is: to increase uncompensated labor through such measures as prolonging
the workday, increasing productivity, and consequently making labor power
more intense.” (3) In the imperialist stage, the extraction of unpaid labor
from the worker by monopoly capital was increased by a hundred times. In
capital imperialist countries, monopoly capital used so- called “scientific
management methods” such as the “Taylor system” to force the worker to
increase labor intensity by a big margin in order to increase the extraction of
surplus value. The “Shchekino experiment” promoted by the renegade clique
of Soviet revisionism was a carbon copy of the “Taylor system” which was
strongly denounced by Lenin as a “blood- and sweat- sucking system.” Its
intent was to force one Russian to do several workers’ jobs and maliciously
extract more surplus labor and surplus value from him.
As of July 1971, the 121 enterprises which implemented the “Shchekino
experiment” had already dismissed 65,000 people. At present, heavy unem-
ployment has begun to emerge in the Soviet Union. This economic system of
state monopoly capitalism of Soviet revisionism has already pushed the rela-
tionship between capital and hired labor to its limit. It has already met, and
will continue to encounter, strong opposition from the Soviet working class
and the broad masses of laboring people.

147
Fundamentals of Political Economy

Soviet Revisionist “New International Relations” Is

Another Name for Neocolonialism
Economic Unification Is a Major Measure of the
Neocolonialism Launched by Soviet Revisionism
To pursue high monopoly profits, monopoly capital, while increasing
exploitation of the people at home, inevitably expands externally. Through
capital export and by adopting colonial policies, it plunders and enslaves the
people of other countries. The monopoly capitalism of Soviet revisionism
naturally is not satisfied with the exploitation of the Soviet workers and
peasant masses and inevitably extends its paws to foreign countries. The first
to be so affected are the “fraternal countries” of that “big socialist family.”
The renegade clique of Brezhnev trapped some Eastern European coun-
tries and Mongolia into a so-called “big socialist family.” The nominal rela-
tions between Soviet revisionism and the “fraternal countries” of this big
family are “new socialist international relations.” Actually, it is a cat and
mouse relationship between the imperialist suzerain and the colonies. The
Soviet Union resorted to the most brutal and vicious means to tightly control
these countries. Militarily, it stationed sizable armed forces in some coun-
tries in line with the ‘Warsaw Pact” and other bilateral agreements. It even
openly mobilized several hundred thousand troops to invade Czechoslo-
vakia. Politically, it bribed, sabotaged, and even used bayonets to set up
puppet governments. Economically, it pushed the so-called “economic unifi-
cation” through the “Council for Mutual Economic Aid” (COMECON).
Some Eastern European countries and Mongolia are virtually under colonial
rule and suffer shocking exploitation.
The intent of the “economic unification” promoted by the social imperi-
alism of Soviet revisionism is to dissolve the national economic systems of
COMECON members, create a monolithic, lopsided colonial economy, and
“unify” the territories, populations, and resources of these countries with the
social imperialism of Soviet revisionism. Soviet revisionism’s “international
division of labor” and “production specialization” are both subject to “eco-
nomic unification,” serving the purpose of realizing the above-mentioned
“economic unification.”
One of the means used by Soviet revisionism to enslave the “fraternal
countries” in the name of “economic unification” is to destroy the fuel and
raw material industries of the COMECON member countries and to achieve
a high degree of monopoly by Soviet revisionism. According to statistics
released by COMECON and official Soviet revisionist sources, in the 1966-
1970 period, the percentages of imported fuel and raw materials going from
the Soviet revisionists to Bulgaria, Hungary, the German Democratic Repub-
lic, Poland, and Czechoslovakia were: 93 percent for petroleum, 61.9 per-

148
11. Soviet Revisionist Social Imperialism Joins the Ranks of World Imperialism
cent for coal, 86.8 percent for iron ore, 97.5 percent for pig iron, and 64.3
percent for raw cotton. The high degree of monopoly by the Soviet revision-
ists in the supply of fuel and raw materials to the member countries deter-
mined the fate of these countries.
Another means used by Soviet revisionism to enslave the “fraternal
countries” in the name of “economic unification” was to force the member
countries to specialize in products required by the Soviet revisionists. For
example, Poland was forced to develop the shipbuilding industry, Czecho-
slovakia to specialize in railway rolling stock, the German Democratic Re-
public to produce mining equipment, Bulgaria to produce vegetables and
fruits, and Mongolia to specialize in the livestock industry to provide meat
for the Soviet revisionists. This way, the “fraternal countries” were trans-
formed into affiliated processing plants, orchards and vegetable gardens, and
livestock ranches for Soviet revisionism.
To accelerate “economic unification” and more effectively control the
member countries, Soviet revisionism set up a series of “supranational or-
ganizations” such as the “International Metallurgical Industry Cooperative
Organization,” the “International Chemical Engineering Industry Coopera-
tive Organization,” the “International Economic Cooperative Bank,” and the
“International Investment Bank.” These “supranational organizations” are
actually international monopoly organizations controlled by the state mo-
nopoly capitalism of Soviet revisionism. Through them, the vital depart-
ments of the national economies of the member countries are controlled by
Soviet revisionism.
When Soviet revisionism had its hands at the throats of the “fraternal
countries,” coercing them to lopsidedly develop their economies in conformity
with Soviet needs, it could plunder them through trade using monopoly and
colonial rules. According to Soviet revisionist magazines, in 1970 Soviet revi-
sionism accounted for 80 percent of Mongolia’s total foreign trade, more than
50 percent of Bulgaria’s, about 40 percent of that of the German Democratic
Republic’s, and about one-third of Poland’s, Hungary’s, and Czechoslo-
vakia’s. Taking advantage of its dominant position, Soviet revisionism has
cruelly exploited these countries by trading with them on terms unfavorable to
them. The Soviet Union traded Mongolia one bicycle for four horses and one
toy lamb for one live lamb. The Soviet import price for electric locomotives
from Czechoslovakia was two fifths lower than the import price of the same
item from West Germany. But the export price of iron ore from the Soviet
revisionists to Czechoslovakia was more than twice as high as that to West
Germany. The atomic reactors sold by Soviet revisionism to some Eastern
European countries were at a price four times higher than in the international
market. A former member of the Planning Commission of the German Demo-
cratic Republic complained that the annual loss suffered by his country from
trading with the Soviet Union amounted to 2 billion marks.
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Fundamentals of Political Economy
Like capital imperialism, the social imperialism of Soviet revisionism
exported capital to some Eastern European countries and Mongolia calling it
“aid.” Up to early 1971, Soviet revisionism exported capital totaling 2.15
billion rubles as long-term “loans.” Through capital export, not only were
large sums of money extracted in the form of interest, but the direction of
development in the recipient countries was also controlled. Moreover, avail-
ing themselves of this exporting, they dumped large quantities of unmarket-
able commodities and equipment at high prices to obtain high monopoly
profits.
While exporting capital, the Soviet revisionists, taking advantage of
their predominate position in “economic unification” and under the pretext
of the increasing demands by member countries for Soviet exports of raw
materials, compelled some countries to provide the funds and manpower for
the construction of Soviet plants and the exploration of Soviet mines. They
engaged in naked plundering. For example, in 1966 Czechoslovakia was
forced to furnish 500 million rubles to the Soviet revisionists for the purpose
of buying steel pipes and petroleum equipment to develop the Tuimen oil-
field. In 1968, Czechoslovakia was again forced to furnish large quantities of
trucks and large caliber piping to construct a pipeline for Siberian natural
gas. Soviet revisionism even drafted several tens of thousands of laborers
from Bulgaria to do hard labor, thus directly exploiting their surplus labor.
Lenin once denounced the old czar as “treating his neighboring coun-
tries according to the principle of prerogative under serfdom.” (4) The con-
duct of Soviet revisionism toward its neighboring countries today is even
worse than that of the old czar. The so-called “international division of la-
bor” and “production specialization” in the service of Soviet revisionist
“economic unification” is a “division of labor” between the suzerain and its
colonies like the one advocated by the old Japanese militarism under the
slogan of “industrial Japan, agricultural China.” The “big socialist family” of
Soviet revisionism is merely a different name for an imperialist sphere of
influence like the “new European order” of Hitler’s Germany and Japanese
militarism’s “East Asian Great Co-Prosperity Sphere.” (5)
Carrying out a Colonial Expansion Policy in Asia, Africa, and
Latin America under the Name of “Aid”
Because Soviet revisionism has transformed into social imperialism, it
must also be subject to the laws governing imperialism. It naturally is not
satisfied with colonial rule within the “big socialist family,” but inevitably
tries to monopolize more of the world’s markets for its commodities, raw
materials, and investment. Asia, Africa, and Latin America, with abundant
resources and backward economies, have been the natural objects of Soviet
revisionist colonial expansion.
The renegade clique of Soviet revisionism says it offers “aid” to Asia,
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11. Soviet Revisionist Social Imperialism Joins the Ranks of World Imperialism
Africa, and Latin America. But in fact, under the guise of “aid,” it attempts
in every way to bring some countries of these regions into its own sphere of
influence and to struggle with United States imperialism to win over the
third countries.
“Soviet aid” is a trojan horse which breaks its way into the “aid” recipi-
ent countries on all sides, carrying harsh political and economic conditions.
It consists mainly of “military aid,” namely, the sale of outdated military
hardware. By this means, it controls and interferes with the “aid” recipient
countries militarily, politically, and economically. Soviet revisionism annu-
ally gives one billion rubles in aid to regions in Asia, Africa, and Latin
America: 30 percent as “economic aid” and 70 percent as “military aid.” The
key areas are the Middle East and the Persian Gulf area; next in line is the
South Asian subcontinent. Because the Middle East and the Persian Gulf
areas possess immense strategic value and are rich in oil, Soviet revisionism
tries very hard in many countries in these areas to establish naval and air
bases, control the prospecting, extracting, refining, and transportation of oil,
and monopolize the purchase of oil through “Soviet aid.” The South Asian
subcontinent possesses not only important strategic value but also abundant
natural and human resources. Soviet revisionism has plundered the resources
of these areas and interfered with their politics (through exports of military
hardware and capital at unfavorable terms of trade) while waiting for favor-
able opportunities to establish military bases.
In the South Asian subcontinent, India has received the largest share of
“Soviet aid.” Her economic pulse has been in the hands of Soviet revision-
ism. As of the end of 1970, the percentages of Indian industrial production
coming from enterprises receiving Soviet “aid” were as follows: 30 percent
of its steel output, 60 percent of its oil refining capacity, 85 percent of its
heavy machines, 20 percent of its electricity output, 30 percent of its oil
products, and 60 percent of its electricity-generating equipment. In the “aid
assisted” projects, engineering designs were monopolized and totally con-
trolled during the construction phase by Soviet revisionism. Even in opera-
tion, it was still impossible for India to be independent of the control of So-
viet revisionism. For the maintenance of equipment and the supply of parts
and important materials, it had to rely on the Soviet revisionists. In addition,
Soviet revisionism further controlled India’s production by demanding that
“Soviet aid” be repaid in kind. Some of India’s leather shoe factories, gar-
ment factories, dye factories, leather factories, and light bulb factories were
set up to meet the Soviet Union’s demand. The output of these plants was
not for India’s consumption, but for export to the Soviet Union to repay
debts. It was in these ways that Soviet revisionism sought to take advantage
of India’s raw materials and cheap labor and turn India into its affiliated pro-
cessing plant under the guise of “aid.” The Indian press exclaimed, “India is
an egg that sits snugly in the Russian basket.”
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Fundamentals of Political Economy
The renegade clique of Soviet revisionism boasts that only by relying on
Soviet “aid” and entering into “international division of labor” “can the de-
veloping countries smoothly attain real political and economic independence
and be capable of resisting imperialist power.” This is indeed the greatest lie
ever heard. Even Soviet revisionism had to admit that the division of labor
between her and the developing countries was “strongly affected by the
preexisting division of labor.” Its characteristic is “the exchange of industrial
products, especially machinery for raw materials, tropical produce and fuel.”
Over 95 percent of the Soviet revisionists’ imports of rubber and 92 percent
of their imports of cotton come from Asia, Africa, and Latin America. The
Soviet revisionists trade their outdated machinery for oil from the Middle
East, copper from Chile, tin from Bolivia, meat from East Africa, and urani-
um from Somalia. Is it not true that this pattern of “international division of
labor” between the “industrial Soviet Union” and “agricultural Asia, Africa,
and Latin America” is typical of the division of labor between a suzerain and
its colonies?
The renegade clique of Soviet revisionism boasts that the interest on its
loans, 2.5 percent per annum, is much lower than that charged by the capital
imperialist countries and that the loans are “selfless aid.” In fact, Soviet revi-
sionist loans are a disguised form of usury. The usurious interest rate was
concealed in the high prices charged for goods supplied. The Soviet loans
extended to the countries of Asia, Africa, and Latin America had to be used
for purchasing Soviet goods, consisting primarily of outdated weapons, old
equipment, and unmarketable commodities. Not only were the products poor
in quality and backward in technology, but they were also higher in price,
some 20 percent, 30 percent, or even 100 percent higher than the prices on
the international market. In addition, the Soviet revisionist social imperialists
often pressed the debtor countries for payment, compelling them to supply
the Soviet Union with certain raw materials. It was reported that the Soviet
Union had signed an agreement with a Middle Eastern country demanding
that the latter pay its debts to the former in oil from 1973 through 1980 at
prices 20 percent below the international market price. What is labeled as
“selfless aid” is in fact cruel exploitation.
Verbally, the renegade clique of the Soviet revisionists have promised
“total support” for the revolutionary struggles of the peoples in Asia, Africa,
and Latin America. In actuality, they have colluded with all the world’s most
reactionary powers to undermine the revolutionary struggles of these peoples
and have pursued neocolonialism. They have supplied money and arms to
help the reactionary groups of various countries massacre revolutionaries.
They have dismembered Pakistan, supported the traitor clique of Lon Nol,
engaged in sabotage in many countries of Asia, Africa, and Latin America,
used all means to support the reactionary groups of various countries in
Asia, Africa, and Latin America in order to extinguish the people’s armed
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11. Soviet Revisionist Social Imperialism Joins the Ranks of World Imperialism
struggle, suppressed national liberation movements, and acted as the military
police of the world.

Soviet Revisionist Imperialism Is the Eve of a Second

October Revolution
The Extreme Parasitic and Decaying Nature of Soviet
Revisionist Social Imperialism
Soviet revisionist social imperialism is monopoly capitalism. It cruelly
exploits and oppresses its laboring people and ferociously plunders and en-
slaves the peoples of other countries, especially the broad masses in Asia,
Africa, and Latin America. It is even worse than capital imperialism. How-
ever, like all imperialism, Soviet revisionist state monopoly capitalism is just
a paper tiger. Because all monopoly capitalism is necessarily at the same
time both parasitic and decaying capitalism, it is moribund capitalism. Sovi-
et revisionist state monopoly capitalism is no exception. Whether in its eco-
nomic or political aspects, Soviet revisionist state monopoly capitalism re-
veals in every possible way its extreme parasitic and decaying nature. It will
soon be sent to a museum by the people of the Soviet Union and the world.
The extreme decaying nature of Soviet revisionist social imperialism has
been primarily revealed in its stagnating economic development. The pro-
duction relation of Soviet revisionist state monopoly capitalism seriously
hinders the development of social productive forces. When the Soviet Union
was a socialist country, its industrial production in the ten-year period of
1929-1938 increased by leaps and bounds at an average annual rate of 17.4
percent. When the Soviet Union turned to social imperialism, the average
annual growth rate of industrial production in the ten-year period of 1961-
1970 declined sharply from 8.6 percent to 7.7 percent in 1971 and below 7
percent in 1972. Under the rule of the renegade clique of Khrushchev and
Brezhnev, agricultural production in the Soviet Union was even worse. Seri-
ous agricultural crises erupted many times and large quantities of food had
to be imported from the United States, Canada, and Australia. Owing to in-
dustrial recession, declining agricultural output, dwindling livestock, and
inflation, severe shortages of commodities and tight market supplies were
reported. The livelihood of the laboring people was impoverished.
The extreme decaying nature of social imperialism has also been re-
vealed in its frantic efforts at military expansion and war preparations. To
pursue external aggression and expansion, the bureaucratic monopoly bour-
geoisie represented by the Brezhnev renegade clique has inevitably followed
the Hitler-type policy of “more guns and less butter” to militarize the nation-
al economy. According to estimates, the military expenditures of the Soviet
revisionists were three to four times higher than those admitted by official

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Fundamentals of Political Economy
sources. The average annual military expenditure since the 1970s has
reached 80 billion dollars, or more than 30 percent of the state budget. To
fight for naval supremacy, Soviet revisionism has greatly expanded its navy.
Military expenditure on battleships has increased sharply year after year.
According to estimates, the annual average expenditure in this area in the
1960s was 2 billion dollars. In 1970, it was increased to 3 billion dollars, or
0.9 billion dollars more than the United States spent on battleships in the
same year. When large quantities of social wealth are not used to expand
production to improve people’s livelihood, but instead to expand armaments,
prepare for wars, and pursue external aggression and expansion, it consti-
tutes the most pronounced manifestation of social imperialism’s decaying
nature.
The extreme decaying nature of Soviet revisionist social imperialism has
also been revealed in its total political reaction and serious deterioration of
social life. Chairman Mao pointed out that “the present Soviet Union is a
dictatorship of the bourgeoisie, a dictatorship of the big bourgeoisie, a Ger-
man fascist-style dictatorship, a Hitler-type dictatorship.” (5) Chairman
Mao’s analysis profoundly revealed the class nature and social origin of So-
viet revisionist social imperialism, exposing its fascist nature and the lie of
the Soviet revisionist renegade clique that the Soviet Union is “a country for
all the people.” When the Soviet revisionist renegade clique came to power,
it tried very hard to strengthen its fascist dictatorship organ. It not only used
the most modern scientific and technological means to equip its police and
intelligence agencies to strengthen its suppression of the people, but also
widely stationed secret agents in factories, farms, organizations, and associa-
tions to keep the masses in line. Today’s Soviet Union is under a reign of
white terror. Whoever dares to show discontent and resist the Brezhnev
clique is watched, tailed, interrogated, or sent to a “mental asylum,” concen-
tration camp, or prison for the alleged crime of “slandering the Soviet Union
or sabotaging the social order.”
In addition to suppressing the people with naked violence, the renegade
clique of Brezhnev has also used subtle measures to undermine the people
by introducing the rotten culture, vulgar arts, and life-style from capital im-
perialist countries to poison the Soviet people. All the most ideologically
backward, reactionary, and rotten things in the world have managed to find
fertile soil in Soviet revisionist social imperialism.
Another manifestation of the extreme parasitic and decaying nature of
Soviet revisionist social imperialism has been the much higher income of the
bureaucratic monopoly bourgeoisie represented by the Brezhnev renegade
clique than that received by the ordinary workers and peasants. The differ-
ence in income of more than 10 times, or even 100 times, was obtained
through high wages, high bonuses, and various types of personal subsidies.
This class has also taken advantage of its special economic and political
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11. Soviet Revisionist Social Imperialism Joins the Ranks of World Imperialism
privileges to serve its own selfish interests, engaging in corruption and lead-
ing extravagant, parasitic lives. Closely related to this bureaucratic monopo-
ly bourgeoisie is a revisionist intellectual aristocracy. This revisionist intel-
lectual aristocracy serves the bureaucratic monopoly bourgeoisie in the ideo-
logical sphere and leads an equally sensual, parasitic life. Sholokhov, an
author known for his writing on the terror of war and bourgeois pacifism,
became a billionaire. He owned not only a private car, but also a private air-
plane. His bank deposits were so huge that even he himself lost track of
them.
In sum, a rotten atmosphere characteristic of a decaying social system
has pervaded the economic, political, and cultural spheres of Soviet revision-
ist social imperialism. This social system, like the poisonous fungus growing
on a pile of cow dung, is devoid of vitality.
A New Historical Period of Opposing United States
Imperialism and Soviet Revisionism Has Already Begun
The blood-stained oppression and exploitation of the laboring people at
home, the cruel colonial rule over countries in the “big socialist family,” and
the aggressive expansion in various parts of the world have inevitably inten-
sified the various contradictions which Soviet revisionist social imperialism
faces at home and abroad.
Wherever there is oppression, there is resistance. The oppression and
exploitation of the laboring people of the Soviet Union by the Soviet revi-
sionist bureaucratic monopoly bourgeoisie inevitably meets the resistance of
the Soviet laboring people.
The opposition of the Soviet people to the bureaucratic monopoly bour-
geoisie takes many varied forms. The workers of many areas in the Soviet
Union have resorted to slowdowns, negligence of duty, and strikes to show
their discontent and opposition to the ruling clique of Soviet revisionism. In
many places, the revolutionary masses have demonstrated many times, op-
posing the fascist dictatorship of Soviet revisionist authority. In various are-
as of the Soviet Union, people have frequently published underground mate-
rials, distributed leaflets to protest the reactionary rule of the Soviet revision-
ist renegade clique, and exposed the hidden secrets of the Soviet revisionist
privileged class. The heroic children of the October Revolution will never
submit to the reactionary rule of the new czar of Soviet revisionism. Under
the dark rule of the old czar, Lenin confidently pointed out that “the proletar-
iat of Russia will spare no sacrifice to free the whole of mankind from the
humiliation of the czarist monarchy.” (6) Today, the Soviet proletariat, peas-
ants, and revolutionary intellectuals must answer Lenin’s call and work for
the overthrow of the new czar and the reestablishment of proletarian dicta-
torship.
Second, the contradiction between the countries and people being perse-
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Fundamentals of Political Economy
cuted by Soviet revisionist neocolonialism and Soviet revisionist social im-
perialism has increasingly intensified.
The neocolonialist policy of “economic unification” pursued by Soviet
revisionism and the enslavement and plundering of some Eastern European
countries and Mongolia has furthered the development of anti-plundering
and anti-domination struggles in these countries. The flagrant armed occupa-
tion of Czechoslovakia by the Soviet revisionists opened up the watchful
eyes of some Eastern European countries and Mongolia and strengthened
their struggle against Soviet revisionist social imperialism. Today, Eastern
Europe is like a powder keg which may explode at some future date. The
invasion of Prague by Soviet revisionist tanks did not demonstrate the might
of the Soviet revisionist social imperialism; on the contrary, it was an omen
of the beginning of the Soviet revisionist colonial empire’s collapse.
Under the guise of “aid,” Soviet revisionism frantically infiltrates, plun-
ders, and invades the countries of Asia, Africa, and Latin America and sets
itself in opposition to the people of Asia, Africa, and Latin America. The
demonic paws of Soviet revisionist social imperialism have reached some
countries in the Mediterranean and the Indian Ocean by establishing military
bases, obtaining port privileges, and controlling and interfering with internal
politics and foreign affairs. The Soviet fishing fleet cruises freely around the
world, plundering and destroying fishing resources and encroaching on the
territorial waters of other countries. The people of Asia, Africa, and Latin
America are becoming more aware of the reactionary nature of Soviet revi-
sionist social imperialism. They have solemnly pointed out that the Soviet
revisionist renegade clique, which has betrayed “the world’s revolutionary
peoples,” is a “neocolonialist” and “another public enemy of the people of
the world.” The countries and people who are subject to aggression, control,
interference, and ill-treatment from Soviet revisionism and United States
imperialism are uniting to victoriously launch an anti-imperialist and antico-
lonial struggle aimed particularly at the two nuclear superpowers, the United
States and the Soviet Union.
Third, the frantic external aggression and expansion of Soviet revisionist
social imperialism and its fight for commodity markets, supplies of raw ma-
terials, and investment outlets has intensified the contradictions among the
imperialist countries to an unprecedented degree, especially those between
Soviet revisionism and United States imperialism; the two nuclear super
powers wrestle for world hegemony.
Today, it is primarily the two nuclear superpowers, the United States
and the Soviet Union, who are vying for world hegemony. The strategic
point they are fighting for is in Europe because Europe is the heart of the
capitalist world. The West always wants to push Soviet revisionism to ex-
pand eastward and divert this flood of disaster to China. But China is a tough
piece of meat that has been resisting biting for many years. At present, Sovi-
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11. Soviet Revisionist Social Imperialism Joins the Ranks of World Imperialism
et revisionism, pursuing the strategy of feint attack, has stepped up its strug-
gle in Europe. The Soviet revisionists have stationed two-thirds of their ar-
my and air force to the west of the Urals. The Soviet revisionist navy has
expanded rapidly in the recent decade. In 1970, it dispatched more than 200
battleships to three oceans and eight seacoasts in a global exercise to show
off its naval prowess and stepped up its expansion toward the Mediterranean
and the Indian Ocean. The struggle for world hegemony between the United
States and the Soviet Union is the source of world unrest. The struggle has
encountered intense resistance from the Third World and created increasing
displeasure in Japan and the West European countries. The expanding inter-
nal and external difficulties of the two powers put them in an increasingly
unenviable and helpless situation.
Imperialism means aggression and war. Soviet revisionist social imperi-
alism is stationing troops along China’s borders, attempting to turn China
into its colony. We must follow Chairman Mao’s teachings to “be prepared
for war, be prepared for natural disasters, and do everything for the people”
and to “dig deep caves, increase grain stocks, and never be aggressive” in
order to strengthen preparations against aggressive wars and be on the alert
for the outbreak of an imperialist world war, especially surprise attacks from
Soviet revisionist social imperialism. We must resolutely, thoroughly, clean-
ly, and totally annihilate all enemies who dare to invade us.
Chairman Mao pointed out, “The revolutionary people of the world will
never forgive the numerous evil and scandalous deeds committed by Soviet
revisionism in collusion with United States imperialism. The peoples of var-
ious countries are standing up. A new era opposing United States imperial-
ism and Soviet revisionism is dawning.” (7) In the struggle against the he-
gemony mentality and power politics, the Third World is awakening and
growing. This is a big event in contemporary international relations. The
characteristic of the contemporary international situation is perpetual chaos.
“Strong winds foretell the coming storm.” This is precisely the contempo-
rary version of the world’s basic contradictions which Lenin analyzed. All
countries subject to aggression, sabotage, interference, control, and ill-
treatment from imperialism have become increasingly united, forming a
broad united front and strengthening their struggle against imperialism and
new and old colonialism, especially against the hegemony mentality of the
two superpowers, the United States and the Soviet Union. Countries must be
independent, nations must be liberated, and people must make revolution.
These are irresistible historical tides which will sweep away the United
States and the Soviet Union.
On the eve of the victory of the Anti-Japanese War, Chairman Mao
prophesied: “The world will advance and never regress. Naturally, however,
we should be prepared to anticipate possible temporary, and even serious,
historical detours. There are still very strong reactionary influences in many
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Fundamentals of Political Economy
countries that are reluctant to see their own people and peoples of other
countries achieve unity, progress, and liberation. Whoever ignores these fac-
tors will surely commit serious political errors. However, the general ten-
dency of history has been determined and cannot be changed.” (8) The pres-
ence of Soviet revisionist social imperialism is a temporary historical detour.
But, like capital imperialism, it is weighed down by all sorts of contradic-
tions: The contradiction between the Soviet revisionist bureaucratic mo-
nopoly bourgeoisie, on the one hand, and the proletariat and all the laboring
people of the Soviet Union, on the other; the contradiction between Soviet
revisionist social imperialism and the people of the colonies and the whole
world; and the contradiction between Soviet revisionist social imperialism
and capital imperialism, especially United States imperialism. All of these
are becoming increasingly acute. Because of the existence and development
of these contradictions, Soviet revisionist social imperialism will surely be
discarded in the museum of history by the people of the Soviet Union and
the world. Lenin asserted, ‘Imperialism is the eve of socialist revolution.”
(9) Soviet revisionist social imperialism is the eve of a second socialist Oc-
tober Revolution. Chairman Mao pointed out: “The Soviet Union is a social-
ist country and the Communist Party of the Soviet Union was created by
Lenin. Although the leadership of the Party and government of the Soviet
Union is now usurped by revisionists, I would advise our comrades to firmly
believe that the broad Soviet people, Party members, and cadres are good
people and want revolution. Revisionist rule will not last long.” (10) Under
the great banner of Leninism and with the support of the people of the world,
the Soviet people, who have a glorious revolutionary tradition, will eventual-
ly bury Soviet revisionist social capitalism. Their success will once again
allow the brilliance of proletarian dictatorship, socialism, and Marxism-
Leninism to shine over the land of the Soviet Union.
Let the ruling class tremble before the communist revolution. The prole-
tarians have nothing to lose but their chains. They have a world to win.
Workingmen of all countries, unite! (11)
Major Study References
Lenin, “On the Task of the Third International,” Complete Works of
Lenin. Vol. 29.
Chairman Mao, “Talk with American Correspondent Anna Louise
Strong.”
Chairman Mao, “A Congratulatory Telegram to the Fifth Congress of
the Labor Party of Albania,” October 25,1966.
Review Problems
1. How does one recognize the nature of Soviet revisionist social impe-

158
11. Soviet Revisionist Social Imperialism Joins the Ranks of World Imperialism
rialism from the basic economic characteristics of imperialism?
2. Why will the rule of the Brezhnev renegade clique in the Soviet Un-
ion not be long?
Notes
* Su-lien she-hui ti-kuo-chu-i ts’an-chia shih-chieh ti-kuo-chu-i hsing-
lieh — she-hui ti-kuo-chu-i shih k’ou-t’ou shang ti she-hui-chu-i shih-chi
shang ti ti-kuo-chu-i.
1. Imperialism, the Highest Stage of Capitalism. Selected Works of Len-
in. Vol. 2, Jen- min ch’u-pan-she, 1972, p. 827.
2. “Resolutions on the Present Situation. Seventh National Congression-
al Conference (April Congressional Conference) of the Social Democratic
Labor Party (Bolshevik) of Russia,” Complete Works of Lenin. Vol. 24, p.
277.
3. Marx, Critique of the Gotha Program. Selected Works of Marx and
Engels. Vol. 3, Jen-min ch’u-pan-she, 1972, p. 17.
4. “On the National Superiority Complex of the Great Russian People,”
Selected Works of Lenin. Vol. 2, Jen-min ch’u-pan-she, 1972, p. 611.
5. A Talk by Chairman Mao on May 11, 1964. Quoted in Jen-min jih-
pao [People’s Daily], April 22,1970.
6. “War and Russia’s Social Democratic Party,” Complete Works of
Lenin, Vol. 21, p. 13.
7. Quoted from Jen-min jih-pao [People’s Daily], April 28,1969.
8. “On Coalition Government,” Selected Works of Mao Tsetung. Vol. 3,
Jen-min ch’u- pan-she, 1968, p. 932.
9. “Preface to Imperialism, the Highest Stage of Capitalism. Selected
Works of Lenin. Vol. 2, Jen-min ch’u-pan-she 1972, p. 730.
10. Quoted from Jen-min jih-pao [People’s Daily], June 11,1967.
11. Communist Manifesto. Selected Works of Marx and Engels. Vol. 1,
Jen-min ch’u- pan-she, 1972, pp. 285-86.

159
12. Socialist Society Ushers in a New Era in
Human History
Socialist Society and Proletarian Dictatorship*
More than a hundred years ago, Marx and Engels, the teachers of the
worldwide proletarian revolution, analyzed the emergence, development,
and decline of capitalist production relations and concluded scientifically
that the proletariat would certainly overthrow the bourgeoisie and all ex-
ploiting classes, that proletarian dictatorship would certainly replace bour-
geois dictatorship, that socialism would certainly replace capitalism, and that
communism would certainly be realized in the end. They called on the prole-
tariat of the world to unite with the broad laboring masses and take up arms
to struggle fearlessly for the demolition of bourgeois state machinery, the
establishment of proletarian dictatorship, and the realization of socialism and
communism. In the past hundred years and more, the proletariat of the world
has marched forward persistently under the brilliance of Marxism without
fearing sacrifice. They have turned the scientific socialist ideal into a shining
reality over a large area of the world. “The socialist system will finally re-
place the capitalist system. This is an objective law not subject to the change
of human will.” (l) The socialist society under proletarian dictatorship and
established through violent revolution is a fundamental negation of the ex-
ploitative capitalist system and all exploitative systems. It ushers in a new
era of human history.

Proletarian Revolution and Proletarian Dictatorship

Are the Preconditions for the Emergence of Socialist
Production Relations
Socialist Production Relations Cannot Emerge within the
Capitalist Society
The transition from one societal form to another in human society is im-
pelled by the basic social contradiction, namely, the contradiction between
the production relations and the productive forces and between the super-
structure and the economic substructure. Marx pointed out: “Once the mate-
rial productive force of a society develops to a certain stage, it comes into
conflict with the existing production relations or property relations (this is
merely legal terminology for production relations). These relations become
fetters impeding the productive forces because of the form in which the pro-
ductive forces have developed. Then the time for socialist revolution has
arrived. With the change in the economic substructure, the whole massive
superstructure will undergo changes at varying speed.” “The newer and

160
 12. Socialist Society Ushers in a New Era in Human History
higher production relations will never emerge before the material conditions
suitable for their existence fully ripen in the embryo of the old society.” (2)
The material conditions for socialist production relations — socialized pro-
duction and the proletariat acting as the gravediggers of capitalism — steadi-
ly develop under capitalist conditions. When capitalism develops into impe-
rialism, the death knell of capitalism is sounded, and the time for proletarian
socialist revolution has come.
We already know that in human history, slavery, feudalism, and capital-
ism are all exploitative systems based on private ownership of the means of
production. The replacement of one of these three social and economic sys-
tems by another always takes the form of a new private ownership system
replacing an old private ownership system. Under these conditions, new
production relations can gradually emerge within the old society. For exam-
ple, capitalist production relations emerged gradually at the end of the feudal
society. Even under these conditions, a new private ownership system, in
order to become a dominant economic basis of society, must rely on the
newly emerging exploitative class which represents this private ownership
system to launch revolutions, seize political power, and engage in life and
death class struggle. This is a time-tested law.
Socialist production relations are production relations based on public
ownership. They cannot possibly emerge within the capitalist society. The
socialist public ownership system is fundamentally opposed to the capitalist
ownership system in which the means of production are privately owned. To
implement the socialist public ownership system of the means of production
implies the expropriation of the bourgeoisie’s means of production. This
cannot be carried out in the capitalist society under bourgeois dictatorship.
The bourgeois state machinery and its whole superstructure exist for the pro-
tection of the capitalist private ownership system. The bourgeoisie will never
allow socialist production relations to emerge from within the capitalist so-
ciety. All fallacious arguments that “capitalism can peacefully pass into so-
cialism” championed by new and old revisionists are totally contrary to the
facts. These are “theories “which serve to preserve the capitalist system and
forbid the proletariat to rise up and rebel. With the development of capital-
ism, the path to complete societal revolutionary transformation is clear. It is:
“The proletariat seizes political power in the state and first of all converts the
means of production into state property.” (3)
The fundamental issue of revolution is political power. Chairman Mao
pointed out that “political power comes from the barrel of a gun.” (4) Only
by over throwing the bourgeois state machinery and establishing proletarian
dictatorship through revolutionary violence can the proletariat establish and
develop production relations based on socialist public ownership after so-
cialist nationalization of the capitalist economy and socialist transformation
of the individual economy. Thus, proletarian revolution and proletarian dic-
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Fundamentals of Political Economy
tatorship become the preconditions for the emergence of socialist production
relations.
The Paris Commune of 1871 was the historically significant debut of the
proletariat overthrowing the capitalist system with revolutionary violence.
Although the Paris Commune failed, the principle of a commune survived.
The Paris Commune experience demonstrated that the proletariat must de-
stroy the bourgeois state machinery, that is to say, “it is impossible to simply
grasp the existing state machinery and use it to achieve one’s purpose.” (5)
Lenin’s leadership in the October Revolution was a brilliant implementa-
tion of the Marxist theory of violent revolution. The October Revolution expe-
rience demonstrated that in the period of imperialism and proletarian revolu-
tion, as long as there is a sizable proletariat, as long as there are masses suffer-
ing under oppression, and as long as there is a mature proletarian party which
is capable of formulating a Marxist line based on the national revolutionary
conditions and which is able to correctly lead the proletariat, the poor, and the
suffering peasants by uniting all forces that can be united to wage a persistent
struggle against the class enemy, it is possible to overthrow bourgeois rule
through armed revolution even in the most backward capitalist country and
thereby establish a socialist country under proletarian dictatorship.
The cannon fired in the October Revolution has brought the Chinese
people Marxism-Leninism. The great Chairman Mao formulated a general
line for China’s new democratic revolution by combining the universal truth
of Marxism-Leninism and China’s revolutionary situation. The general line
was: “It will be a revolution led by the proletariat, of the people, and op-
posed to imperialism, feudalism, and bureaucratic capitalism.” (6) Under the
guidance of this revolutionary line, the path of establishing strongholds in
the countryside and the rural areas and besieging, and finally seizing, the
urban areas was followed. After a prolonged period of revolutionary war, the
Chinese people overthrew the reactionary rule of imperialism, feudalism,
and bureaucratic capitalism, demolished the old state machinery, and estab-
lished the People’s Republic of China under democratic dictatorship, that is,
proletarian dictatorship. The birth of the People’s Republic of China was
another great event in world history after the October Revolution.
The experience of the Chinese revolution demonstrated that in the peri-
od of imperialism and proletarian revolution, if the proletariat of the colonial
and semicolonial countries could only seriously combine the universal truth
of Marxism-Leninism with the actual revolutionary conditions of their coun-
tries, firmly grasp the leadership power of democratic revolution, and lead
the people to victory in this revolution, it was entirely possible to enter the
stage of socialist revolution immediately after completing the anti-
imperialism and anti-feudalism task.
The triumphs of the October Revolution and the socialist revolution in
China are the great victories of the Marxist theory of armed revolution. New
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 12. Socialist Society Ushers in a New Era in Human History
and old revisionists always maliciously attack armed revolutions. They
champion the fallacy of “peaceful transition,” which is nothing but a replica
of the “principles of magnanimity” preached by the philosopher Confucius, a
spokesman for the then decadent slave-owning class in China. [Editor’s
note: Confucius’s principles of magnanimity simply phrased means: “True
to the principles of our nature and the benevolent exercise of them toward
others.”] The “principles of magnanimity” have never been magnanimous at
all, and the bourgeoisie has always used reactionary forces to oppress the
proletariat. The so-called “way of loyalty and reciprocity” was merely a
hoax which the exploiting class used to paralyze the revolutionary spirit of
the laboring people. The present-day bona fide disciple of Confucius, Lin
Piao, even picked up such dust-covered weapons as “one who wields virtue
prospers, one who wields force perishes,” vainly attempting to restrict the
freedom of the proletariat and to oppose the use of revolutionary violence
against the reactionary class. With respect to the consistent fallacy opposing
revolutionary violence championed by domestic and foreign revisionists,
Chairman Mao solemnly pointed out: “The central task and the highest form
of revolution is armed seizure of political power and the resolution of issues
by armed struggle. This Marxist-Leninist revolutionary principle is univer-
sally correct. Whether it is in China or abroad, it is always correct.” (7) This
is a universal law of proletarian revolution.
The Crux of the “Productivity First Theory” Is Its Opposition
to Proletarian Revolution and Proletarian Dictatorship
The most fundamental betrayal of Marxism by the new and old revision-
ists is their opposition to proletarian revolution and proletarian dictatorship.
The tattered banner hoisted in their opposition to proletarian revolution and
proletarian dictatorship is often the reactionary “productivity first theory.”
The revisionists Bernstein and Kautsky of the Second International tried
very hard to champion the idea that owing to the development of the produc-
tive forces, capitalist countries with highly developed industries would
“gradually give rise to” the socialist economic system. It was not necessary
to resort to violent revolution. Capitalist countries with underdeveloped in-
dustries, colonies, and satellite countries must first “develop” their produc-
tive forces. Without highly developed productive forces, the proletariat
could not wage revolution. This was an early version of the “productivity
first theory” in the international communist movement. This fallacy treated
social transformation purely as an issue of the development of the productive
forces. It completely ignored the effect of the production relations on the
development of the productive forces and the effect of the superstructure on
the economic basis. It ignored the fact that in a class society, social trans-
formation must go through violent class struggle before this theory of histor-
ical materialism can be realized.
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Fundamentals of Political Economy
The founder of Marxism dealt a firm blow to the “productivity first the-
ory” of the revisionists. Engels pointed out: “According to historical materi-
alism, the determining factor in the historical process must ultimately be
production and reproduction of actual living conditions. Neither Marx nor I
has ascribed greater importance to any other factor. If some people have de-
liberately distorted this, saying that economic factors are the only determin-
ing factors, then they have converted this issue into an empty, abstract, and
ridiculous verbal exercise.” (8)
In the proletarian revolution of Russia, people like Trotsky and Bukha-
rin again picked up this worn “productivity first theory” in a vain attempt to
oppose the Russian proletariat’s triumphant advance against the capitalist
system. They insisted that economically backward Russia was not qualified
to establish socialism. This type of nonsense was soundly criticized by Len-
in. Lenin asked: “Why can’t we first use revolutionary means to attain the
preconditions for achieving this certain level and catch up with the people of
other countries on the basis of worker-peasant political power and the Soviet
system?” (9)
In the course of China’s democratic and socialist revolutions, successive
leaders of the revisionist line, from Ch’en Tu-hsiu to Liu Shao-ch’i and Lin
Piao, all borrowed the reactionary “productivity first theory” from the Sec-
ond International revisionists and Trotskyites. They said that China’s econ-
omy was backward and that the proletariat could seize political power only
after capitalism was highly developed. This in effect would eliminate Chi-
na’s revolution and keep China in her semicolonial and semifeudal status.
Chairman Mao has countered this position with this observation: “Without
political reform, all productive forces are doomed to be destroyed. It is true
for agriculture and also true for industry.” (10) Referring to the semi-
colonial and semifeudal status of China’s old society, Chairman Mao point-
ed out: China’s revolution must proceed in two steps. The first step is the
new democratic revolution. The second step is the socialist revolution. These
are two different, and yet related, revolutionary processes. The democratic
revolution is the necessary preparation for the socialist revolution. The so-
cialist revolution is an inevitable trend of the democratic revolution. This
totally and thoroughly demolishes the conspiracy of people like Ch’en Tu-
hsiu who vainly attempted to obstruct the revolutionary flood by resorting to
the reactionary “productivity first theory.”
Chairman Mao said: “True enough, productive forces, practice, and
economic substructure generally appear to play the determining role. Who-
ever denies this fact is not qualified to be a materialist. But under certain
conditions, production relations, theory, and superstructure also revolve and
show their important and determining role. This must also be accepted.” (11)
The history of the international communist movement has demonstrated that
the line of demarcation between Marxism and revisionism in the proletarian
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 12. Socialist Society Ushers in a New Era in Human History
struggle for political power lies in whether one persistently follows the dia-
lectical materialist theory of the unity of the production relations and the
productive forces and the unity of the superstructure and the economic sub-
structure or whether one pushes the reactionary “productivity first theory.”

The Socialist Society Is a Fairly Long Historical Stage

The Socialist Society Is a Period of Struggle between Declining
Capitalism and Emerging Communism
What kind of a society is the socialist society that is established through
proletarian revolution? What are its basic characteristics?
Marx pointed out: “Between capitalist society and communist society,
there is a revolutionary period of transformation from the former to the lat-
ter. Corresponding to this period is a political transition period. The state in
this period can only be one under proletarian revolutionary dictatorship.”
(12) The period described by Marx as “a period of revolutionary transfor-
mation from the former to the latter” and “a political transition period” is the
historical period of socialism. The society in this period is the socialist socie-
ty under proletarian dictatorship.
In the socialist society, the public ownership system of the means of
production replaces the private ownership system. The laboring people con-
trol the fate of the socialist economy and become the masters of society.
Marxist ideological education gradually liberates millions of laboring people
from the influence of the old society to progress along the socialist and
communist paths. From this aspect, socialist society already possesses some
elements of communist society. But socialist society is merely a preliminary
stage of communist society, not a completely communist society. Just as
Marx pointed out: “What we describe here is such a communist society. It is
not fully developed on its own basis. On the contrary, it has just emerged
from the capitalist society. Therefore, traces of the old society from which it
was born can still be seen in its economic, moral, and ideological aspects.”
(13) This is to say, in various aspects of socialist society, there still remain
some capitalist traditions and influences: the bourgeoisie and all exploiting
classes have been overthrown, but their influence on economics, politics,
and ideology will exist for a long time. The disparities between the worker
and the peasant, the urban and the rural areas, and mental labor and physical
labor which are left over from the old society and the remaining legal rights
reflecting these disparities will persist for a long time. Consequently, the
whole historical stage of socialist society “has to be a period of struggle be-
tween declining capitalism and emerging communism.” (14)
This nature and characteristic of socialist society determine that socialist
society will not be a short and temporary period, but a fairly long historical
stage.

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Fundamentals of Political Economy
Before the socialist revolution, the revolutions to replace slavery with
feudalism and feudalism with capitalism merely constituted the substitution
of a new exploitative system for an old exploitative system. The proletarian
socialist revolution is fundamentally different. It will thoroughly eliminate
all exploitative systems among men, all classes and class disparities, and the
remaining bourgeois legal rights reflecting these disparities. This revolution
is richer, wider, and more complex than any other revolution in history. The
goal of communism can be realized in the end only through long-term strug-
gle and by gradually creating favorable conditions.
To eliminate classes, the socialist society must make a thoroughly clean
break from all customary influences of the traditional concept of private
ownership and the old society. The specter of Confucius, who stubbornly
defended slavery in China more than two thousand years ago, has been used
by the exploiting classes of various historical periods to consolidate their
reactionary rule. Today, the reactionary thought of Confucius is still used by
the bourgeoisie and revisionists as an ideological weapon to restore capital-
ism. It is a long and complex task to solve the issue of whether socialism or
capitalism will win out in the sphere of political ideology. Chairman Mao
pointed out: “In the sphere of political ideology, the struggle for triumph
between socialism and capitalism requires a long time to resolve. It will not
be completed in a few decades. It may take centuries.” (15)
“The final triumph of building a socialist country not only depends on
the efforts of its own proletariat and the broad people, but also on the tri-
umph of world revolution, the global elimination of exploitative systems
among men, and the liberation of the human race.” (16) We are still in the
period of imperialism and proletarian revolution. The final triumph of the
socialist revolution will be won only after a series of difficult, complex, and
long-term class struggles in the world.
Correctly understanding the nature and characteristics of socialist socie-
ty, correctly understanding that socialist society is a fairly long historical
stage, and drawing a line between scientific socialism and all kinds of fake
socialism has great significance for the success of the proletariat of all coun-
tries in their socialist revolution and for the struggle to prevent capitalist
restoration after the victory of the revolution. The victory of socialism over a
large area of the world will force its enemies to disguise themselves as so-
cialists. They will hoist various “socialist” banners to deceive the world and
win fame for themselves. In the contemporary period, there is the “devel-
oped socialism” served up by Brezhnev, the “real socialism” peddled by Lin
Piao, and so forth. People like Brezhnev vainly hope to hide themselves be-
hind “developed socialism” in order to increase their exploitation and op-
pression of the laboring people in their own country and unscrupulously re-
store capitalism. Abroad, they step up aggression and expansion in their fu-
tile attempt to achieve world supremacy. The so-called “developed social-
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 12. Socialist Society Ushers in a New Era in Human History
ism” is a new form of bureaucratic monopoly capitalism, that is, social im-
perialism. The “real socialism” peddled by people like Lin Piao was merely
a disguise. His reactionary program was Confucius’ “restraining oneself and
restoring the rites. “He clamored that “of all things, this is the most im-
portant.” His intention was to conspire to sabotage China’s socialist system
under the proletarian dictatorship and to restore capitalism. The so-called
“real socialism” was in fact real capitalism. This company of renegades
vainly attempted to mix the genuine with the fictitious in order to paralyze
the revolutionary spirit of the broad masses of people. But, Marxist scientific
socialism cannot be faked. Once it is compared with the nature and charac-
teristics of the socialist society as explained by Marxism, it is easy to expose
the various brands of fake socialism.
The Theory of the Basic Contradictions in the Socialist Society
Is the Theoretical Basis for Continuing Revolution under
Proletarian Dictatorship
After proletarian dictatorship was established in China, Chairman Mao
laid down a general line for the Party in the transition period, “Within a fair-
ly long period of time, socialist industrialization is to be gradually realized in
the country, and socialist transformation of agriculture, the handicraft indus-
try, and capitalist industry and commerce by the state is to be gradually real-
ized.” (17) According to this general line, China had basically completed the
socialist transformation of the ownership system of the means of production
in 1956. In this situation, is socialist society still a historical process of the
motion of contradictions? What are the basic contradictions in socialist soci-
ety? Are these contradictions mainly manifested in the contradiction and the
struggle between the proletariat and the bourgeoisie? It is exactly in these
questions that fundamental differences exist between Marxism and modern
revisionism.
The Soviet revisionist renegade clique flatly denies that contradictions
exist in socialist society from beginning to end. It flatly denies that these
contradictions are mainly manifest in the struggle between the proletariat
and the bourgeoisie. It flatly denies that it is exactly the unity and struggle
between opposites that propels the development of socialist society. Its in-
tent is to conceal its evil countenance of totally restoring capitalism and im-
plementing fascist dictatorship. The company of Liu Shao-ch’i and Lin Piao
followed in the footsteps of the Soviet revisionists. After the great victory
achieved in China’s socialist transformation of the ownership system of the
means of production, they fabricated nonsense claiming that “there was a
contradiction between the advanced socialist system and the backward social
productive forces.” They vainly attempted to use this nonexistent “contradic-
tion” to negate the ever-present contradiction between the production rela-

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tions and the productive forces, between the superstructure and the economic
substructure. To cover up their conspiracy to restore capitalism in China,
they denied that the main contradiction in Chinese society was the contradic-
tion between the working class and the bourgeoisie. Faced with this revi-
sionist countercurrent, Chairman Mao has advanced the great theory about
the basic contradictions in socialist society based on the fundamental princi-
ples of Marxism and the accumulated experience of the international com-
munist movement. Chairman Mao pointed out that the universal law of unity
and struggle between opposites in Nature, human society, and human
thought is equally applicable to the socialist society. “In the socialist society,
the basic contradictions are still the contradictions between the production
relations and the productive forces, and between the superstructure and the
economic basis.” (18) Chairman Mao’s theory about the basic contradictions
in socialist society succeeds, defends, and develops Marxism-Leninism. It
has dealt a fatal blow to modern revisionism and has effectively armed the
proletariat and the broad laboring people.
The socialist production relations correspond to the development of the
productive forces. It permits the productive forces to develop rapidly at a
speed that is not possible in the old society. The state system and law under
proletarian dictatorship and superstructures such as the socialist ideology
which are guided by Marxism also conform to the socialist economic basis,
namely socialist production relations. This is the fundamental aspect. But
there is another aspect of the contradictions in socialist society between the
production relations and the productive forces and between the superstruc-
ture and the economic basis. The correspondence and contradiction with one
another among the various aspects of the basic contradictions of socialist
society propels socialist society forward.
In order to correctly understand how the production relations correspond
to and contradict the productive forces in socialist society, it is necessary to
make a concrete analysis of the production relations in socialist society.
During a certain period of time in socialist society, there still exist non-
socialist production relations. With regard to the ownership system, for ex-
ample, the joint state and private enterprises in China were basically socialist
in nature. But during a certain period of time, the capitalist could still obtain
a fixed interest. In other words, exploitation and remnants of capitalist pri-
vate ownership still existed. After the fixed interest was abolished, there
were still remnants of individual economy in the urban and rural areas for a
fairly long period of time in the socialist society. In the aspect of interper-
sonal relations, opposition between classes representing the capitalist pro-
duction relations and the laboring people still existed. With regard to the
distribution of personal consumption goods, high salaries were still paid to
the capitalist and bourgeois experts whose services were retained for a peri-
od of time. These high salaries did not embody the socialist principle of
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 12. Socialist Society Ushers in a New Era in Human History
from each according to his ability and to each according to his labor, but
were in fact a form of redemption. All these nonsocialist production rela-
tions were not only in conflict with the development of the productive forc-
es, but also with socialist production relations. In the development process of
socialist construction, these nonsocialist production relations must gradually
be transformed.
On the other hand, the socialist production relations themselves also un-
dergo a development process from an imperfect state to a more perfect state.
In socialist society, “communism is still not completely mature economical-
ly. It still cannot completely free itself from capitalist tradition and influ-
ence.” (19) The establishment of the socialist public ownership system was a
fundamental negation of the private ownership system. But this does not
imply that the issue of ownership is completely settled. The consolidation
and perfection of the socialist state ownership system and the socialist col-
lective ownership system by the laboring masses must undergo a long pro-
cess during which the proletariat and the bourgeoisie fight for economic
leadership. The socialist collective ownership system must also undergo a
process of transition from a small collective ownership system to a large
collective ownership system and finally to a socialist state ownership sys-
tem. With regard to interpersonal relations in socialist production, there still
exist disparities between the worker and the peasant, the urban and rural are-
as, and mental and physical labor and also bourgeois legal rights left over
from the old society which reflect these disparities. Distribution of consumer
goods according to labor is still a bourgeois legal right. These bourgeois le-
gal rights will exist for a long time in the socialist stage. The proletariat must
accept them and at the same time create favorable conditions for their re-
tirement from the historical stage.
At the same time, with the rapid development of the productive forces,
conditions in which some aspects of socialist production relations are no
longer compatible with the development of the productive forces must be
adjusted and streamlined in time.
But, in the final analysis, the central problem of perfecting socialist pro-
duction relations cannot but be a process of struggle in which the emerging
communist factors gradually triumph over the declining capitalist tradition
and influence.
To understand how the superstructure of the socialist society corre-
sponds to and contradicts the economic substructure, it is also necessary to
conduct a concrete analysis of the superstructure in socialist society. In so-
cialist society, there exists a bourgeois ideology. In the superstructure of
socialist society, for example, the existence of certain representatives of the
bourgeoisie in the state organization, certain bureaucratic styles of work, and
certain imperfections in the state system are all in conflict with the socialist
economic substructure. Only by continually resolving these contradictions
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Fundamentals of Political Economy
can the superstructure further meet the need to consolidate and develop the
socialist economic foundation.
The basic contradictions in socialist society are fundamentally different
in nature and condition from the contradictions between the production rela-
tions and the productive forces, between the superstructure and the economic
substructure in the old society. The basic contradictions of the capitalist so-
ciety are manifested as violent oppositions and thrusts. These contradictions
can only be resolved through violent revolution by the proletariat, the over-
throw of the bourgeois dictatorship, and the elimination of capitalist produc-
tion relations. The contradictions between socialist production relations and
the productive forces, between the superstructure and the economic sub-
structure are an entirely different matter. The process of continual emer-
gence and resolution of these contradictions are also the process of transition
from the socialist society to the communist society. In this process, workers,
peasants, and other laboring people, who are the ruling class, are not over-
thrown by any opposition power. They still remain the masters of society.
The public ownership system is not destroyed, but is developed to a higher
stage. In this sense, the contradictions of socialist society “are not antagonis-
tic contradictions, and can be resolved continually through the socialist sys-
tem itself.” (20)
The conformity and contradiction between socialist production relations
and the productive forces, between the superstructure and the economic sub-
structure constitute a continuous dialectical process which propels socialist
society continuously forward.
Chairman Mao’s theory on the basic contradictions in the socialist so-
ciety is the theoretical basis for the continuous revolution under proletarian
dictatorship. Chairman Mao pointed out: “In China, although socialist trans-
formation in ownership is basically completed,” “remnants of the over-
thrown landlord and comprador classes still exist. The bourgeoisie still ex-
ists, and the petty bourgeoisie is just in the process of transformation.” “The
issue of whether socialism or capitalism will win out has not really been re-
solved.” “Class struggle between the proletariat and the bourgeoisie, class
struggle between political forces, and class struggle in ideology between the
proletariat and the bourgeoisie are still prolonged, tortuous, and sometimes
even violent.” (21) This, then, is the first clear-cut conclusion drawn from
the theory and practice of the international communist movement: After the
socialist transformation of the ownership system of the means of production
is basically completed, there still exist classes and class struggle. The prole-
tariat must continue revolution and pursue the socialist revolution on the
political, economic, ideological, and cultural battlefronts to the very end.

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 12. Socialist Society Ushers in a New Era in Human History

Firmly Adhere to the Basic Line of the Party for the Whole
Socialist Historical Stage
Chairman Mao teaches us that “everything depends on whether or not
the ideological and political line is correct.” To insist on continuous revolu-
tion under proletarian dictatorship, the proletariat needs a correct line.
Based on a detailed analysis of the basic contradictions in socialist soci-
ety and his theory of continuous revolution under proletarian dictatorship,
Chairman Mao formulated for our Party a basic line for the whole socialist
historical stage: “The socialist society is a fairly long historical period. In the
socialist historical stage, there still exist classes, class contradictions, class
struggle, the struggle between the socialist and the capitalist roads, and the
danger of capitalist restoration. We must be fully aware of the protracted and
complex nature of these struggles. We must be on the alert. We must con-
duct socialist education. We must correctly understand and handle class con-
tradictions and class struggle, correctly distinguish contradictions with our
enemies from contradictions among the people and handle them accordingly.
Otherwise, our socialist country will go the wrong way and deteriorate, and
restoration will appear. From now on, we must talk about it every year, eve-
ry month, and every day so that we can have a clearer appreciation of this
issue and a Marxist-Leninist line.” (22) This proletarian revolutionary line
formulated by Chairman Mao reveals the objective law governing class
struggle in the socialist period and is the only correct line for realizing the
basic program of the Party. This basic line is a brilliant beacon that shines
over the historical route of continuous revolution for the whole Party, the
whole country, and the whole people under proletarian dictatorship,,
The protracted nature of class struggle in the socialist society is due to
the inevitable reflection of the struggle between emerging communist factors
and declining capitalist tradition and influence on the class relations. The
overthrown exploiting class still survives and continues to contest the prole-
tariat in their every possible attempt to recover their lost “heaven.” Sponta-
neous forces among the petty bourgeoisie can also lead to a new bourgeoisie.
Because of the influence of the bourgeoisie and the encirclement and corro-
sive influence of the petty bourgeoisie, some degenerate elements, persons
in power taking the capitalist road, and spokesmen for the bourgeoisie may
emerge in the working class, Party and government organizations, and in
cultural and educational departments. At the same time, imperialism and
social imperialism always try hard to convert socialist countries into capital-
ist countries or even colonial or semicolonial countries. International class
struggle will inevitably be reflected in the socialist countries. In the process
of continually perfecting the socialist production relations and superstruc-
ture, communist factors in production relations and the superstructure will be
gradually strengthened and capitalist tradition and influence will gradually

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Fundamentals of Political Economy
be swept away. This will certainly promote the continual consolidation of
the socialist economic substructure and the continuous development of the
productive forces.
The proletariat and the broad laboring people under its leadership are the
representatives of socialist production relations. They firmly adhere to the
socialist road and always firmly adhere to the Marxist theory of continuous
revolution and the stage theory of revolutionary development. They promote
the continuous consolidation and perfection of socialist production relations
and the superstructure. The bourgeoisie and its agents inside the Communist
Party are the representative of capitalist production relations. They insist on
taking the capitalist road and always try hard to transform socialist produc-
tion relations into capitalist production relations. Therefore, in the whole
socialist historical stage, the struggle between the proletariat and the bour-
geoisie and the struggle between the socialist and the capitalist roads always
exist objectively and cannot be changed by human will. This is to say, the
struggles are inevitable. Though people may want to avoid them, it is not
possible. The proletariat can only gain victory by taking advantage of favor-
able conditions.
Class struggle in the socialist society develops in wavelike motions with
peaks and troughs. This is due to a difference in the conditions of class
struggle and not to whether there is class struggle or not. The history of the
socialist society tells us that class enemies and all monsters and freaks will
show themselves. Chairman Mao pointed out: “Total disorder is followed by
total order. This cycle repeats itself once every seven or eight years. Mon-
sters and freaks will show themselves of their own accord. Their class nature
determines that they must show themselves.” (23) The law of class struggle
requires that there be a big struggle every few years. Only after repeated
contests and with the gradual wane of the reactionary class can the proletari-
at finally complete the great historical task of eliminating the bourgeoisie
and all exploiting classes.
Class struggle in society must of necessity be reflected in the Party and
is manifested as a struggle between the two lines inside the Party. The sub-
stance of the basic Party line is “to apply Marxism and not apply revision-
ism.” The basic Party line tells us that the struggle against revisionism is a
long-term struggle. In the last twenty and more years, the struggle between
our Party and the four anti-Party cliques headed by Kao Kang, Jao Shu-shih,
P’eng Te-huai, Liu Shao-ch’i, and Lin Piao was a struggle against revision-
ism. Chairman Mao personally launched and led the Great Proletarian Cul-
tural Revolution. It was a great revolution in the superstructure, a great polit-
ical revolution under the condition of proletarian dictatorship. It could also
be called the second revolution of China. In the Great Proletarian Cultural
Revolution, Chairman Mao led the whole Party, the entire armed forces, and
the whole people to destroy the two bourgeois command headquarters head-
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 12. Socialist Society Ushers in a New Era in Human History
ed by Liu Shao-ch’i and Lin Piao. This bunch of renegades and traitors con-
spired to usurp the supreme power of the Party and the state and sought to
fundamentally transform the basic Party line and policy for the whole social-
ist historical stage in order to transform the Marxist-Leninist Party into a
revisionist fascist party, sabotage proletarian dictatorship, and restore capi-
talism. The substance of their revisionist line is extreme Right. Their coun-
terrevolutionary conspiracy has been crushed by the hundreds of millions of
revolutionary people of China. The Great Proletarian Cultural Revolution
has won a great victory. Revolution is still developing, and struggle is still
continuing. In the historical stage of socialist society, the struggle between
the two lines inside the Party which reflects class struggle will long exist.
Chairman Mao pointed out: “The present Great Cultural Revolution is mere-
ly the first one. There will be many more afterward.” “Who will win out in
revolution can be determined only after a fairly long period of time in histo-
ry. If it is not handled well, capitalist restoration is possible at any time. All
the Party members and the whole people should not think that things will be
all right after one or two, or three or four, great cultural revolutions. Make
doubly sure that vigilance will not be relaxed.” (24)

Socialist Society Constitutes the Beginning of People

Consciously Creating History
The Great Soaring Leap in the History of Human Development
The proletariat and the laboring people continue revolution under the
proletarian dictatorship in order to make the superstructure serve the social-
ist economic substructure, to make production relations conform to the de-
velopment of the productive forces, and to consciously transform society and
Nature according to the economic law of socialism. This is a giant stride in
human history.
There are several thousand years of written human history. But, before
the birth of socialist society, this long period of history was merely a “pre-
historical period” in human society. The producer was enslaved not only by
Nature but also by the means of production which he manufactured. “It was
not the producer who controlled the means of production, but the means of
production which controlled the producer.” (25) That is to say, the exploit-
ing class, which controlled the basic means of production and thus state po-
litical power, maliciously oppressed and exploited the broad laboring people
and reduced them to dark and miserable lives. The proletarian socialist revo-
lution is a spring thunder that has shaken human history. It has brought an
end to the “prehistorical period” and has ushered in a new era in history in
which people consciously create history.
This material basis for the great leap in human history lies in the trans-
formation of private ownership of the means of production into socialist
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Fundamentals of Political Economy
public ownership after the proletariat and the laboring people have seized
political power. In socialist society, public ownership of the means of pro-
duction makes the laboring people, who are the majority of the people, the
masters of the state and enterprises. Only when the laboring people have
become the masters of social relations can they become the masters of nature
and consciously transform the world and create history under the guidance
of Marxism.
Naturally, compared with an advanced communist society, the socialist
society is only the beginning of an era in which people consciously create
history. In addition to the limits imposed on the developmental level of the
productive forces and on our knowledge of the physical world, the main ob-
stacle lies in the continuing existence in socialist society of the bourgeoisie
and its ideological influence and of disparities between the worker and the
peasant, the urban and rural areas, and mental and physical labor. Therefore,
although the proletariat and the broad laboring people control state political
power and the basic means of production, their conscious activities in trans-
forming the world and creating history are still restricted by history. Never-
theless, “the most important thing is that solid ice is crushed, the route is
cleared, and the road clear.” (26) The proletariat will finally shape a com-
munist new world through the socialist society and in its own image.
Fully Exploit the Initiating Role of the Superstructure.
Consciously Make Use of the Objective Law
In socialist society, people begin to consciously create their own history.
This does not mean that people can create history at will. It simply means
that for the first time people of the entire society can consciously identify
and make use of the objective law to serve the interests of the proletariat and
the broad laboring people.
“Freedom consists of knowledge of the inevitable and transformation of
the objective world.” (27) Economic laws are objective laws governing the
development of social economy and are not subject to change according to
human will. People cannot “transform” or “create” objective laws. But, peo-
ple are not entirely helpless before objective laws. In socialist society, peo-
ple can correctly identify them, rely on them, make use of them, and lead the
destructive forces of certain laws into another direction or restrict their scope
of operation. On the other hand, a larger scope of operation is given to laws
that are constructive in order to achieve the purpose of transforming the ob-
jective world.
Under different social systems, the forms to which economic laws apply
possess different characteristics. In capitalist society, because the means of
production are privately owned, production is carried on under blind competi-
tion and chaotic conditions. Therefore, economic laws always play an alien
role in the capitalist society. The socialist society is based on public ownership
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 12. Socialist Society Ushers in a New Era in Human History
of the means of production. The laboring people are the masters of social eco-
nomic relations. This makes it possible for people to consciously practice eco-
nomic laws. Just as Engels once prophesied, “Up to now, the laws governing
the people’s social behavior, like the natural laws which are alien to the people
but nevertheless control them and oppose them, will be skillfully mastered by
the people and subject to their control by that time.” (28)
The establishment of a system of public ownership of the means of pro-
duction makes it possible for people to identify and consciously operate ac-
cording to the economic laws. But, to turn this possibility into reality, struggle
is inevitable. The efforts of the proletariat to operate according to economic
laws and of society to accelerate the transformation of the socialist society into
a communist society will certainly meet violent resistance from the bourgeoi-
sie and other decadent social forces, especially interference and sabotage from
the revisionist line. The process of conscious application of socialist economic
laws is the process of struggle between the proletariat and the bourgeoisie,
between the Marxist line and the revisionist line. At the same time, people
must also resolve “the contradiction between the objective law of economic
development in socialist society and our subjective knowledge” in practice.
(29) This represents another process. It is necessary to start from practice,
conduct investigations and research, go from no experience to experience and
from a little experience to a lot of experience, and gradually overcome impuls-
es and raise consciousness. This process of understanding cannot be divorced
from the transformation process of people’s world outlooks. People with the
proletarian world outlook can more correctly identify the laws of development
governing socialist economy. Firm adherents to the bourgeois outlook can
never correctly identify the laws of development governing socialist economy.
Therefore, this process of understanding is also a process of destroying the
bourgeois world outlook and establishing the proletarian world outlook. Those
viewpoints which regard the conscious application of economic laws in social-
ist society as an easy matter that requires neither hard work, nor the overcom-
ing of resistance from the bourgeoisie and from interference from the revision-
ist line, nor struggle between the two world outlooks are wrong. These are
viewpoints which advocate: Let nature takes its own course, or let us extin-
guish class struggle.
In the socialist society, to consciously apply objective economic laws, it
is necessary to fully exploit the active aspect of the superstructure.
The immense capability of the socialist superstructure is manifested main-
ly in the leadership of the proletarian political party. The proletarian political
party is established according to Marxist revolutionary theory and revolution-
ary style. It is good at comprehending objective laws governing historical de-
velopment, assimilating the wisdom of the masses, grasping the general trend
of historical development, and formulating correct theory, programs, lines, and
general and specific policies based on actual conditions in the various stages
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Fundamentals of Political Economy
of social development. These correct theories, programs, lines, and general
and specific policies come from the masses and return to the masses, leading
them to victory in their struggle. The Communist Party of China uses Marx-
ism-Leninism-Mao Tsetung Thought as a theoretical basis for its guiding
thought. That the Party’s theory of revolution, especially its theory about con-
tinuous revolution under proletarian dictatorship, and the Marxist line and
general and specific policies formulated by the proletarian political party can
be so invincible is because the theories correctly reflect the objective laws
governing the economic development of society. “Without revolutionary theo-
ry, there will never be revolutionary action.” (30) It is therefore important to
seriously study the Marxist theory concerning continuous revolution under
proletarian dictatorship in order to guide us to correctly identify, and operate
according to, the economic laws governing socialist society.
Party leadership is ultimately leadership by the Marxist line. Only by
grasping revolution in the superstructure, including the ideological sphere,
and making sure that the ideological and political lines are correct, can a
Marxist party lead the proletarian revolutionary enterprise from victory to
still greater victory.
The state political power of proletarian dictatorship under the leadership
of the Communist Party plays an immense role in guaranteeing the thorough
implementation of the basic Party line and in organizing and leading the so-
cialist economy. By exercising its own state political power, the proletariat
can unfold socialist revolution on the economic battlefront, establish and
develop socialist production relations, plan, organize, and lead the whole
national economy, develop social productive forces, and unfold socialist
revolution on the political, ideological, and cultural battlefronts in order to
consolidate the socialist economic basis by continually perfecting the social-
ist superstructure. Continuous revolution under proletarian dictatorship re-
quires full exploitation of this initiating role of the state political power of
proletarian dictatorship. These conditions cannot be created under bourgeois
dictatorship. Bourgeois revolution comes to an end as soon as the bourgeoi-
sie seizes political power. Although the bourgeoisie tried hard to use politi-
cal power and other parts of the superstructure to protect capitalist produc-
tion relations, the steady deterioration of capitalist production relations led to
a corresponding reaction in bourgeois political power. This kind of protec-
tion was merely a moribund struggle. As far as the socialist revolution is
concerned, the seizure of political power by the proletariat is merely the be-
ginning of revolution. Socialist production relations undergo a regenerating
process with the development of the productive forces. The state political
power under proletarian dictatorship, promoting such a regeneration and
propelling the development of the productive forces, is, in the end, the most
powerful weapon by which the proletariat continues socialist revolution.
With this weapon, the proletariat can now crush the resistance of the bour-
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 12. Socialist Society Ushers in a New Era in Human History
geoisie and other reactionary forces, unite the whole laboring people around
itself, triumphantly unfold the Three Great Revolutionary Movements of
class struggle, production struggle, and scientific experiment, promote the
rapid development of social productive forces, and promote the steady con-
solidation and perfection of the socialist economic basis and superstructure
in order to make socialist society advance along the basic Party line until the
realization of the highest ideal of communism.
Major Study References
Marx, Critique of the Gotha Program.
Lenin, “Economics and Politics in the Period of Proletarian Dictator-
ship.”
Chairman Mao, “On the Correct Handling of Contradictions among the
People.”
Review Problems
1. Why do we say violent revolution is the universal law of proletarian
revolution? What is the crux of the “productivity first theory”?
2. How do we understand socialist society? How do we interpret Chair-
man Mao’s theory about the basic contradiction of socialist society as being
the theoretical basis for continuous revolution under proletarian dictator-
ship?
3. Why do we say that the focal point of the struggle between the prole-
tariat and the revisionist leaders in the whole socialist historical stage lies in
whether the basic Party line is firmly adhered to or whether it is changed?
How can the activating role of the superstructure be fully exploited and the
objective economic laws be consciously applied?
Notes
* She-hui-chu-i she-hui k’ai-ch’uang le jen-lei li-shih ti hsin chi-yuan
— she-hui-chu- i she-hui ho wu-ch’an-chieh-chi chuan-cheng.
1) Chairman Mao, “A Talk on the Fortieth Anniversary Conference to
Celebrate the Great October Revolution by the Supreme Soviet of the Soviet
Union,” Jen-min ch’u- pan-she, 1957, p. 5.
2) Marx, “Introduction to A Critique of Political Economy.” Select-
ed Works of Marx and Engels. Vol. 2, Jen-min ch’u-panshe, 1972, pp. 82-83.
3) Engels, Anti-Dühring. Selected Works of Marx and Engels. Vol. 3,
Jen-min ch’u- pan-she, 1972, p. 320.
4) “War and Strategic Problems,” Selected Works of Mao Tse-tung. Vol.
2, Jen-min ch’u-pan-she, 1968, p„ 512.
5) Marx, “French Civil War,” Selected Works of Marx and Engels. Vol.
2, Jen-min ch’u-pan-she, 1972, p. 372.

177
Fundamentals of Political Economy
6) “A Talk to the Conference of Chin-Sui Cadres,” Selected Works of
Mao Tse-tung. Vol. 4, Jen-min ch’u-pan-she, 1968, p. 1211.
7) “Problems of War and Strategy,” p. 506.
8) Engels, “To Yueh-po-lo-heh (September 21-22, 1890),” Selected
Works of Marx and Engels. Vol. 4, Jen-min ch’u-panshe, 1972, p. 477.
9) “On Revolution of Our Country,” Complete Works of Lenin. Vol. 33,
pp. 433-434.
10 “On Coalition Government,” Selected Works of Mao Tsetung.
Vol. 3, Jen-min ch’u-pan-she, p. 981.
11) “On Contradiction,” Selected Works of Mao Tse-tung. Vol. 1, Jen-
min ch’u-pan- she, 1968, p. 300.
12) Marx, Critique of the Gotha Program. Selected Works of Marx and
Engels. Vol. 3, Jen-min ch’u-pan-she, 1972, p. 21.
13) Ibid., p. 10.
14) “Economics and Politics in the Period of Proletarian Dictatorship,”
Selected Works of Lenin. Vol. 4, Jen-min ch’upan-she, 1972, p. 84.
15) Quoted from “Khrushchev’s Fake Communism and Its Lesson for
World History,” Jen-min ch’u-pan-she, 1964, p. 52.
16) Quoted from Hung-ch’i [Red Flag], 1969, No. 5.
17) Quoted from Hung-ch’i. 1971, Nos. 7-8.
18) “On the Correct Handling of Contradictions among the People,” Se-
lected Readings from the Works of Mao Tse-tung. Part 1, Jen-min ch’u-pan-
she, 1965, p. 336.
19) State and Revolution. Selected Works of Lenin. Vol. 3 Jen-min
ch’u-pan-she, 1972, p. 256.
20) “On the Correct Handling of Contradictions among the People,” p.
336.
21) Ibid., p. 352.
22) Quoted from Hung-ch’i. 1967, No. 10.
23) Quoted from Wang Hung-wen, “Report on the Revision of the Par-
ty Constitution,” Collected Documents from the Tenth National Congress of
the Chinese Communist Party. Jen-min ch’u-pan-she, 1973, p. 43.
24) Quoted from Hung-ch’i. 1967, No. 7.
25) Engels, Anti-Dühring. p. 330.
26) “The Fourth Anniversary of the October Revolution,” Selected
Works of Lenin. Vol. 4, Jen-min ch’u-pan-she, 1972, p. 570.
27) Quotations from Chairman Mao. Quoted from Jen-min jih-pao
[People’s Daily], April 11,1966.
28) Engels, Anti-Dühring, p. 323.
29) “On the Correct Handling of Contradictions among the People,” p.
363.
30) “What to Do?” Selected Works of Lenin. Vol. 1, Jen-min ch’u-pan-
she, 1972, p. 241.
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13. The Socialist System of Public Ownership
Is the Basis of Socialist Production Relations
The System of Socialist State Ownership and
Collective Ownership by the Laboring Masses*
After the proletariat seizes political power, it is necessary to systemati-
cally transform the system of private ownership of the means of production
into a socialist system of public ownership in order to eliminate the causes of
capitalism and all other exploitative systems and to establish a socialist eco-
nomic basis. This is an important step in consolidating proletarian dictator-
ship and defeating capitalism with socialism.

The Socialist System of State Ownership Is the Main

Economic Basis of Proletarian Dictatorship
The Proletariat and the Laboring People Must Control the
Means of Production
In the past several thousand years, the fundamental reason for the ex-
ploitation and oppression of the laboring people by the slave owner, the feu-
dal landlord, and the capitalist was that the means of production were not in
the hands of the laboring people. “In order to force people to engage in any
form of slave labor, it is necessary to assume that the oppressor controls the
means of production. Only by relying on these means of production can the
enslaved be manipulated.” (l) Successive generations of laboring people
launched various forms of struggle in an attempt to take the means of pro-
duction into their own hands, but for historical reasons, all their attempts
failed. In capitalist society, the proletariat nurtured and tempered by capital-
ist big industries began to emerge. This class lost all control over the means
of production. Aside from the chains on his neck, the worker had absolutely
nothing else. With the increasing intensification of the contradictions be-
tween the private character of capitalist ownership of the means of produc-
tion and the social character of production, the possibility of the proletariat
controlling the means of production developed.
However, the exploiting class is never willing to give up exploitation.
They not only abused the state machinery to protect their private ownership
of the means of production, but also concocted all sorts of fallacies in the
ideological sphere. For example, they said that the poverty of the worker
was due to the rapid increase in population, the lack of a “just and reasona-
ble principle of distribution,” and so forth, vainly attempting to deceive and
dupe the laboring people so they would not touch the bourgeois ownership
of the means of production or control the means of production. The revolu-

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Fundamentals of Political Economy
tionary teachers of the proletariat denounced this sort of fallacy. They point-
ed out that the root cause of the exploitation and enslavement of the laboring
people was that the means of production were not in the hands of the labor-
ing people but were instead in the hands of the exploiting class. The first
sentence in the “Gotha Program” written during the workers’ movement of
Germany in the 1870s under the influence of Lassalle was: “Labor is the
source of all wealth and culture.” On the surface, “labor” was accorded a
very high position, but Marx at once saw the theoretical error of this state-
ment. He pointed out that labor could create wealth and culture only by
combining with the means of production. Without the means of production
and without ownership of the means of production, what would happen to
labor? Marx sharply pointed out: “A person who has no other property be-
sides his labor power will always be enslaved by other people who possess
the means of production, regardless of the society or culture. He can labor
and exist only at the mercy of other people.” (2) The theory of Marxism
concerning the necessity for the proletariat to replace the system of private
ownership under capitalism by the system of public ownership under social-
ism before it can free itself has theoretically and politically smashed the ex-
ploiting class’s insane capitalist conspiracy to monopolize forever the means
of production and to exploit and enslave the laboring people. It has pointed
out the correct direction of struggle for the proletariat.
The development of the capitalist society makes it possible for the prole-
tariat and the laboring people to collectively possess the means of produc-
tion. To fully realize this possibility takes a fairly long historical process.
The proletariat must first crush the bourgeois state machinery and establish a
proletarian dictatorship before it can “eliminate the cause of poverty and sow
seeds of wealth,” transform the system of private ownership of the means of
production into a system of public ownership, and take the means of produc-
tion into its own hands. Only starting at this point will all exploitative sys-
tems be fundamentally negated and will the proletariat and the laboring peo-
ple be liberated economically and be on the socialist road to common afflu-
ence. On this road, there will still be plenty of struggles. Only by persistently
and firmly holding the fate of the socialist economy in its own hands can the
proletariat create favorable material conditions for the elimination of all
classes and class disparities and the realization of the great ideal of com-
munism. Once the means of production are lost and the fate of the socialist
economy is passed into the hands of the bourgeoisie and its agents in the
Party, the socialist economy will deteriorate and the proletariat and the la-
boring people will once again become “shivering and hungry slaves.” This
possibility exists throughout the whole historical stage of socialist society.

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 13. Socialist System of Public Ownership: Basis of Socialist Production Relations

Confiscation and Redemption Are Wavs to Establish the

System of Socialist State Ownership
Marx and Engels pointed out as early as over a hundred years ago that
after the proletariat seizes political power, “it will make use of its political
power to gradually seize all the bourgeoisie’s capital and put all the means
of production into the hands of the state, namely, the proletariat, the ruling
class.” (3)
Because of the highly developed social nature of the productive forces
under capitalism, it requires a social center which will centrally operate the
departments and enterprises in order to overcome the contradictions that
may arise between the socialization of production and the [inherited] capital-
ist private ownership. This social center is the socialist state under proletari-
an dictatorship. Only by first establishing a socialist system in which the
state owns the means of production and the proletariat and the laboring peo-
ple hold firmly to the economic life-line through their own state apparatus
can the capitalist exploitative system be completely eliminated.
Then, what are the means by which the proletariat can transform the
bourgeois ownership of the means of production into a socialist system of
state ownership? According to the experience of the international communist
movement and the Chinese experience, after the proletariat seizes political
power, big enterprises are immediately socialized, while medium and small
enterprises are gradually transformed,
In general, after the proletariat seizes political power, all enterprises, big
or small, coexist. Big capital represents the most reactionary [form of] pro-
duction relations, controlling the lifeblood of the national economy and seri-
ously impeding the development of social productive forces. It is also the
main economic substructure of bourgeois reactionary rule. Immediately after
the seizure of political power, if the proletariat fails to control the national
economy and lets the big capitalists take it over, the proletariat can never
consolidate its power. In summing up the experience of the Paris Commune,
Lenin pointed out that one of the two mistakes that buried the brilliant
achievements obtained by the Paris Commune was that big enterprises like
the bank, which affected the life pulses of the national economy, had not
been seized by the proletariat. Therefore, big capital must be immediately
confiscated by the socialist state. Big capital in China was the bureaucratic
capital. This was the comprador and feudal state monopoly capital possessed
by the bureaucratic bourgeoisie headed by Chiang Kai-shek. Chairman Mao
made a penetrating analysis of the reactionary nature of this capital and
pointed out: “The four big family clans of Chiang, Sung, K’ung, and Ch’en
amassed immense wealth amounting to ten to twenty billion dollars in the
twenty years of their rule and monopolized the lifeblood of China’s econo-
my. Monopoly capital, combined with state political power, became state

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Fundamentals of Political Economy
monopoly capitalism. This monopoly capitalism was closely associated with
foreign capitalism, the domestic landlord class, and old rich peasants to be-
come a comprador and feudal state monopoly capitalism.” (4) In the light of
the reactionary nature of bureaucratic capital, our Party clearly stipulated
early in the process of the democratic revolution the policy of confiscating
bureaucratic capital and “nationalizing it by the People’s Republic led by the
proletariat.” (5) This confiscation of bureaucratic capital was gradually real-
ized with the victorious development of the liberation war. The confiscation
of bureaucratic capital, which accounted for 80 percent of the fixed capital
assets in China’s manufacturing and transportation industries before the lib-
eration, eliminated the major portion of China’s capitalist economy and put
the proletarian political power in control of the lifeblood of the national
economy. The economic basis of socialism was thus established, creating
favorable conditions for the development of the socialist revolution and so-
cialist construction.
After the proletariat seizes political power, confiscates big capital, and
establishes a socialist economic basis, it is possible to gradually subject me-
dium and small capital to socialist transformation through redemption and
transform the capitalist system of ownership of the means of production into
a socialist system of state ownership. The class natures of medium and small
capital are the same as that of big capital. They are all embodied in the rela-
tion of the laboring people being exploited by the capitalist; they have inter-
ests contrary to those of the laboring masses and are the objects of socialist
revolution. However, there is still some difference among them, because
medium and small capital often possess the strong desire to develop capital-
ism but at the same time can also be coerced into redemption by the proletar-
iat under certain conditions. Marxism believes that “under certain condi-
tions, the worker will never refuse to redeem from the bourgeoisie.” (6)
Once the proletariat has seized political power and has controlled the life-
blood of the national economy, it will be advantageous to the proletariat if
these capitalists can be coerced to accept a redemption policy of the proletar-
iat and transform their capitalist enterprises into socialist enterprises.
In China, the national bourgeoisie possessing medium and small capital
assumed a dual character. In the period of democratic revolution, it assumed
a revolutionary character as well as a compromising character. In the period
of socialist revolution, it can be coerced into accepting socialist transfor-
mation, but it also has the strong reactionary desire to develop capitalism.
The industrial and commercial enterprises operated by this class played a
dual role in the reconstruction period of China’s national economy.
They played a constructive role in increasing production needed by the
national economy and the people’s livelihood, enlarging economic exchang-
es between the urban and rural areas, and maintaining employment. But they
also exploited the worker and did anything for profit, thus playing a negative
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 13. Socialist System of Public Ownership: Basis of Socialist Production Relations
role in socialist reconstruction and the people’s livelihood. In the light of the
dual character of the national bourgeoisie and the dual role of the national
capitalist economy, our Party formulated a policy to utilize, restrict, and
transform national capitalist manufacturing and commercial enterprises,
namely, utilizing their constructive role in the national economy and the
people’s livelihood, restricting their negative role, and gradually transform-
ing them into a part of the socialist state economy.
The socialist transformation of capitalist manufacturing and commercial
enterprises in China was conducted through various forms of state capital-
ism. This state capitalism was “one that could be restricted and whose scope
of operation could be regulated” (7) by the state under proletarian dictator-
ship. The primary form of China’s state capitalism consisted of processing,
ordering, unified procurements, and contract marketing in manufacturing
and of purchasing and distribution by commission in commerce. In this
form, the capitalist economy could be restricted to a certain extent in its di-
rection of production and operation and in the degree of exploitation. Even
so, this form did not change the nature of possession and control over the
means of production by the capitalist and could not fundamentally resolve
the antagonistic contradiction of the capitalist production relations obstruct-
ing the development of the productive forces. With the development of Chi-
na’s social productive forces, the objective requirement was to turn primary
state capitalism into advanced state capitalism, namely, joint state-private
operation. In joint state-private enterprises, the state sent cadres to do leader-
ship work. They managed the enterprise by relying on the working masses
and in accordance with state plans. This in effect forced the capitalist to give
up his control of the means of production in the enterprises. The exploitation
of labor by capital was severely restricted. This advanced form of state capi-
talism was divided into two stages in China’s practice, namely, joint state-
private operation in individual enterprises and then in whole industries. In
the stage of joint operation in individual enterprises, the capitalist participat-
ed in profit distribution according to his share in the total capital of the en-
terprise. The profit obtained by the capitalist increased with the development
of production. This was unfavorable to the full mobilization of labor enthu-
siasm among workers and to the accumulation of state capital. After the en-
tire industry was put under joint state-private operation, the capitalist was
allowed to receive only a fixed dividend, that is, fixed interest (about 5 per-
cent per annum) for a specific period of time, according to his share of the
fixed capital valued prior to the state-private joint operation. Thus, the capi-
talist’s right of ownership of the means of production was expressed exclu-
sively by a fixed dividend according to the size of his shares. Such joint
state-private enterprises were basically socialist enterprises. At the end of the
period in which fixed interest was payable to the capitalist as stipulated by
the state and no more fixed interest was paid out, state-private enterprises
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Fundamentals of Political Economy
became enterprises under the full-fledged socialist state ownership system.
Under proletarian dictatorship, there is no difference between the trans-
formation of medium and small capital and that of big capital. But this does
not imply the absence of class struggle. In fact, acute class struggle between
the proletariat and the bourgeoisie runs through the whole process of the
socialist transformation of capitalist industry and commerce. This struggle is
manifested as a struggle between restriction and counter-restriction, trans-
formation and counter-transformation. In the spring of 1950, in order to sta-
bilize prices, there was a struggle against speculative activities. In 1951,
there was the “Five Anti” struggle against bribery, tax theft and evasion,
theft of state property, shoddy workmanship and inferior materials, and theft
of state economic secrets. In 1957, there was a struggle against the frantic
attacks from the rightists. These were acute class struggles. These class
struggles were also reflected in the Party itself as struggles between the two
lines. The revisionist clique of Liu Shao-ch’i repeatedly peddled the non-
sense that capitalist “exploitation is meritorious” and opposed the socialist
transformation of capitalist industry and commerce in an attempt to preserve
capitalist influence. The revisionist clique of Kao Kang and Jao Shu-shih, on
the other hand, conspired to seize supreme Party and state power to meet the
needs of the bourgeois opposition to socialist transformation. Under the
leadership of the Party Central Committee headed by Chairman Mao, the
conspiracies of these renegades were crushed in time, their revisionist lines
were criticized, and a victory in the socialist transformation of capitalist in-
dustry and commerce was finally won. This fact demonstrated that only by
firmly adhering to the struggle of the proletariat against the bourgeoisie, the
Marxist line against the revisionist line, and effectively discouraging a hand-
ful of reactionary capitalists and their agents in the Party who opposed the
socialist revolution and who were hostile to and sabotaged the socialist con-
struction could the national bourgeoisie be forced to gradually accept social-
ist transformation.
The Socialist System of State Ownership Possesses Immense
Superiority
The replacement of capitalist private ownership by socialist state owner-
ship represents a revolutionary leap in production relations. The socialist
system of state ownership is a public ownership system in which both the
means of production and the products are possessed by the proletarian state
representing the whole laboring people. The appearance of the socialist sys-
tem of state ownership shows that the liberated laboring people have not
only become the ruling class of society, but have also become masters of the
economy.
In China, the scope of socialist state ownership includes mineral depos-
its, rivers, and territorial waters; forests, virgin land, and other natural re-
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13. Socialist System of Public Ownership: Basis of Socialist Production Relations
sources designated to the state by law; and enterprises such as railways,
postal and communications services, banks, state plants, farms, and com-
merce. As the representative of the whole laboring people, the state owns the
means of production and sees that they are allocated rationally and in a uni-
fied manner. This creates a new situation in human history in which, for the
first time, the national economy is systematically developed, and it paves the
way for the development of social productive forces.
The socialist state ownership system is a socialist public ownership sys-
tem that conforms to the highly social nature of production. In modern in-
dustries, departments and enterprises are interconnected and mutually de-
pendent. They are all integral organic constituents of the whole social pro-
duction. The appearance of the socialist system of state ownership is an in-
evitable result of the contradiction between the highly social productive
forces and capitalist private ownership in modern industries. Only with so-
cialist state ownership can the contradictions between the social nature of
production and the private ownership of the means of production in the capi-
talist society and the contradiction between the organized nature of produc-
tion in individual enterprises and the chaotic nature of production in the
whole society be resolved; only thus can the serious waste and destruction of
productive forces and products due to the capitalist system and the extrava-
gant waste practiced by the bourgeoisie and its political representatives be
eliminated. The large quantities of the means of production and products
thus saved for the whole society can be used to promote a more rapid devel-
opment of the productive forces.
The state economy based on the socialist system of state ownership con-
trols the lifeblood of the national economy. It possesses modern industries
and transportation industries. State-operated industries furnish large quanti-
ties of machines, materials, equipment, fuels, and motive power to promote
technical improvement in various departments of the national economy.
They furnish large quantities of tractors, harvesters, transport equipment,
electricity, fuels, chemical fertilizers, and pesticides to promote agricultural
mechanization. They also accumulate large quantities of capital for the eco-
nomic, cultural and defense constructions of the state. The socialist state
economy is an economic factor that occupies a leading role in the whole na-
tional economy. It is the material basis from which the state pursues socialist
revolution and construction. The socialist transformation of agriculture, the
handicraft industry, and capitalist industry and commerce in China was real-
ized under the leadership and guidance of the state economy. After the so-
cialist transformation was basically completed, the consolidation and devel-
opment of the collective economy was also related to the leading role of the
state economy. The socialist state economy is a strong material force for
consolidating proletarian dictatorship.
In agriculture, the economy under the socialist state ownership system is
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mainly the state farm. In China, the state farm assumes some roles different
from the collective economy: (l) In addition to capital accumulated by the
farm itself, investment can also come directly from the state when necessary
to accelerate agricultural mechanization to permit the state farm to play a
leading and demonstrating role. (2) The state farm is an important base for
the state to conduct agricultural scientific experiments. Scientific experi-
ments that require more specialized research personnel, more funds, and a
long period to arrive at useful results often cannot be conducted by the col-
lective economy in the countryside because of manpower, material, and fi-
nancial constraints. The state farm, on the other hand, can concentrate man-
power, material resources, and funds under a unified plan to conduct various
scientific experiments and extend the useful results — superior strains and
advanced experience — to agricultural people’s communes in good time. (3)
The state farm is superior to the collective economy in the large-scale recla-
mation of virgin land, afforestation, and lumbering.
In China, there is still another form of the socialist state ownership sys-
tem. This is the production and construction military corps. It is a compre-
hensive economic unit under the state ownership system which includes ag-
riculture, industry, transportation, and construction. It is usually established
in frontier areas with extensive lands and sparse population and performs an
important task in building and defending the frontier region and strengthen-
ing national defense. The old workers, revolutionary cadres, and educated
youths working in the production and construction military corps are an in-
dustrial army engaged in economic construction and also a strong combat
army in defending the frontier region. This form of economy under the state
ownership system assumes a special significance in consolidating proletarian
dictatorship.

There Will Be No Completed Socialism without

Agricultural Socialization
It Is Necessary to Subject the Small Peasant Economy to
Socialist Transformation
After the proletariat seizes political power, it is often faced with a large
number of individual economies in addition to highly social capitalist econ-
omies. These economic components can be found in agriculture, the handi-
craft industry, transportation, and commerce but are most numerous and
widespread in agriculture. Those participating in individual economic activi-
ties are individual laborers. The individual household is a unit of production
and operation. Though they do possess some negligible amount of the means
of production, their lot is uncertain, and they can be reduced to bankruptcy at
any moment by the capitalist economy. When the proletariat overthrows

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13. Socialist System of Public Ownership: Basis of Socialist Production Relations
bourgeois rule and establishes a socialist state ownership system of the
means of production, can the individual economies be allowed to continue
their operation? No. Chairman Mao said, “Socialism is not completely con-
solidated without agricultural socialization.” (8) Here, what we have to ana-
lyze is the issue of what road individual agricultural economies should fol-
low under the socialist condition, because the road followed by individual
agricultural economies is also in principle the road followed by other indi-
vidual economies, such as the individual handicraft industry.
The socialist state ownership system established by the proletariat after
the seizure of political power is the economic basis of the state under prole-
tarian dictatorship. But, as a form of private economy, the small peasant
economy is in conflict with the socialist public ownership system and with
the superstructure of proletarian dictatorship. Because of this, the small
peasant economy based on private ownership is a hotbed of capitalism. It
will certainly polarize the peasantry into a majority of poor peasants and
farm laborers and a minority of rich peasants who constitute the bourgeoisie
in the countryside. Lenin pointed out, “Small-scale production regularly,
continually, spontaneously, and abundantly produces capitalism and the
bourgeoisie.” (9) In China’s people’s democratic revolution, thoroughly re-
forming the land system, confiscating land from the feudal class, and dis-
tributing it to the peasants in order to liberate the broad masses of peasants
from the feudal system was a great victory. But after land reform, there is
still a question of where the individual peasants should go. Should they fol-
low the capitalist road or the socialist road? After China’s land reform, the
following conditions appeared within a few years: Spontaneous capitalist
tendencies developed steadily. New rich peasants appeared everywhere, and
many rich middle peasants tried very hard to become rich peasants. Many
poor peasants were still suffering from poverty because of insufficient
means of production. Many of them were in debt. Some had to sell or rent
their land. These conditions demonstrated that if after land reform the prole-
tariat did not immediately lead the broad masses of peasants to take the so-
cialist road and subject the small peasant economy to socialist transfor-
mation in good time but instead let it polarize, then those rich middle peas-
ants who were bent on taking the capitalist road would be further and further
removed from the interests of the working class, and those peasants who had
recently lost their land again and were still beset by poverty would also
complain that the proletariat did not rescue them and help them solve their
problems. Thus the worker-peasant alliance established on the basis of land
reform would face the danger of collapse. It would also threaten proletarian
dictatorship and the consolidation of the socialist economic basis.
After land reform, the small peasant economy based on private owner-
ship played a certain role in recovering and developing agricultural produc-
tion. But it was, after all, a backward production relation. Individual and
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Fundamentals of Political Economy
scattered operation made it impossible to adopt advanced techniques and
modern farm tools, powerless against natural calamities, and impossible to
sustain expanded reproduction. Therefore, it was not capable of satisfying
the socialist economy’s demand for commodity food grain, industrial raw
materials, and increased labor power; nor could it provide a large domestic
market for industrial development, and it was thus in sharp conflict with so-
cialist industrialization. To resolve this contradiction, it was necessary for
the proletariat to take suitable measures to lead the scattered and backward
small peasant economy onto the socialist road.
How can the small peasant economy be led onto the socialist road?
Getting Organized Is a Necessary Road for the Socialist
Transformation of the Small Peasant Economy
The peasant is a laborer and is an ally of the proletariat. The means of
production privately owned by the individual peasant cannot be expropriat-
ed. Engels once pointed out: ‘When we control the state power, we will nev-
er use force to expropriate the small peasant (it is the same whether the ex-
propriation is paid for or not) as we must do with the big landowners. Our
task with the small peasant is first of all to convert private production and
possession into production and possession by the cooperative, not through
force, but through demonstration and social assistance.” (10) This is to say,
agricultural cooperativization is realized by getting organized. “This is a
necessary road through which the people become liberated and a necessary
road from poverty to affluence.” (11) In China, the broad masses of poor and
lower-middle peasants were quite susceptible to socialist transformation.
Among them was an immense activism for the socialist road. Part of the rich
middle peasants were skeptical of the socialist road, while the landlords and
rich peasants tried hard to sabotage it. Therefore, on the question of whether
agricultural cooperativization should be implemented, there existed from the
very beginning a serious struggle between the socialist and the capitalist
roads. This struggle was manifested as a serious struggle between the two
lines when it was reflected in the Party itself.
The Liu Shao-ch’i and Ch’en Po-ta clique, representing the interests of
the bourgeoisie and the rich peasants, proposed a revisionist line of “mecha-
nization first, cooperativization later.” They attacked with full force, saying
that to realize cooperativization before mechanization was “erroneous, dan-
gerous, and illusory agricultural socialism,” in a vain attempt to lead the in-
dividualistic economy onto the evil road of capitalism. The Party Central
Committee headed by Chairman Mao resolutely defended the interests of the
proletariat and the poor and lower-middle peasants. It analyzed the actual
conditions of China’s countryside and formulated a basic Party line for agri-
culture: the first step was to implement agricultural collectivization, and the
second step was to achieve agricultural mechanization on the basis of agri-
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13. Socialist System of Public Ownership: Basis of Socialist Production Relations
cultural collectivization. This was a Marxist line. To counter the fallacies
peddled by Liu Shao-ch’i and company, Chairman Mao pointed out, “Under
the present conditions in our country, we must have cooperativization before
we can have massive mechanization (in capitalist countries agriculture has
turned into capitalism).” (12) Chairman Mao’s revolutionary line was thor-
oughly implemented in China. In the process of agricultural cooperativiza-
tion, the whole Party firmly relied on the poor and lower-middle peasants to
unite solidly with other middle peasants to wage a resolute struggle against
the landlords and the rich peasants and effectively boycotted the revisionist
line of the Liu Shao-ch’i clique. As a result, agricultural cooperativization
was realized triumphantly in a very short time.
The process of China’s socialist transformation of agriculture was the
process of contradiction between the production relations and the productive
forces in the countryside. The process of transformation went through three
stages, proceeding step by step one after another. In the beginning, mutual-
aid teams with certain socialist elements were organized to train the peasants
in collective labor in order to demonstrate that their production would in-
crease faster than that of the individual operations. But there was a contra-
diction between group labor and scattered operation in the mutual-aid team.
Had this contradiction not been resolved, it would have been difficult to fur-
ther exploit the superiority of getting organized. At that time, guided by cir-
cumstances, the peasants were led to organize primitive agricultural produc-
tion cooperatives of a semisocialist nature. In these primitive cooperatives,
privately owned land was jointly operated by the cooperative, while private-
ly owned livestock and large farm tools were jointly used by the cooperative,
thus resolving the contradiction between group labor and scattered operation
in the mutual-aid team. Production was further promoted. But the primitive
cooperative still retained “land dividends” and certain remuneration for the
use of privately owned livestock and large farm tools. The private ownership
system of the means of production had not been abolished. There still exist-
ed a contradiction between joint operation and collective labor and the pri-
vate ownership of land and other means of production. Had this contradic-
tion not been resolved, the activism of the broad poor and lower-middle
peasants would not have been fully mobilized. At that time, guided by cir-
cumstances, the Party once again led the peasants to form completely social-
ist advanced agricultural production cooperatives. Based on the system of
collective ownership of the means of production by the laboring masses, the
advanced cooperative implemented the socialist principle of “from each ac-
cording to his ability and to each according to his labor.” It was a completely
socialist collective economy. The policy of proceeding phase by phase ac-
cording to the actual circumstances was instrumental in gradually accustom-
ing the peasant to collective labor and collective operation, getting him to
relinquish the concept of private ownership, and mobilizing his socialist ac-
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Fundamentals of Political Economy
tivism to willingly join the cooperative. Therefore, in the whole process of
cooperativization, not only was agricultural production not reduced, it in-
creased year after year, fully demonstrating the incomparable correctness of
Chairman Mao’s revolutionary line.
After completing land reform, the socialist transformation of agriculture
was basically completed in China’s broad countryside in less than four
years. Agricultural cooperativization was realized, and the vast individual
ownership system was transformed into a socialist collective ownership sys-
tem of the laboring people. The realization of agricultural cooperativization
further liberated the productive forces, strengthened the socialist stronghold
of the proletariat in the broad countryside, consolidated the worker-peasant
alliance, and consolidated proletarian dictatorship. The implications of this
were profound.
China’s Rural People’s Commune Is an Important
Development of the Collective Ownership System
After the establishment of the socialist system of collective ownership
by the laboring masses, there followed a process of gradual development and
improvement. With the development of the productive forces and the eleva-
tion of the socialist consciousness of the laboring masses, small collectives
developed into bigger collectives, and collectives with a lesser degree of
public ownership developed into collectives with a higher degree of public
ownership. This is an objective law. In 1958, under the guidance of the Par-
ty’s General Line for Socialist Construction, under the impetus of the Great
Leap Forward, and in accordance with the need for developing the produc-
tive forces in the countryside, China’s rural people’s commune rose over the
broad horizon of East Asia like an early rising sun. The broad masses of
poor and lower-middle peasants dearly loved the people’s commune. They
wrote numerous folk songs to praise its birth. One of them went as follows:
Individual operation is like a single plank bridge,
It rocks three times with every step;
Mutual aid is like a stone bridge,
That does not stand up well to wind and rain;
The iron bridge is not bad,
But it cannot handle heavy traffic;
The people’s commune is a golden bridge,
That leads the way to Heaven.
The scale of the people’s commune was one per hsiang, formed by
merging several advanced agricultural production cooperatives in a hsiang.
It is an organization combining administration with production and includes
the worker, the peasant (including forestry, livestock husbandry, sidelines,
and fishery), the trader, the student, and the soldier. It is the basic unit of
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13. Socialist System of Public Ownership: Basis of Socialist Production Relations
China’s socialist society in the countryside. It is also a basic unit of China’s
government in the countryside. For a fairly long historical period to come, it
will be the collective economic organization of socialism based on mutual
aid and benefit. However, when the advanced agricultural cooperative de-
veloped into the people’s commune, the scale of operation was expanded,
and the share of the means of production owned by the public was also in-
creased. Its characteristic was “big and public.” This was an important de-
velopment in China’s socialist system of collective ownership by the labor-
ing masses.
At the present stage, the basic system of “three-level ownership with the
production team as the basis” is in force in China’s rural people’s com-
munes. In the three-level ownership system, the collective ownership system
at the commune and brigade levels is partial. The collective ownership sys-
tem at the production team level is basic. The production team is the basic
accounting unit in the people’s commune. It has independent accounting and
is responsible for all its profit and loss. It directly organizes production and
distribution. This is because agricultural production at the present stage still
basically relies on manual labor and draft animals. Although the degree of
agricultural mechanization steadily increased after the establishment of the
people’s commune, the condition of manual labor is still dominant over the
country as a whole. At the present stage, it is generally appropriate to have
twenty to thirty households in a production team, forming a basic accounting
unit for organizing production and distribution. This is favorable to organiz-
ing production and strengthening management, mobilizing the socialist ac-
tivism of the broad commune members, inspiring them to be more con-
cerned with the collective and strengthening the supervision of cadres.
Above the production team, there are the collective economies of the brigade
and the commune. With the development of the collective economy in which
the degree of socialization in these two levels is comparatively high, it is
financially possible to purchase large- and medium-size farm machinery,
engage in rural capital construction, such as water conservation and the run-
ning of small factories and mining enterprises, and at key points, assist weak
production teams to hasten the development of the collective economy.
These activities are too big for the production team to carry out. Collective
ownership with three different levels constitutes the basic unit of economic
accounting of the rural people’s commune. It is an indivisible, integral unit.
Such collective ownership comprising three levels is exceedingly flexible in
coping with the different conditions and diversified demands accrued in de-
veloping rural productive forces and is therefore conducive to the rapid de-
velopment of social productivity.
In the collective economy of China’s rural people’s commune, the
commune member is permitted and encouraged to make use of his free time
and holidays to engage in family sidelines (including self-retained land as-
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Fundamentals of Political Economy
signed to him) as long as the collective economy is first well taken care of,
its development is not hindered, and it is in a dominant position. Family
sidelines are remnants of the individual economy. But under socialism, they
supplement the socialist economy and are subordinate to the economy based
on the collective ownership system and the state ownership system. For a
period of time during socialism, the retention of family sidelines by the
commune member can help to fully utilize the labor power of the country-
side, increase the social product, improve the livelihood of the commune
member, and enliven the rural trade fair. But leadership must be strength-
ened to prevent aimless drift.
The collective ownership system of China’s rural people’s commune
with “three-level ownership and with the production team as the basis” will
stay as it is for years to come. However, with the gradual improvement of
various conditions (for example, with a higher degree of agricultural mecha-
nization, a smaller gap in the income among production teams, and the grad-
ual elevation of the socialist consciousness of the broad commune mem-
bers), China’s rural people’s commune will gradually pass from the present
ownership system based on the production team to a future ownership sys-
tem based on the brigade and the commune, and then from there gradually to
a socialist state ownership system. This will be a long process of gradual
development.
Like the collective ownership system in agriculture, the collective own-
ership system of the handicraft industry also involves a long process of pass-
ing from small collectives to big collectives and then from big collectives to
a socialist state ownership system.
The development of the collective ownership system from the small to
the big, from the low to the high, and from collective ownership to state
ownership is all based on a gradual improvement of the productive forces
and the socialist consciousness of the people. It would be a mistake to at-
tempt to change the situation in a hurry when the necessary conditions do
not exist. It would also be a mistake to be content with the status quo when
the necessary conditions do exist. These two tendencies will discourage the
socialist activism of the masses and are unfavorable to the development of
the productive forces. They may even impede the development of the pro-
ductive forces. In the process of transforming the advanced agricultural pro-
duction cooperative to the rural people’s commune in China, these two
tendencies did exist. The appearance of the people’s commune is a natural
result of the economic and political development in China and is completely
in line with the phenomena of objective laws. But the revisionist clique of
Liu Shao-ch’i and Lin Piao maliciously attacked the formation of the peo-
ple’s commune as “premature and messy.” When the strong tide of the peo-
ple’s commune overwhelmed the countercurrent fanned up by them, they
clamored for “a leap toward communism,” urging the start of a “communist
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13. Socialist System of Public Ownership: Basis of Socialist Production Relations
wind” in a vain attempt to sabotage the socialist character of the people’s
commune. From now on, there will be struggle between the two classes, the
two roads, and the two lines in the development process of the economy
based on a socialist collective ownership system of the laboring masses. This
is inevitable and not in the least surprising.
Although the socialist collective ownership system of the masses and
the state ownership system are both socialist public ownership, they are dif-
ferent. The economy’s means of production under collective ownership are
not the public property of the country’s laboring masses, but are the property
of the laborers of the cooperative. Therefore, manpower, materials, and fi-
nancial resources are not transferable without compensation between the
state and the cooperative; nor are they transferable without compensation
between cooperatives. The existing disparities in income levels between co-
operatives cannot be artificially eliminated. The only way to do it is to help
the low-income cooperatives to grasp revolution and raise labor productivity
in order to gradually narrow the gap.

The Socialist Public Ownership System Consolidates

and Develops through Struggle
The Serious Lesson of the Restoration of the Capitalist
Ownership System in the Soviet Union
Since the Khrushchev-Brezhnev renegade clique restored bourgeois dic-
tatorship, the socialist public ownership system established under proletarian
dictatorship has been completely transformed into a new system of owner-
ship by the bureaucratic monopolist bourgeoisie. This is a serious lesson.
The event demonstrates that after the establishment of the socialist public
ownership system, the two possibilities of advance in the communist direc-
tion or retreat in the capitalist direction still exist.
Marxism tells us that the nature of the ownership system of the means of
production is ultimately determined by which social group possesses the
means of production and which social groups they serve. How should we
observe such possession and service? In Capital, Marx quoted Aristotle’s
remark that “the status of the master rests not so much on he who purchases
the slave as on he who lords over him.” Marx continued, “the status of the
capitalist is established not so much by his ownership of the capital — which
provides him the power to purchase labor — as by his power to employ the
laborer, that is, the wage earner, in the process of production.” (13)
Today, a glimpse at the way the Soviet proletariat and laboring people
are employed will demonstrate the substance of Soviet revisionism, that is,
that Brezhnev and his associates, wearing a cloak of socialist public owner-
ship, have usurped the Soviet people’s means of production to serve the bu-

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Fundamentals of Political Economy
reaucratic monopolist bourgeoisie.
In the regulations governing the socialist state-operated production en-
terprises, the Soviet revisionists stipulate: “The authority over production
and management shall be exercised by the manager (administrator or direc-
tor) in conjunction with other responsible personnel designated in accord-
ance with the division of their duties.” The manager of the enterprise has the
authority to determine the level of employment and the strength of the per-
sonnel; to recruit or dismiss employees; to grant awards or mete out penal-
ties; to fix wage scales and bonuses; to sell, rent, or lease the means of pro-
duction of the enterprise; and to appropriate various “economic incentive
funds” which are stipulated by the Soviet revisionist leadership as being re-
served for the enterprise’s own allocation.
The Soviet revisionist “Regulations Governing the Model Collective
Farms” stipulate that the chairman of the collective farm possesses the au-
thority to rent, lease, or transfer the land owned by the state; to appropriate
farm funds, or even to freely buy or sell the means of production, such as
agricultural machines; and to decide the labor remuneration and bonuses of
the farm members, hire outside people to work at the farm, and so forth.
These “managers,” or “farm chairmen,” have this and that power. What
powers do the laboring people have? None. Their ownership rights to the
means of production have all been expropriated by the bureaucratic monopo-
list bourgeoisie. By reducing the laboring people of the Soviet Union to
wage laborers “in the production process,” the bureaucratic monopolist
bourgeoisie has proved that it is the bureaucratic monopolist bourgeoisie.
According to Soviet revisionist magazines, the monthly piecework wages of
a lathe operator in a state enterprise in the Soviet Union are as low as 50 to
60 rubles. Medium wages are 70 to 80 rubles. But what the manager, plant
director, and other bureaucratic monopolist bourgeois elements get in the
way of wages, bonuses, subsidies, and other “legal” means is more than ten
times, or even several tens of times, that of the worker. The net monthly in-
come of an ordinary farmer is less than 60 rubles. But the monthly income of
a farm chairman is generally about 300 rubles. Some reach more than 1,000
rubles. One old Soviet worker with more than thirty years of experience
said: ‘We have a lot of millionaires here.” “They are different from us not
only in standard of living
but also in language.” A manager of the construction trust of the Soviet
revisionist Ministry of Agriculture frantically exclaimed: “The trust is my
home. I am the master. I do what I like.” The kind of tree determines the
kind of flower, and the kind of class determines the kind of talk. From their
different standpoints and different angles, the laboring people and the bu-
reaucratic monopolist bourgeoisie demonstrate one point: The bureaucratic
monopolist bourgeoisie has become the lords in production. Like the capital-
ists, they “do what they like.” On the other hand, the broad masses of labor-
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13. Socialist System of Public Ownership: Basis of Socialist Production Relations
ing people have been reduced to wage laborers in production. They are en-
slaved and exploited and are suffering miserably.
The fact that the socialist public ownership system of the Soviet Union
has completely degenerated is shocking. This demonstrates that after the
socialist public ownership system is established, it will not automatically
consolidate and become perfect; there will be a long process of struggle.
The ownership system is not an object; it is a social relationship. The
socialist public ownership system embodies, for the laboring people, a social
relationship in which the means of production are equally possessed and
everybody is a master. On the other hand, it also embodies a relationship in
which the proletariat and the laboring people expropriate the expropriator
and rule over and transform all members of the exploiting class. In these
social relationships, the proletariat and the laboring people must consolidate
their gains obtained through expropriation, strengthen the rule over, and the
transformation of, members of the exploiting class in order to consolidate
and perfect the socialist public ownership system by constantly sweeping
away the corrosion and sabotage of the exploiting class. On the other hand,
the bourgeoisie and all exploiting classes will resist this kind of rule and
transformation in order to transform the socialist public ownership system
into a capitalist private ownership system through constant corrosion and
sabotage. The contradictions and the struggles between the proletariat and
the bourgeoisie on the question of the ownership system are multifaceted.
But they are mainly manifested in the struggle for leadership over the econ-
omy which is based on a socialist public ownership system. Whoever seizes
leadership becomes the de facto master of the ownership relations. Once the
leadership falls into the hands of the bourgeoisie or its agents, the socialist
public ownership system not only cannot be consolidated or improved, it
will certainly degenerate. It is exactly because a handful of persons in power
in the Soviet Union taking the capitalist road has stolen the leadership of the
economy based on a socialist public ownership system that the socialist pub-
lic ownership system has been transformed into an ownership system of the
bureaucratic monopolist bourgeoisie and that the proletariat and the laboring
people of the Soviet Union have been transformed from masters of a social-
ist public ownership system into slaves of an ownership system of the bu-
reaucratic monopolist bourgeoisie. Since the Khrushchev-Brezhnev rene-
gade clique usurped the supreme power of the Soviet Union’s Party and
state, capitalism has been completely restored.
Struggle for the Consolidation and Development of the
Socialist Public Ownership System
After the establishment of socialist public ownership, the issue of the
ownership system has still not been completely resolved. There still exist the
two possibilities of advancing toward socialism or retreating back to capital-
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Fundamentals of Political Economy
ism. This reveals to the proletariat and the broad masses of laboring people
an historical task: they must constantly struggle for the consolidation and
development of the socialist public ownership system.
To consolidate and develop the socialist public ownership system, it is
necessary first of all to ensure that the socialist economic leadership is in the
hands of the Marxists and the broad laboring masses.
The socialist public ownership system demonstrates that the proletariat
and the laboring people are the masters of the means of production. But, how
can one tell whether they are in fact masters of the means of production?
That depends on their role in the production process. In capitalist society, the
laborer is used in the production process as labor power by the capitalist.
Through the use of labor power, the capitalist extracts as much surplus value
from the laborer as possible. The laborer is merely a paid slave. The capital-
ist is the real master. This leads to acute opposition between the worker and
the capitalist. In socialist society, the role of the laborers in the production
process is completely different. They participate in the production process as
masters. They create wealth for society through conscious labor. Then, who
organizes this production process? Ultimately, it should be the laborer him-
self. Naturally, this does not mean that all laborers directly organize and
manage production. The broad laborers appoint representatives through the
state and the collective, or they elect representatives to organize production.
But here a problem arises: If the broad laborers delegate to their representa-
tives the power to organize production, can these representatives represent
the interests of the proletariat and the laboring people in organizing produc-
tion? After the laborer has delegated his power to organize production to a
representative, is there any power left to the laborer himself? This problem
has occurred in history. At the end of the primitive commune, public serv-
ants of society elected by commune members gradually became masters of
society, and this finally led to the disintegration of the ownership system of
clan communes and the emergence of private ownership. This reflected a
progressive movement in history at that time. In today’s Soviet Union, those
who organize production do not represent the interests of the proletariat and
the laboring people at all. They represent instead the interests of the bureau-
cratic monopolist bourgeoisie. The socialist public ownership system of the
bureaucratic monopolist bourgeoisie has become the economic basis of So-
viet society. This is a big historical retrogression. Under China’s proletarian
dictatorship, similar conditions have appeared in certain areas. Before the
Great Proletarian Cultural Revolution, the real leadership of some units,
though nominally under the socialist public ownership system, had been
usurped by a handful of renegades, special agents, and capitalist- roaders. Or
it was still in the hands of former capitalists. As a result of the Great Prole-
tarian Cultural Revolution launched and led by Chairman Mao personally,
the leadership of these units was returned to the broad laboring masses who
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 13. Socialist System of Public Ownership: Basis of Socialist Production Relations
held high the red banner that “it is justified to rebel against the reactionary,”
and “lessons from history are noteworthy.” The Tenth National Party Con-
gress summed up rich experience and lessons and clearly pointed out:
“Leadership in the base organization must be strengthened so that the leader-
ship is really in the hands of the Marxists, the workers, the poor and lower-
middle peasants, and other laboring masses. The task of consolidating prole-
tarian revolution must be put into effect in every base unit.” (14) This has
decisive significance in consolidating and developing the socialist public
ownership system.
To ensure that the leadership of the enterprise under the state economy
and the collective economy is in the hands of the Marxists, the proletariat
and the laboring people must engage in a resolute struggle with the rene-
gades, special agents, and capitalist-roaders who have usurped the leadership
and win it back. This type of struggle cannot be resolved with one Great
Cultural Revolution. In their futile restoration attempt, the bourgeoisie will
try everything to usurp the leadership of the state and the collective econo-
my. At the same time, the representatives (cadres of various levels) of the
proletariat and the laboring people who control the leadership of the state
and the collective economy must strengthen the transformation of their
world outlook and try hard to become Marxists so that they can truly repre-
sent the interests of the proletariat and the laboring people. If they do not
work hard in this direction, it is possible that under the influence of the
bourgeois world outlook, they may go against the interests of the proletariat
and the laboring people in the process of organizing production. Some peo-
ple are interested in material incentives, profit, and restrictive measures in
their operation and management of the socialist economy. In other words,
they do not treat the laboring people as the masters of the socialist enter-
prise. This will inevitably impede and weaken the socialist public ownership
system. If this trend continues, the socialist public ownership system will
degenerate. In the Great Proletarian Cultural Revolution, the broad masses
and cadres criticized and repudiated this tendency. But, under certain condi-
tions, things that have been criticized and repudiated can appear again. At
the beginning of 1974, some of the workers in the No. 5 Loading and Un-
loading District of the Shanghai Harbor Affairs Bureau posted a big-
character poster entitled “Be the Masters of the Wharf, Not the Slaves of
Tonnage.” It pointed out: “The leadership does not treat the workers as mas-
ters of the wharf. Instead they are treated as the slaves of tonnage. This is a
reflection of the revisionist line in running an enterprise.” These words hit
the crux of the consolidation and development of the socialist public owner-
ship system and are of universal practical significance.
In order that the leadership of the state economy and the collective
economy really be in the hands of the Marxist, it must also really be in the
hands of the workers, poor and lower-middle peasants, and other laboring
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Fundamentals of Political Economy
masses. These two aspects are inseparable. Since the laboring masses are the
masters of the socialist economy, it does not mean that they no longer have
the right to interfere once the leadership has been delegated to a few repre-
sentatives. The revisionist “one-head system" championed by the Soviet re-
visionists is an institutionalization of this viewpoint. Facts have demonstrat-
ed that this is a chloroform spread by the bourgeoisie and its agents in order
to usurp leadership. Engels once pointed out: “The inevitable result of indi-
vidual management of industries is private ownership." (15) If the leadership
of the enterprise under the socialist ownership system is not in the hands of
the workers, poor and lower-middle peasants, and other laborers, the revi-
sionist “one-head system" will proliferate. Under the revisionist “one-head
system," the laboring masses are in effect separated from the means of pro-
duction. They listen to the orders from the “head." Without leadership over
the enterprise, they are no longer masters of the enterprise. If this develops,
they will be treated as pure labor power in the production process by the
“head." The laboring masses will no longer have the right to question
whether this production process serves the interests of the proletariat and the
laboring people. This way, socialist enterprises will gradually slide into the
mudhole of capitalism. But when leadership of the enterprise is really in the
hands of the Marxists and the workers, poor and lower-middle peasants, and
other laboring masses, the position of the laboring masses as masters of the
enterprise will surely be guaranteed. As masters, they will fully mobilize
socialist activism. If some bad people usurped leadership of the enterprise,
the laboring masses would take it back under the Party’s leadership. This has
been proven more than once by the practice of China’s socialist revolution,
especially since the Great Proletarian Cultural Revolution. It will be proven
again.
The crux of the question concerning who controls the leadership of the
socialist economy lies in whether or not the line implemented by the de-
partments in charge of production operation or economic management repre-
sents the interests of the proletariat and the laboring people. The revisionist
line always goes against the interests of the proletariat and the laboring peo-
ple. It fosters material incentives, profit, and restrictive measures. On the
other hand, according to socialist principles, the Marxist line always insists
on having revolution guide production and strengthening operation man-
agement by relying on the masses as the masters. Therefore, firmly adhering
to the Marxist line and criticizing and repudiating the revisionist line is the
ultimate guarantee for the consolidation and development of the socialist
public ownership system.
To consolidate and develop the socialist public ownership system, it is
also necessary to implement various policies of the Party. Party policies are
concrete manifestations of the Party line. To firmly adhere to the proletarian
revolutionary line, it is necessary to seriously implement various policies of
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13. Socialist System of Public Ownership: Basis of Socialist Production Relations
the Party. For example, it is necessary to correctly handle the relations be-
tween the center and the locality to mobilize dual activism within the econ-
omy under the state ownership system, and it is necessary to correctly handle
the relations between the state and the enterprise so that the enterprise can
fully take the initiative in operation and management under the unified lead-
ership of the state. Also, in the collective economy of the rural people’s
commune, it is necessary to correctly implement the present stage’s basic
system of “three-level ownership with the production team as the basis” in
order to fully mobilize the socialist activism of the three-level collective
economy of the commune, the brigade, and the production team. While ac-
knowledging the existence of disparities among brigades, among teams, and
among communes, we must strive to create favorable conditions narrowing
such disparities in order to follow the socialist path to common affluence.
To consolidate and develop the socialist public ownership system, so-
cialist education must be strengthened. The socialist public ownership sys-
tem is built on the basis of eliminating the private ownership system. But
“remnants reflecting the old system and the old ideology will long stay in
people’s minds and will not retreat easily.” (16) This remnant of the old ide-
ology based on the old private ownership system is manifested in many as-
pects. It is in conflict with the socialist public ownership system. Only by
strengthening education on ideology and political line, constantly elevating
the political consciousness of the broad cadres and masses, and firmly estab-
lishing the proletarian world outlook can the consolidation and development
of the socialist public ownership system be effectively promoted.
To consolidate and develop the socialist public ownership system, it is
also necessary to enthusiastically develop social productive forces. The so-
cialist public ownership system creates favorable conditions for the devel-
opment of social productive forces, while the further development of social
productive forces must provide a material basis for the further consolidation
and development of the socialist public ownership system. The acceleration
of socialist industrialization will strengthen the socialist state economy. The
acceleration of agricultural mechanization and the constant development of
agricultural productive forces will strengthen the collective economy and
thus promote the further consolidation and development of the collective
ownership system. Therefore, resolutely implementing the policy to “grasp
revolution, promote production” and developing the socialist economy with
greater, faster, and better results at lower costs are important conditions for
the consolidation and development of the socialist public ownership system.
The process of consolidating and developing the socialist public owner-
ship system is a long process of struggle between the two classes, the two
roads, and the two lines. The road of struggle is very long, the task is very
heavy, and we must fight with all our strength!

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Fundamentals of Political Economy

Major Study References

Marx, Communist Manifesto.
Lenin, “On Food Grain Tax,” Selected Works of Lenin.
Chairman Mao, “Report to the Second Plenum of the Seventh Central
Committee of the Chinese Communist Party.”
Chairman Mao, “On the Correct Handling of Contradictions among the
People,” Sections 3-4.
Chairman Mao, “On Agricultural Cooperativization.”
Review Problems
1. How does the socialist state ownership system emerge? Why do we
say it is the main economic basis of proletarian dictatorship?
2. Why do we say that socialism is not completely consolidated without
agricultural socialization? Why did the rural people’s commune of China
adopt the system of “three-level ownership with the production team as the
basis” at the present stage?
3. How can the socialist public ownership system be continually consol-
idated and developed? How do we consolidate and develop the socialist pub-
lic ownership system?
Notes
* She-hui-chu-i kung-yu chih shih she-hui-chu-i sheng-ch’an kuan-hsi ti
chi-ch’u — she-hui-chu-i kuo-chia so-yu chih ho lao-tung ch’iin-chung chi-
t’i so-yu chih.
1. Engels, Anti-Dühring. Selected Works of Marx and Engels. Vol. 3,
Jen-min ch’u- pan-she, 1972, p. 201.
2. Marx, Critique of the Gotha Program. Selected Works of Marx and
Engels. Vol. 3, Jen-min ch’u-pan-she, 1972, p. 5.
3. Communist Manifesto. Selected Works of Marx and Engels. Vol. 1,
Jen-min ch’u- pan-she, 1972, p. 272.
4. “The Present Situation and Our Tasks,” Selected Works of Mao
Tse-tung. Vol. 4, Jen-min ch’u-pan-she, 1968, p. 1149.
5. “Report to the Second Plenum of the Seventh Central Committee of
the Chinese Communist Party,” Selected Works of Mao Tse-tung. Vol. 4,
Jen-min ch’u-pan-she, 1968, p. 1321.
6. “On the Naivete of the ‘Leftist’ and the Class Nature of the Petty
Bourgeoisie,” Selected Works of Lenin. Vol. 3, Jen-min ch’u-pan-she, 1972,
p. 548.
7. “Political Report to the Central Committee of the Russian Com-
munist Party (Bolshevik)” Selected Works of Lenin. Vol. 4, Jen-min ch’u-
pan-she, 1972, p. 627.
8. “On the People’s Democratic Dictatorship,” Selected Works of Mao
200
13. Socialist System of Public Ownership: Basis of Socialist Production Relations
Tse-tung. Vol. 4, Jen-min ch’u-pan-she, 1968, p. 1366.
9. “‘Leftist Naivete’ in the Communist Movement,” Selected Works of
Lenin. Vol. 4, Jen-min ch’u-pan-she, 1972, p. 181.
10. Engels, “The Question of the French and German Peasant,” Selected
Works of Marx and Engels. Vol. 4, Jen-min ch’u-pan-she, 1972, p. 310.
11. “Get Organized!” Selected Works of Mao Tse-tung. Vol. 3, Jen-min
ch’u-pan-she, 1968, p. 886.
12. “On Agricultural Cooperativization,” Selected Readings from the
Works of Mao Tse-tung. (Type A), Jen-min ch’u-pan-she, 1965, p. 308.
13. Marx, Capital. Vol. 3, Jen-min ch’u-pan-she, 1966, p. 438.
14. Chou En-lai, “Report to the Tenth National Congress of the Chinese
Communist Party,” Collected Documents from the Tenth National Congress
of the Chinese Communist Party. Jen-min ch’u-pan-she, 1973, pp. 32-33.
15. Engels, “Principles of Communism,” Selected Works of Marx and
Engels. Vol. 1, Jen-min ch’u-pan-she, 1972, p. 217.
16. Chairman Mao, “Notes on ‘A Serious Lesson,’” Socialist Upsurge
in China’s Countryside. Vol. 1, p. 123.

201
14. Establish Interpersonal Relations
according to Socialist Principles
People’s Status and Their Interrelations in Socialist
Production*
People’s status and their interrelations are an important component of
production relations. After the establishment of the socialist public owner-
ship system of the means of production, it is very important to shape the
people’s status and their interrelations to be compatible with this form of
ownership system. If this middle link of production relations is grasped and
continually improved, the socialist public ownership system and distribution
relations will continually be consolidated and developed.

People’s Status and Their Interrelations Have

Undergone a Fundamental Change
The Socialist Public Ownership System Is a Negation of All
Exploitative Systems
In history, people’s status and their interrelations in production have al-
ways been determined by the ownership system of the means of production.
The system of slave ownership determined the relationship between the
slave owner and his slaves. The ownership system of the feudal lords deter-
mined the relationship between the landlord and the peasant. The ownership
system of the capitalist determined the relationship between the capitalist
and the worker. The relationship of exploitation between the capitalist and
the worker is more obscure than the relationship between the slave owner
and the slave or between the landlord and the peasant. Often this relationship
involves goods and is manifested as the relationship among goods. For a
long time, bourgeois economists have written books and fabricated theories
on the relationships among goods in an attempt to conceal the reality of class
antagonism among people. “Wherever the bourgeois economists saw a rela-
tionship among goods (commodity exchanges), Marx revealed a relationship
among men.” (l) “What economics studies is not things but interpersonal
relations and ultimately inter class relations.” (2)
The interrelations in socialist production are established only after the
proletariat and the broad masses of laboring people overthrow the bourgeois
state machinery with violence and establish proletarian dictatorship and the
socialist public ownership system of the means of production.
In socialist society, the relationship which existed in the old society be-
tween the ruling and the ruled, with the working class and the collective
farmers on one side and the bourgeoisie, the landlords, and the rich peasants

202
 14. Establish Interpersonal Relations according to Socialist Principles
on the other, has been reversed. All exploitative relations have been negated.
This reversal and negation are the preconditions for transforming the private
ownership system of the means of production into the socialist public own-
ership system. The socialist public ownership system is a coercive economic
measure. In this system, the exploitative class is deprived of its means of
exploiting the laboring people and is forced to accept transformation by the
proletariat and the broad masses of laboring people. On the other hand, with
the establishment of the socialist public ownership system, the proletariat
and the broad masses of laboring people, once slaves in the old society, be-
come masters of the new society. From here on, the proletariat and the labor-
ing people are in the ruling position in the socialist production process, and
the bourgeoisie and all exploitative classes are in the position of being ruled.
Socialist interrelations are to be established and developed on this basis.
In the whole socialist historical stage, from beginning to end, there will
exist the struggle between the proletariat and the bourgeoisie. On the one
hand, the proletariat and the broad masses of laboring people will try hard to
defend and consolidate their position in socialist production and the socialist
interrelations in order to achieve the great ideal of realizing communism by
eliminating the bourgeoisie and all exploitative classes and all class dispari-
ties. On the other hand, the bourgeoisie and all exploitative classes will nev-
er forget their past dominant position over the laboring people, the “good old
days” when they could reap without work, and they will vainly attempt to
free themselves from the restrictions imposed on them by the socialist inter-
relations and to restore the capitalist relations. Lin Piao’s adherence to Con-
fucius’ extremely reactionary political proposal to “restore fallen states, re-
instate their sovereignties, and seek the counsel of cultivated persons in re-
tirement” was a conspiracy to retrieve all fallen exploitative classes, pull
down the laboring people as the new masters, and restore the capitalist inter-
relations. Therefore, the process of consolidation and development of the
socialist interrelations is essentially a process of struggle between the prole-
tariat and the bourgeoisie.
Socialist Interrelations Still Possess Class Overtones
In class society, interpersonal relations are ultimately inter-class rela-
tions. How then are the interpersonal relations in socialist production mani-
fested as interclass relations?
To better understand the class relations in socialist production, it is nec-
essary to retrace briefly the class relations in semicolonial and semifeudal
China.
The economic substructure of old China gave rise to the following clas-
ses, namely, the proletariat, the peasantry, and the urban petty bourgeoisie.
At that time, the status of these classes and the inter class relations were as
follows: The landlords and the bureaucratic bourgeoisie who controlled the
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Fundamentals of Political Economy
major means of production and the reactionary state machinery and colluded
with imperialism occupied a dominant position in social production. They
relentlessly exploited and oppressed the proletariat, the peasantry, and the
urban petty bourgeoisie. The national bourgeoisie also possessed a large
quantity of the means of production. On the one hand, they were connected
in production with imperialism, the landlords, and the bureaucratic bour-
geoisie in their exploitation of the proletariat and the laboring people. On the
other hand, they were boycotted and hurt by the landlords and the bureau-
cratic bourgeoisie. The proletariat and the broad masses of poor peasants
were in a helpless position in social production subject to triple oppression
and exploitation from the imperialists, the feudal forces, and the bourgeoisie.
“To overthrow the old social system and establish a new one is a great
struggle and an immense change in the social system and the interpersonal
relations.” (3) When China entered the historical period of socialist revolu-
tion and the socialist transformation of agriculture, handicraft industry, and
capitalist industry and commerce was basically realized with socialist public
ownership of the means of production as the only economic substructure,
“the inter-class relations in the whole country underwent changes.” (4) The
landlord and the bureaucratic bourgeoisie had already been overthrown and
were in the position of being ruled and transformed through social produc-
tion. The means of production belonging to the national bourgeoisie had
already passed into the hands of the proletariat and the whole laboring peo-
ple. Having lost their controlling position in enterprise, the national bour-
geoisie had to accept education and transformation from the working class.
The peasants (including individual handicraftsmen) had been transformed
from individual producers to collective laborers and, with the working class,
became masters of the socialist economy. The urban petty bourgeoisie had
been assimilated into the socialist production relations in the socialist trans-
formation. The working class had become the leading class in the country
controlling the lifeblood of the socialist economy and occupying a leading
position in the whole social production. The old classes of the semicolonial
and semifeudal society still existed. But their interclass relations had under-
gone fundamental changes.
Revisionists from Khrushchev and Brezhnev to Liu Shao-ch’i and Lin
Piao and their associates publicized a platform stating that when the socialist
public ownership system becomes the only economic substructure, all ex-
ploiting classes vanish. Consequently, the production relations, which in-
clude interpersonal relations, lose their class relation character, and the so-
called interpersonal relations become those among “comrades, friends, and
brothers.” This fallacy is totally against Marxism and is inconsistent with the
reality of socialist society.
In socialist society, although the exploiting class has lost its means of pro-
duction, it still exists as a class. After the socialist revolution of the ownership
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 14. Establish Interpersonal Relations according to Socialist Principles
of the means of production is basically realized, the existence of classes will
rest on the people’s economic relations prior to socialist reform and their polit-
ical positions in the struggle between socialism and capitalism. In addition, the
existence of classes is related to capitalist traditions and influences that still
remain in socialist society, to the remaining disparities between the worker
and the peasant, the urban and rural areas, and mental and physical labor, and
to the bourgeois legal rights that reflect them. In fact, in addition to the contin-
uing existence of the landlord and the bourgeoisie, new bourgeois elements
will continue to emerge. From among the educated, bourgeois rightists may
still emerge. Agents of the bourgeoisie may even appear inside the Communist
Party. Lenin once pointed out: “To completely eliminate classes, it is neces-
sary not only to overthrow the exploiter, namely, the landlord and the capital-
ist, and to abolish their ownership system, but also to abolish any private own-
ership system of the means of production and eliminate disparities between the
urban and rural areas and between physical and mental labor. This is a task
that can only be realized after a long time.” (5)
Although some people concede that there are still exploitative classes in
socialist society, they refuse to admit that these classes survive in socialist
production relations. They think that these classes exist only in that part of
society which is divorced from socialist production relations. The fact is, a
society which is divorced from certain production relations simply does not
exist. The exploitative classes do not live in a vacuum, but in socialist pro-
duction relations. In other words, they live in the economy of socialist state
enterprises and in the collective economy. The only difference is that they
are no longer in a dominant position of being the rulers but in that of being
ruled. With the working class and the laboring people, they constitute the
relations of the ruled and the ruling. To think that socialist production rela-
tions do not manifest relations in which the working class and the laboring
people rule and transform the exploitative class will lead to the harmful con-
clusion that socialist production relations are independent of classes. Some
people think that since we all earn our living through labor everyone is the
same. Therefore, classes no longer exist. This erroneous concept is closely
related to the theoretical negation of the class nature of socialist production
relations.
According to China’s conditions, there exist two exploitative classes and
two laboring classes. The two exploitative classes are the remnants of the
landlord and comprador class and the bourgeoisie and their affiliated intel-
lectuals. The two laboring classes are the working class and the collective
peasants and their affiliated laboring intellectuals. The interrelations in so-
cialist production are mainly the relations among and within these four clas-
ses. The relations among these four classes are not of equal importance. In
the whole historical stage of socialism, the major contradictions are those
between the proletariat and the bourgeoisie. The relations between the domi-
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Fundamentals of Political Economy
nant proletariat and the dominated bourgeoisie are the basic class relations in
socialist society. Interpersonal relations in production are inevitably gov-
erned, regulated, and influenced by these relations. Modern revisionists
gloss over this class nature of interpersonal relations in production. They
loudly say that interpersonal relations are all relations among “comrades,
friends, and brothers.” The Lin Piao clique also championed the slogans
“while the two struggles turn all people into enemies, the two peaces turn all
people into friends” and “within the four seas all are brothers.” These are
absurd. Whoever has been exposed to Marxism-Leninism knows that no
relations among “comrades, friends, and brothers” are independent of classes
in a class society. The hatred of the proletariat for the bourgeoisie originated
in the exploitation and oppression of the proletariat by the bourgeoisie.
“There can never be love without reasons; nor can there be hatred without
reasons.” (6) These two classes can never be “friends,” not to mention
“brothers.” Is it conceivable that the proletariat and the laboring people will
relinquish their rule and be “brothers” and “friends” of the bourgeoisie? The
intent of the modern revisionists’ championing of these fallacies is to defend
the bourgeoisie, deceive the laboring people, and conceal their conspiracy to
transform the socialist interrelations into capitalist interrelations in order to
restore capitalism. (7)
In socialist production, the two exploitative classes have assumed the
status of being ruled. Under the conditions in China, these two classes are
treated differently. The landlord and comprador classes are classified as en-
emies, and the national bourgeoisie is classified as of the people. These two
exploitative classes are forced to accept transformation by different methods,
but their relations with the worker and the peasant are still based on class
antagonism. In socialist production, the laboring people, occupying a domi-
nant position, are the masters in socialist production relations. Through con-
tinuous resolute and energetic struggle, the working class and the poor and
lower-middle peasants will gradually transform the majority of these two
exploitative classes into self-supporting laborers after a long period of labor.
The working class and the toiling people had the same painful experi-
ence of exploitation and oppression in the old society. In socialist society,
employing the means of production owned by the state or by the collective
ownership of the toiling people, they all work, though in different roles, for
their own class and society. They shoulder the common burden of reforming
the exploiting class and share the same goal — to fight for the idea of com-
munism. Therefore, their basic interests are the same. In socialist production,
the relations among the worker, the peasant, and the laboring intellectuals
and within each of the three groups constitute daily developing relations
among revolutionary comrades based on identical basic interests. This is a
basic point which determines the socialist nature of the relations among the
laboring people.
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 14. Establish Interpersonal Relations according to Socialist Principles
But is there a “state in which there are no disparities” and no contradic-
tions of any kind in the relations among the laboring people in socialist pro-
duction? No! In the relations among the laboring people in production, in
addition to the basic relationship of being revolutionary comrades, there is
also another aspect involving capitalist traditions and influences. These capi-
talist traditions and influences are mainly reflected in the disparities between
the worker and the peasant, the urban and rural areas, and mental and physi-
cal labor. Disparity is contradiction. This contradiction ultimately possesses
the nature of class contradiction. At the same time, class struggles between
the proletariat and the bourgeoisie are inevitably reflected among the labor-
ing people, so that all issues of right and wrong, revolutionary and conserva-
tive, advanced and backward are stamped with a class mark. Therefore, con-
tradictions among the people ultimately reflect the contradictions and strug-
gles between the proletariat and the bourgeoisie, between the socialist road
and the capitalist road.
The Immensely Active Role of Interrelations
Certain interrelations are based on a corresponding ownership system of
the means of production. But the interrelations also play an immensely ac-
tive role with respect to two other aspects of production relations, namely,
the form of the ownership system of the means of production and its corre-
sponding distributive relations.
The function of interrelations with respect to the two other aspects of
production relations was very apparent in the historical period before the
emergence of socialist society. For example, in order to establish and consol-
idate the capitalist ownership system and its distributive relations, the bour-
geoisie had to establish interpersonal relations based on capitalist principles,
namely, relations in which the bourgeoisie ruled the worker. As Marx sol-
emnly pointed out in his criticism of the reactionary arguments that “exploi-
tation is justified” and “oppression is justified” which were championed by
the defenders of the American slave system, “With this relationship of dom-
ination and enslavement as a precondition, he [the capitalist] will force the
wage laborer to produce both his own wages and also a wage for the super-
visor to compensate the supervisor for his labor of dominating and supervis-
ing the laborer”. (8) If the capitalist and his agents did not wield absolute
dominating power over the worker and if they could not force the worker to
work according to the will of the capitalist, then capitalist exploitation would
not be realized and the capitalist ownership system and the capitalist distrib-
utive relations in which “the laborer does not reap and the reaper does not
labor” could never be consolidated and developed. Therefore, the bourgeoi-
sie pays a great deal of attention to the establishment and consolidation of
the subordinate status of the worker to capital in order to consolidate and
develop the capitalist ownership system and distributive relations.
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Fundamentals of Political Economy
In socialist society, the transformation of interrelations is also an im-
portant link in the transformation of production relations. When this link is
grasped and continually improved, it has great significance for consolidating
and perfecting the socialist ownership system and the socialist distributive
relations and consequently for promoting the development of social produc-
tive forces.
The socialist construction in our country demonstrated that when the
exploiting classes’ frantic attack on our socialist enterprises had been re-
pulsed, when our contradictions with our enemies had been correctly han-
dled, when we had gradually established, according to socialist principles,
the relations among the working people, between the leader and the masses,
among the administrators, technicians, and workers, and between the labor-
ers and the peasants, we were able to fully develop their activism and crea-
tivity and to orient the direction of our socialist enterprises. We saw our so-
cialist revolution and socialist production thrive, our system of socialization
of the means of production strengthen, and our distributive relations inces-
santly improve. When socialist interpersonal relations are contradicted or
even sabotaged and when the remnants of capitalist interpersonal relations
are allowed to develop, the position of the masses as masters will be threat-
ened, the socialist activism of the masses will be suppressed and inhibited,
and consequently, the socialist ownership system and distributive relations
will also be inhibited or may even degenerate.
Interrelations gradually established on the basis of a public ownership
system of the means of production and according to socialist principles are
not confined to one enterprise. They involve all enterprises, all economic
departments, the state ownership system, and the collective ownership sys-
tem. They are manifested in exchange activities such as production coopera-
tion and exchanges of advanced experience and advanced technology. The
development of such mutual exchanges in production, with leadership and
planning among enterprises and among departments, embodies the superiori-
ty of the socialist public ownership system. They are conducive to the con-
solidation and development of the socialist ownership system, favorable to
fully mobilizing the forces of various economic departments, and favorable
to fully tapping economic potentials and promoting rapid development of the
whole social productive force.
The importance of the gradual perfection of interrelations with respect
to consolidating production relations and developing the social productive
forces deserves our full attention. After the establishment of the socialist
public ownership system, the issue of interrelations must be continually and
seriously resolved.

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 14. Establish Interpersonal Relations according to Socialist Principles

Consolidate and Develop Socialist Interrelations in

the Course of Struggle
Develop Relations of Mutual Support and Mutual Promotion
between Industry and Agriculture
From the angle of the whole of social production rather than that of a
particular enterprise, interrelations are primarily manifested as relations be-
tween industry and agriculture. Industry and agriculture are the two basic
material production sectors. The socialist state ownership system which is
dominant in the industrial sector and the socialist collective ownership sys-
tem of the laboring masses which is dominant in agriculture are two forms of
the socialist ownership system. From the standpoint of class relations, this
economic structure is a relationship between the worker and the peasant.
This class relationship is fundamentally different from the relationship be-
tween the laboring class and the exploitative class; it is the relation of a
worker-peasant alliance in which basic interests are identical and leadership
is in the hands of the working class.
After the basic victory had been won in the ownership system of the
means of production in China’s socialist revolution, Chairman Mao pointed
out: “Interrelations in production and exchange among various economic
sectors are gradually being established according to socialist principles.
More suitable forms are gradually being sought.” (9) Interrelations among
various economic sectors are primarily interrelations between industry and
agriculture and, consequently, interrelations between the worker and the
peasant. The worker and the peasant are both masters of the means of pro-
duction. The worker labors in enterprises under the state ownership system.
The peasant labors in enterprises under the collective ownership system. The
worker and the peasant must trade with each other so that social production
can be carried on.
In socialist society, the worker and the peasant are both industrial forces
in socialist construction. Their relationship as revolutionary comrades in
production is a daily developing one of mutual support and mutual promo-
tion based on the socialist public ownership system. In the production and
exchange processes, the worker produces various agricultural machines,
chemical fertilizers, insecticides, and industrial products for daily use in the
countryside in support of the development of agricultural production and the
improvement of the livelihood of the peasant. The peasant produces food
grain, raw materials, and various agricultural and sideline products. Fur-
thermore, in accordance with the growth rate of labor productivity in agri-
culture, he supplies an appropriate amount of labor power in support of the
development of industrial production and satisfies the industrial production
and livelihood needs of the urban population. Under the leadership of the

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Fundamentals of Political Economy
working class, mutual support and mutual promotion between the worker
and the peasant are in line with the basic interests of these two classes and
constitute a strong force for consolidating the worker- peasant alliance and
promoting socialist economic development.
In addition to direct contribution to the financial accumulation of the
state through taxation, the exchange activities between the worker and the
peasant under the two kinds of socialist ownership system are primarily in
the form of commodity exchanges of industrial and agricultural products.
Therefore, there may also arise some contradictions based on identical basic
interests on matters relating to quantity, variety, quality, and price of indus-
trial and agricultural products, as well as the proportions of marketed and
retained agricultural products and tax burdens on the peasant.
The worker-peasant alliance in socialist society is the basis of proletari-
an dictatorship. Under the leadership of the working class, it is an important
task to correctly handle contradictions between the worker and the peasant
based on common interests and to develop the socialist relations of mutual
support and mutual promotion between industry and agriculture.
The relations between industry and agriculture in socialist production
are controlled, restricted, and affected by the major contradictions between
the proletariat and the bourgeoisie. The working class (through the Com-
munist Party) must lead the peasant to establish, consolidate, and develop a
socialist collective economy and gradually realize agricultural mechaniza-
tion on the basis of agricultural collectivization so that socialist agriculture
will advance along the socialist road, its relations to socialist state industry
will be steadily strengthened, and the economic basis of proletarian dictator-
ship in agriculture will be consolidated. The bourgeoisie always tries hard to
induce the peasant to take the capitalist road and attempts to undermine the
socialist collective economy by exploiting the serious spontaneous capitalist
tendency of a few rich middle peasants. Therefore, the process for develop-
ing the worker-peasant relations in socialist production must of necessity be
a process of struggle for the peasant between the proletariat and the bour-
geoisie. Because of this, we would commit a gross blunder if, in handling
the relations between agriculture and industry and the relations between the
exchange of agricultural and industrial products, we saw only the relations
between products but not the relations between the worker and the peasant
or the relations between the proletariat and the bourgeoisie in their struggle
to win over the peasant.
Extend the “Lung-chiang Style”** Develop Relations of
Socialist Cooperation
Another important aspect of interpersonal relations in socialist produc-
tion is the relations among enterprises, among sectors, and among regions. It
is mainly manifested in relations of socialist cooperation among these enter-
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 14. Establish Interpersonal Relations according to Socialist Principles
prises, sectors, and regions.
Marx said: “Many people are systematically engaged in cooperative la-
bor in the production process or in different, but related, production process-
es. This form of labor is called cooperation.”(10) This cooperation has dif-
ferent social characters and different ranges of activity under different pro-
duction relations.
The private ownership of the means of production by the capitalist con-
fines cooperation in capitalist production to one enterprise or one monopoly
capital group. From the viewpoint of the whole capitalist society, systematic
cooperation among various production sectors and various enterprises divid-
ed by the private ownership system is impossible to establish. Even certain
cooperation relations established through contracts are extremely unstable
and are often interrupted.
Socialist cooperation based on a public ownership system of the means
of production can be developed not only within one enterprise; it can also be
conducted in a planned and organized manner over the whole society among
different enterprises, sectors, and regions. “When one plant participates, a
hundred plants cooperate. When each plant makes one, a hundred plants
make a line.” Socialist cooperation creates a new productive force. It is fa-
vorable to the development of one specialty and many abilities in enterpris-
es, further contributing to increasing labor productivity. It is conducive to
concentrating manpower, material resources, and finances to complete pro-
duction and construction projects which one enterprise, one sector, or one
region could not complete alone. It is favorable to concentrating strength for
a short period to overcome weak links in the development of the national
economy, thus promoting rapid development of the whole national economy.
The development of socialist cooperation is an important form for con-
tinually improving the interrelations among enterprises, among sectors, and
among regions. There are no basic conflicts of interest among the constituent
parts of the socialist economy. Socialist cooperation requires having the im-
plementation of proletarian politics in command, the breaking down of the
boundaries among enterprises, among sectors, and among regions, concern
for the whole situation, growth through difficulties, and consideration for
other people. It also requires a strict adherence to supply contracts, coordina-
tion between the cooperative assignment and the completion of plans, and
adoption of effective measures to guarantee the completion of assignments
according to variety, specifications, quality, quantity, and schedule. These
cooperative relations are fundamentally opposed to the capitalist interrela-
tions based on mutual deception and competition and on capitalist depart-
mentalism. Departmentalism is a conceptual reflection of the private owner-
ship system and will exist in socialist society for a long time to come in var-
ying degrees. “Paying no attention to the overall situation and being indif-
ferent to other sectors, other regions, and other people is the characteristic of
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Fundamentals of Political Economy
this departmentalism.” (11) The following erroneous concepts and actions
still exist in cooperative relations: Preferring to play a major role rather than
a minor one; reckoning economic accounts at the expense of political ac-
counts; paying attention only to partial interests and not to overall interests,
even to the extent of benefiting oneself at the expense of others; disregarding
the state’s unified economic plan by cutting corners or, so to speak, entering
through the backdoor; and so forth. The appearance of these problems in the
process of cooperation is a reflection of the struggles between the two clas-
ses, the two roads, and the two lines. The development process of socialist
cooperation is a process of struggle with bourgeois influences, especially
bourgeois departmentalism. This is essentially a reflection of the struggle
between the socialist public ownership system and the capitalist private
ownership system.
The unfolding of socialist cooperation requires an extension of the
communist work style, a firm adherence to socialist principles, a voluntary
observance of state fiscal policies, and the resolute implementation of vari-
ous proletarian economic policies. Therefore, in the cooperative relations
between the state enterprises and the collective enterprises, among state en-
terprises, among collective enterprises, among sectors, and among regions,
the principle of equivalent exchange must be observed, and fair pricing en-
forced. Mutual support in material resources in the cooperative process must
be in accordance with the state plan and have the approval of the leading
organ. It is not permissible to indiscriminately engage in “mutual exchang-
es” in the name of “cooperation,” disrupting the socialist plan.
With the victorious development of socialist cooperation, the laboring
people will continually strengthen the proletarian viewpoint of seeing the
whole situation and will continually criticize and repudiate bourgeois de-
partmentalism. In the process of struggle, the laboring people’s relations of
being revolutionary comrades will steadily develop.
The “Anshan Steel Constitution” Is a Compass for Handling
Interrelations within Enterprises
The socialist enterprises (including industry, agriculture, communica-
tions and transportation, commerce, and all production and circulation de-
partments) are the basic unit of human material production and exchange.
Interpersonal relations in production exist in enterprises in large numbers.
Interrelations among the laboring people are chiefly of two kinds: The rela-
tions between the leadership and the masses and the relations between the
management personnel and technicians (mental laborers) on the one hand
and the worker and the peasant (physical laborers) on the other. The correct
handling of these two aspects of these relations, that is, to “create a political
situation in which there is centralism as well as democracy, discipline as
well as freedom, unified determination as well as individual happiness and
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 14. Establish Interpersonal Relations according to Socialist Principles
vitality” (12), is an important issue in consolidating and developing socialist
production relations and in improving socialist enterprise management. In
enterprises, there are also the relations between the worker-peasant laboring
people and the two exploitative classes. These relations have been analyzed
above.
The socialist enterprise is an enterprise of the working class and the la-
boring people. The working class and the laboring people are responsible for
leading the enterprise through their representatives. This gives rise to an is-
sue of the relations between the leadership and the masses. Although the
leadership personnel and the masses in the enterprise hold different jobs in
revolution, they are “comrades-in-arms in the same trench” who share the
heavy duty of properly managing the enterprise and who labor for a common
revolutionary goal. Workers on the Shanghai wharfs put it nicely, “Though
jobs are different in revolution, our thinking must be in unison” These words
pointed out the key to improving the relations between the leadership and
the masses in the socialist enterprises.
In enterprises, it is also necessary to have some people in charge of vari-
ous management and technical jobs. This gives rise to the issue of the relations
between the management personnel and technicians and the worker-peasant
laboring masses. There are two categories of China’s management personnel
and technicians. One consists of management personnel and technicians left
over from the old society. With the exception of a few reactionaries who are
hostile to socialist society, the great majority of them love their country, love
our People’s Republic, and are willing to serve the people and the socialist
state. Another category consists of those intellectuals trained by the proletariat
through struggle and through the development of socialist revolution and so-
cialist construction. Though some of them may have been poisoned by the
revisionist line in education and their world outlook must still be continually
transformed, the great majority are willing to integrate with the worker-
peasant masses and make contributions to the socialist and communist enter-
prise. Therefore, in socialist society, the relations between the leadership and
the masses, between the management personnel and technicians and the work-
er-peasant masses are also daily developing relations of being revolutionary
comrades and sharing common interests. But contradictions do exist between
them; it is not an “undiversified situation.”
The division of labor in socialist enterprises between the leadership and
the masses, between the management personnel and technicians and the direct
producers still reflects the division of labor of the old society and is a manifes-
tation of the still existing disparity between mental and physical labor. Under
these conditions, if the leadership personnel, management personnel, and
technicians who are responsible for organizing and guiding production do not
regularly participate in collective production labor, they become divorced
from the laboring masses and subject to the corrosion of bourgeois thinking
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Fundamentals of Political Economy
and develop contradictions with the laboring masses. These contradictions
often reflect to varying degrees the contradictions between the proletariat and
the bourgeoisie. For example, some leadership cadres, management personnel,
and technicians who have been poisoned by such Confucian and Mencian
thinking as “those who use their brains rule, those who use their muscles are
ruled” do not treat the masses and themselves with the correct attitude. They
think that “the leadership is brighter” and do not treat the worker-peasant
masses as masters of the enterprise. They resort to restrictive measures and
convert the revolutionary comrade relationship into relations of domination
and subordination. These are all manifestations of the lingering poison of the
revisionist line and reflect to varying degrees the contradictions and struggles
between the bourgeoisie and the proletariat. At the same time, though there are
no basic conflicts of interest among the masses, some people may also not
handle interpersonal relations according to socialist principles because of the
influence of bourgeois thinking and the relaxation of socialist education by the
leadership. These contradictions among the people in the enterprise embody to
varying degrees the nature of class contradictions. Although these contradic-
tions exist, from the standpoint of all the interrelations among the people in the
enterprise, this interrelation is still socialist in nature as long as the proletariat
assumes the leading position. If these contradictions were allowed to develop
and the bourgeois versions were allowed to assume the guiding position, then
socialist interrelations would degenerate into capitalist interrelations.
The “Anshan Steel Constitution,” personally announced by Chairman
Mao, and his series of instructions such as “Management Is Also Socialist
Education” (13) constitute the compass for the correct handling of interper-
sonal relations in socialist enterprises. The basic spirit of the “Anshan Steel
Constitution” is to firmly practice putting proletarian politics in command,
strengthen Party leadership, launch mass movements in a big way, imple-
ment “two participations, one reform, and three combinations” (namely, in-
sist on having cadres participate in labor and masses participate in manage-
ment, revise irrational regulations and systems, and implement the three
combinations among the worker, the cadre, and the technician), and make
technical innovations and technical revolution in a big way. Firm adherence
to putting proletarian politics in command and stronger Party leadership are
basic principles for the correct handling of interrelations. Under the guidance
of these principles, the serious and thorough implementation of the “two
participations, one reform, and three combinations” will enable the relation-
ship of being revolutionary comrades to develop steadily between the lead-
ership and the masses and between the management personnel and techni-
cians and the worker-peasant laboring masses.
The participation of cadres in production labor is a big event of funda-
mental importance under the socialist system. It is also an important aspect
in properly handling socialist interrelations. Chairman Mao pointed out:
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 14. Establish Interpersonal Relations according to Socialist Principles
“We must insist on the system of cadres participating in collective produc-
tion labor. The cadres of our Party and our state are ordinary laborers and
not masters riding on the shoulders of the people. Through participating in
collective production labor, the cadre keeps the broadest, most regular, and
closest contact with the laboring people. This is a big event of fundamental
importance under the socialist system. It is instrumental in overcoming bu-
reaucratism and preventing revisionism and dogmatism.” (14) This is an
infallible truth explained by Chairman Mao after summing up the experience
and lessons of the international communist movement. Those cadres who
can voluntarily and regularly participate in collective production labor are
generally more conscious in their resistance to bourgeois thinking and pos-
sess more self-knowledge. They show concern and affection for the masses,
humbly listen to the call of the masses, are receptive to criticism and super-
vision from the masses, and can firmly adhere to the socialist direction of the
enterprise. They are more familiar with production conditions and seldom
give blind commands. There is one song among women textile workers
which describes the transformation of a leadership cadre of a factory after
her participation in collective production labor: “In the past, she never visit-
ed the workshop; now she comes to the side of the machine to ask for ad-
vice. In the past, things were delayed; now they are solved immediately. In
the past, only big reports were made; now she says what she thinks in the
workshop. In the past, she was called a petty bureaucrat; now she is treated
like a sister.” The fact is such leadership personnel, management personnel,
and technicians are welcomed by the masses. Even if there are contradic-
tions between them, they can be correctly resolved in good time.
The participation of the masses in management is a requirement of their
position as masters in socialist production. Only by insisting on having the
masses participate in management can the position of the laboring masses as
masters in the enterprises be defended and consolidated. The exploitative
class always opposes having the masses participate in management. When
the persons in power taking the capitalist road controlled the leadership of
the enterprises, they relied on a few bourgeois experts. They resorted to re-
strictive measures in dealing with the worker-peasant masses. This effective-
ly expropriated the right of the masses to manage the enterprise. Under these
conditions, the relations between the capitalist-roaders and the worker-
peasant masses was nothing but capitalist domination and subordination in
disguise. When people with a firm commitment to bourgeois thinking con-
trol the leadership of the enterprises, it is also impossible for the masses real-
ly to participate in enterprise management. In effect, it is up to a few cadres
to do what they want. Therefore, in these enterprises, the socialist interrela-
tions between the leadership and the masses are not perfect. In the process of
China’s socialist revolution and socialist construction, especially in the pro-
cess of the Great Proletarian Cultural Revolution and the Campaign to Criti-
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Fundamentals of Political Economy
cize Lin Piao and Rectify the Style of Work, the power stolen by the capital-
ist-roaders and bad people has been taken back, the bourgeoisie and revi-
sionists have been criticized and repudiated, and the leadership of the enter-
prises has been gradually and effectively put into the hands of the Marxists
and the laboring people. A new situation of having the masses participate in
management has subsequently arisen.
Participation of the masses in management primarily refers to the partici-
pation of the direct producers, the worker-peasant masses, in management.
The masses who participate in enterprise management must not only direct
production, technical know-how, and accounting, but more importantly, they
have to help and supervise the cadres in thoroughly implementing the Party
line and general and specific policies. In the Great Proletarian Cultural Revo-
lution, the representatives of the worker-peasant masses directly participated
in the enterprises’ revolutionary committees. They were not divorced from
production, but they still performed their supervisory work. This is a new de-
velopment in the masses’ participation in management. This is extremely im-
portant for achieving close relations between the cadres and the masses, pro-
moting firm adherence to the mass line by the enterprise leadership, serving
the people, and perfecting and developing socialist interrelations.
The implementation of the “three combinations” of the masses, the ca-
dres, and the technicians in the production struggle and scientific experi-
ments in order to solve major technical problems of production is not only
conducive to stimulating technical innovation on a mass basis, but also to
accustoming the intellectuals to labor and the worker-peasant masses to sys-
tematic knowledge, narrowing the essential distinctions between mental and
physical labor, and further perfecting and developing socialist interrelations.
The reform of irrational regulations and systems in enterprise manage-
ment is another aspect of continually adjusting and transforming socialist
interrelations. Any social production requires certain regulations and sys-
tems. But the type of regulations and systems instituted is determined by the
production relations in society. Lenin sharply pointed this out with respect to
enterprise management in capitalist society: “What concerns the capitalist is
how to plunder through management and how to manage through plunder-
ing.” (15) The regulations and systems of capitalist enterprise aim at one
thing only, that is, how to better restrict the freedom of the worker and how
to extract more surplus value from the worker. The numerous regulations
and endless rules in capitalist enterprise are all designed to defend, and are
restricted by, capitalist production relations. Under socialism, “systems have
to be favorable to the masses.” (16) This is the most fundamental difference
between socialist regulations and systems and capitalist regulations and sys-
tems. Systems having to be favorable to the masses means that such systems
have to be favorable to the masses’ role as masters, to the improvement and
development of interpersonal relations in the enterprise, to the exercise of
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 14. Establish Interpersonal Relations according to Socialist Principles
socialist activism by the masses, and to the development of the Three Revo-
lutionary Movements of class struggle, production struggle, and scientific
experiment. Regulations and systems which are favorable to the masses will
certainly be favorable to the development of production as they mobilize the
activism of the masses. Under the influence of the revisionist line of Liu
Shao-ch’i and Lin Piao, the regulations and systems of some enterprises of-
ten restricted the masses. The worker’s criticism was that “there are too
many systems and regulations and they are created either for the purpose of
punishment or coercion.” Under good leadership, the masses should be mo-
bilized to revise, phase by phase, the systems and regulations which are irra-
tional, restrictive, detrimental to production, creating disharmony, and alien-
ating workers. Meanwhile, on the basis of the experience acquired in prac-
tice, a new set of healthy and rational systems and regulations which corre-
spond to the need for socialist interrelations and the development of the pro-
ductive forces should be established.

The Immense Influence of the Superstructure on the

Formation of Interrelations
People’s status and the nature of their interrelations in production are
determined by the system of ownership of the means of production. But they
also form and develop in reaction to the superstructure. Without some influ-
ence from the superstructure, people’s status in production and their interre-
lations cannot be smoothly formed and will not have a chance to consolidate
and develop. The ruling class of any society always uses the power of the
superstructure to defend by all means the ownership system that has been
established and to consolidate and develop the people’s status, their interre-
lations in production, and the corresponding distributive relations. This is a
general law.
Take the capitalist society for example. The bourgeoisie of any country
uses the power of the superstructure to establish and extend the capital-labor
relationship by force to dominate labor. Marx pointed out that to establish
and extend the domination of capital over labor, the newly emerging bour-
geoisie “needs to exercise the power of the state.” (17) From the end of the
fifteenth century to the first half of the nineteenth century, the well-known
“enclosure movement” (18) in England resorted to violent measures to evict
a large number of poor peasants who then drifted into the urban areas desti-
tute and “free as a bird” only to become objects of domination by capital.
However, the peasants who drifted into the urban areas often preferred to
become tramps rather than be subject to the arbitrary rule of capital over
labor. To force the destitute peasants into the factory, the British bourgeoisie
passed laws to punish tramps in order to “force them to become accustomed
to the necessary discipline of wage labor by means of flogging, branding,

217
Fundamentals of Political Economy
and torture.” (19) Look how cruel were the means used by the bourgeoisie to
establish and develop interrelations in which capital dominated labor.
The relationship of capital dominating labor was established by vio-
lence. It could only be crushed by force. In socialist countries under proletar-
ian dictatorship, this relation was in fact crushed.
Because socialist production relations can only be established under pro-
letarian dictatorship, the effect of the socialist superstructure on the socialist
economic substructure is especially apparent. Socialist interrelations are de-
termined by the socialist public ownership system. They are also formed and
developed under the immense pressure of the socialist superstructure. If we
thought that socialist interrelations would automatically form and develop
with the establishment of the socialist public ownership system, we would
be seriously mistaken.
In socialist interrelations, the relationship of the working class and other
laboring people vis-a-vis the bourgeoisie and other exploiting classes is one
between the ruler and the ruled and between the transformer and the trans-
formed. Because of their class nature, the exploiters will not voluntarily ac-
cept the position of being ruled and transformed. The fact that the proletariat
is capable of coercing some of them to accept socialist transformation is due
to the powerful state machinery it controls. Without this precondition, the
rule over, and the transformation of, the bourgeoisie are impossible.
Among the laboring people, if the relationship of being revolutionary
comrades is to develop steadily according to socialist principles, it is neces-
sary to rely on the role of the socialist superstructure to educate and trans-
form ourselves in order to free ourselves from the influence of reactionaries
at home and abroad. Chairman Mao pointed out: “The people’s state defends
the people. Only with the people’s state is it possible to educate and trans-
form ourselves through democratic means throughout the whole country and
on a total scale in order to free ourselves from the influence of internal and
external reactionaries.” (20) Only by insisting on waging socialist revolution
in the superstructure, using the proletarian ideology to gradually overcome
the bourgeois ideology, and continually expelling the capitalist traditions
and influences in interrelations can the relation among the laboring people of
being revolutionary comrades steadily develop, and only thus is the way
cleared for the formation and development of the interrelations of socialist
production.
To sum up, the process of formation and development of socialist inter-
relations is a long process of political and ideological struggle between the
two classes. To defend and develop socialist interrelations, the proletariat
must firmly adhere to the basic Party line for the whole historical stage of
socialism. After a basic victory has been won in the socialist revolution of
the system of ownership of the means of production, it must continue to
penetratingly carry on socialist revolution in the political and ideological
218
 14. Establish Interpersonal Relations according to Socialist Principles
lines, liquidate bourgeois ideology and foster proletarian ideology, fight self-
ishness, and criticize revisionism. This is a fundamental issue in the consoli-
dation and improvement of socialist interrelations. If we thought that after
the establishment of the socialist public ownership system the exploitative
class vanishes and if we departed from the central issue of the proletariat’s
opposition to the bourgeoisie in explaining socialist interrelations, then we
would be in opposition to the basic Party line and would fall into the trap of
the class extinction argument. If we did not insist on carrying on socialist
revolution in the superstructure and allowed the free overflow of bourgeois
ideology, then socialist interrelations would degenerate into capitalist inter-
relations, and the socialist public ownership system would disintegrate. The
restoration of capitalism in the Soviet Union teaches us by way of negative
example to understand the scientific truth of Marxism in this regard.
Major Study References
Chairman Mao, “On the Correct Handling of Contradictions among the
People.”
Chairman Mao, “A Talk at the National Propaganda Work Conference
of the Chinese Communist Party”
Review Problems
1. Why do we say that the interpersonal relations in socialist production
are ultimately class relations?
2. What is the significance of the interpersonal relations in production
established according to socialist principles in consolidating, perfecting, and
developing the socialist public ownership system and distributive relations
and in promoting the development of the productive forces?
3. Where is the immensely active role of the superstructure in the con-
solidation, perfection, and continual development of the interpersonal rela-
tions in socialist production manifested?
Notes
* An-chao she-hui-chu-i yuan-tse chien-li jen-men ti hsianghu kuan-hsi
— jen-men tsai she-hui-chu-i sheng-ch’an chung ti ti-wei ho hsiang-hu
kuan-hsi.
** Lung-chiang is a model brigade somewhere in Fukien. The story of
its battle with floods by collective efforts was made a theme by Chiang
Ch’ing in her model revolutionary opera entitled “Song of Lung-chiang.” —
Editor.
1) “Three Sources and Components of Marxism,” Selected Works of
Lenin. Vol. 2, Jen- min ch’u-pan-she, 1972, p. 444.
2) Engels, “Karl Marx ‘A Critique of Political Economy,’” Selected

219
Fundamentals of Political Economy
Works of Marx and Engels. Vol. 2, Jen-min ch’u-pan-she, p. 123.
3) “A Talk at the National Propaganda Work Conference of the Chinese
Communist Party,” Selected Readings from the Works of Mao Tse-tung.
(Type A), Jen-min ch’u-pan- she, 1965, p. 365.
4) Ibid., p. 365.
5) “The Great Innovation,” Selected Works of Lenin. Vol. 4, Jen-min
ch’u-pan-she, 1972, p. 11.
6) “Talks at the Yenan Forum on Literature and Art,” Selected Works of
Mao Tse- tung. Vol. 3, Jen-min ch’u-pan-she, 1968, p. 827.
7) Many contemporary Soviet revisionist writers reveal the nature of the
“comrades, friends, and brothers” relationship championed by Soviet revi-
sionism. In a play entitled “The Outsider” by a Soviet writer, I Te-wu-lieh-
tzu-chi, the major character Ch’ieh- shih-k’o-fu, a Soviet revisionist Party
member and an engineer of a certain enterprise, went to the No. 26 Foundry
of the Nieh-lieh-shih Company to transform its “backward appearance.” He
arrogantly roared to the workers: “We are the leaders. Our hands do not do
anything. We work with words and our brains.” He ordered the foremen to
keep a close watch on the workers to “keep an eye on them and get at their
throats.” Whoever disobeys an order should be punished by “deducting half
of his bonus.” “Hit them with rubles.” In the Soviet Union, the laboring peo-
ple are subject to cruel exploitation and oppression from such new bureau-
cratic monopolist bourgeoisie. This is the nature of the “comrades, friends,
and brothers” relationship championed by Soviet revisionism.
8) Marx, Capital. Vol. 3, Jen-min ch’u-pan-she, 1966, p. 440.
9) “On the Correct Handling of Contradictions among the People,” Se-
lected Readings from the Works of Mao Tse-tung. (Type A), Jen-min ch’u-
pan-she, 1965, p. 337.
10) Marx, Capital. Vol. 1, Complete Works of Marx and Engels. Vol.
23, p. 362.
11) “The Rectification of the Party’s Style of Work,” Selected Works of
Mao Tse-tung. Vol. 3, Jen-min ch’u-pan-she 1968, p. 782.
12) Quotations from Chairman Mao. Taken from Hung-ch’i [Red Flag],
1972, No. 10.
13) Quoted from Jen-min jih-pao [People’s Daily], August 14,1972.
14) Quoted from “On Khrushchev’s Fake Communism and Its Lesson
for World History,” Jen-min ch’u-pan-she, 1964, pp. 54-55.
15) “How to Organize Competition?” Selected Works of Lenin. Vol. 3,
Jen-min ch’u- pan-she, 1972, p. 395.
16) Quotations from Chairman Mao. Taken from Jen-min jih-pao [Peo-
ple’s Daily], May 31,1972.
17) Marx, Capital. Vol. 1, Complete Works of Marx and Engels. Vol.
23, p. 806.
18) The “enclosure movement” was one of the important forms of
220
 14. Establish Interpersonal Relations according to Socialist Principles
primitive capitalist accumulation. The “enclosure movement” in England
from the end of the fifteenth century was the most typical. At the end of the
fifteenth century, the emergence of England’s wool-spinning industry led to
a continuous rise in wool prices. Sheep farming became a very profitable
business. The landed aristocracy and the bourgeoisie of England colluded to
forcibly evict the peasant from the land and then enclosed it to raise sheep.
Houses within the enclosure were totally destroyed. The peasants were ren-
dered homeless and reduced to being beggars and tramps. In the eighteenth
century, the British bourgeois government, by means of a series of “enclo-
sure acts” concocted by the Parliament, supported the violent plundering of
the peasant by the bourgeoisie. In this process, the peasant continually re-
sisted and started many rebellions against the enclosure movement.
19) Marx, Capital. Vol. 1, Complete Works of Marx and Engels. Vol.
23, p. 805.
20) “On the People’s Democratic Dictatorship,” Selected Works of Mao
Tse-tung. Vol. 4, Jen-min ch’u-pan-she, 1968, p. 1365.

221
15. Develop Socialist Production with Greater,
Faster, and Better Results at Lower Costs
The Nature and Goal of Socialist Production and the
Means of Achieving This Goal*
The elimination of the private ownership system of the means of pro-
duction and the establishment of the socialist public ownership system has
led to a fundamental change in the social relations of people in the produc-
tion, exchange, and distribution processes. First of all, the nature of social
production has changed. The goal of social production and the means to at-
tain the goal of production have also changed. Thus, the development of
socialist production follows different laws from those of capitalist produc-
tion. Only by correctly understanding and making use of these laws can so-
cialist production be developed with greater, faster, and better results at low-
er costs.

Socialist Public Ownership Has Fundamentally

Changed the Nature of Social Production
The Direct Social Product under Socialism Possesses, in
Varying Degrees, the Characteristics of the Commodity
Production of material wealth is a necessary condition for the survival
and development of human society. Under different social and economic
systems, however, social products possess different characteristics.
Under the private ownership system of the means of production, produc-
tion is the individual’s private affair. The product belongs to him. Therefore,
production is always directly manifested as private production. The product
is also directly manifested as a private product. When this product is not
produced for the consumption of the producer, but is instead intended for
exchange, then it becomes a commodity. This private product also possesses
a social nature. But, this social nature is concealed by the private ownership
system and cannot be directly manifested. Only through exchanges, when
the produced commodity has been proven to meet the needs of society, can
the social nature of the product be affirmed. In capitalist society, all products
are private products and also commodities. Capitalist production is the most
developed form of private commodity production.
In socialist society, after the socialist transformation of the system of
ownership of the means of production has been basically completed, with the
exception of a small amount of family sidelines operated by members of the
rural collective economy, the whole of social production has been established
on the basis of a system of public ownership of the means of production. Seen

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 15. Develop Socialist Production with Greater, Faster, and Better Results
as a whole, the production of the state economy and the collective economy
based on the socialist public ownership system is organized according to plans
throughout the whole country. It is conducted to directly meet the needs of
society, namely, to directly meet the needs of the proletariat and the whole
laboring people. This kind of production has lost the nature of private produc-
tion. Looked at from its basic aspect, it has become direct social production.
Labor products are also socially useful from the start, and therefore they are no
longer private products but are direct social products. Needless to say, the la-
bor that is engaged in direct social production to create direct social product is
no longer private labor but is direct social labor. Engels once observed, “Once
society possesses the means of production and uses them in direct social forms
for production, then everybody’s labor, whatever its specific uses may be, be-
comes direct social labor right away.” (l)
In the historical development process of human society, direct social
production once existed in the primitive commune. At that time, “the com-
mune members combined to form a society directly for production.” (2)
They labored together and distributed products to the members according to
custom and need. This was a kind of direct social production based on a sys-
tem of public ownership by the clan commune. It appeared when the level of
productive forces was low and social division of labor was underdeveloped.
It was a primitive public ownership economy without commodity production
and exchange.
Socialist direct social production is large-scale social production based
on division of labor and cooperation among millions, tens of millions, hun-
dreds of millions of people. In the fairly long historical period of socialist
society, the socialist system of public ownership still consists of two forms.
Socialist direct social production is conducted on the basis of these two
forms of socialist public ownership. Products are owned respectively by the
socialist state and various enterprises under the collective ownership system.
This determines that direct social production under socialism cannot elimi-
nate commodity production and exchange. To attain normal economic rela-
tions between these two types of socialist public ownership and between
industry and agriculture and to facilitate the consolidation of the worker-
peasant alliance, it is necessary to retain and suitably develop commodity
production and exchange for a fairly long period of time. This cannot be
changed at will. Lenin pointed out, “Commodity exchange is a yardstick to
measure the normality of the interrelations between industry and agricul-
ture.” (3)
Socialist commodities primarily reflect the relation between the econo-
my under the state ownership system and the economy under the collective
ownership system and the relations among different collective economies. In
the state economy, products are transferred from one state enterprise to an-
other state enterprise. For example, the rolled steel of a state iron and steel
223
Fundamentals of Political Economy
mill is transferred to a state plant which builds spinning and weaving ma-
chines. Or the weaving machine built by a state spinning and weaving ma-
chine plant is transferred to a state spinning and weaving mill. The product
is still owned by the socialist state, and there has been no transfer of owner-
ship rights. Furthermore, product transfers among state enterprises are usual-
ly allocated and delivered according to state plans rather than taking place
through the market. Therefore, this type of product transfer is basically not
commodity exchange. It already possesses many characteristics of the com-
munist distribution of products.
But the socialist economy is an integrated whole; the commodity rela-
tions between the two forms of socialist public ownership system cannot but
be reflected in the exchange relations within the state ownership system.
Meanwhile, with the present level of productivity, material conditions de-
mand that the state enterprises maintain their relative independence of opera-
tion and management and that they trade with each other according to the
principle of exchanges of equivalent value. Therefore, although the com-
modities exchanged among state enterprises are basically no longer com-
modities, they still possess certain commodity characteristics and must be
expressed in terms of price and purchased with money. When distributed for
the members’ consumption, food grains produced by the rural collective
economy must also be expressed in terms of price and money. This inevita-
bly brands the product as a commodity. Therefore, socialist products are
direct social products on the one hand, but they also possess commodity
characteristics in varying degrees. Socialist commodities differ from other
historical commodities. They possess three characteristics: (l) They are
based on a public ownership system of the means of production and are pri-
marily an expression of the exchange relations between the worker and the
peasant. (2) In contrast to the unorganized and unplanned capitalist com-
modity production, a great majority of socialist commodities are produced in
a planned manner under the guidance of state planning. (3) Compared with
the capitalist society, the scope of commodities is greatly reduced in the so-
cialist society. Labor power is no longer a commodity. Land, mineral re-
sources, and other natural resources are no longer commodities either. The
means of production circulating within the socialist state ownership system
have also undergone significant changes and have lost certain properties of
commodities.
Direct social products with varying degrees of commodity characteris-
tics are an expression of the special duality of socialist products. They reflect
the characteristics of socialist production relations in the transition period
from capitalism to socialism. Direct social products are the dominant aspect
of this duality. This is the aspect common to socialist and communist prod-
ucts. Although socialist commodities are fundamentally different from all
historical commodities based on a private ownership system, the commodi-
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 15. Develop Socialist Production with Greater, Faster, and Better Results
ty-money relationship has, after all, been a tradition of the old economy for
thousands of years. Socialist products with varying degrees of commodity
characteristics show that compared with communist direct social products,
socialist direct social products are still immature and carry with them tradi-
tions and influences of the old society. Communist direct social products
will be completely free of these traditions and influences of the old society,
namely, commodity characteristics. At that time, labor expended on the pro-
duction of products will no longer be expressed as the value of these prod-
ucts.
That socialist direct social products still possess varying degrees of
commodity characteristics is determined by the level of productivity in the
socialist period and by the two forms of socialist public ownership system
and other material economic conditions. Since socialist products still possess
varying degrees of commodity characteristics, categories related to commod-
ities, such as use value and exchange value, concrete and abstract labor,
money, price, and so forth, will certainly exist. To negate the commodity
aspects of socialist direct social products and to attempt to abolish commodi-
ty production prematurely is obviously erroneous. Ch’en Po-ta, a renegade
and Trotskyite, clamored for the abolition of commodity production and ex-
change during the period of the rapid development of China’s rural people’s
commune movement in a vain attempt to lead revolution and construction
astray. Chairman Mao saw through this conspiracy in time and engaged him
in a resolute struggle. In the resolutions of the Sixth Plenum of the Eighth
Central Committee of the Chinese Communist Party personally convened
and chaired by Chairman Mao, this was pointed out: “This way of thinking
which attempts to prematurely abolish commodity production and exchange,
prematurely negate the constructive role of commodities, value, money, and
price is detrimental to developing socialist construction and is therefore in-
correct.” (4) Socialist commodity production must not only be retained, but
must also be developed to consolidate the economic link between China’s
industry and agriculture and between urban and rural areas in order to pro-
mote the development of socialist construction.
On the other hand, however, we must also see that although socialist
commodity production based on a public ownership system is fundamentally
different from private commodity production, the fact that products are pro-
duced as commodities cannot but still be a reflection of the traditions and
influences of the old society. Such categories as commodity, value, money,
and price are things that can be used by the bourgeoisie and its agents in the
Communist Party. The proletariat wants to use commodity production to
promote socialist construction, while the bourgeoisie wants to use commodi-
ty production to restore capitalism. In the three years of natural calamities
from 1960 to 1962, the Liu Shao-ch’i clique unscrupulously advocated an
extension of the privately retained plot, an uncontrolled development of the
225
Fundamentals of Political Economy
free market, and a system of “internal responsibility for profit and loss” in
the state economy. Their intention was to use the principle of capitalist
commodity production to “transform” the socialist economy and restore the
capitalist system in China. Chairman Mao was the first to discover this evil
intention of the Liu Shao-ch’i clique. He led the whole Party to solemnly
criticize and repudiate the revisionist line carried out by the Liu Shao-ch’i
clique so that China’s commodity production could develop progressively
along the socialist path.
The Socialist Production Process Is a Unity of the Labor
Process and the Value-Creation Process
The duality of socialist products is reflected in the duality of the produc-
tion process for socialist products. As production for direct social products,
it is a labor process which creates in a planned manner various use values to
satisfy the needs of the proletariat and the whole laboring people. As com-
modity production, the labor of the producer not only creates various con-
crete use values but also exchange values. The socialist production process
is a unity of this labor process and the value-creation process. The character-
istics of socialist production can only be determined with reference to the
characteristics of the socialist labor process and value-creation process.
Abstracting from various specific social conditions and examining it
from the viewpoint of the functions performed by the various primary fac-
tors of production, the labor process is merely a process through which the
people who possess labor power embody it in materials, creating expected
products — it is a purposeful activity for creating use value, it is a process of
material transformation between man and Nature. However, all production
processes are carried on under certain social conditions. Therefore, labor
processes reflect the relations not only between man and Nature, but also
among men.
Looking at it from this viewpoint, there is a fundamental difference be-
tween the labor process under socialism and the labor process under capital-
ism.
The labor process under the capitalist system is a process in which the
capitalist consumes labor power. Its characteristics are: The worker labors
under the supervision of the capitalist, and labor products belong to the capi-
talist, that is, labor under the capitalist system is hired labor, slave labor, and
hard labor performed by the exploited.
Under the socialist system, for the first time the laboring people become
masters of the state and the enterprise. Consequently, there appear in the
socialist labor process new characteristics without historical precedent. Len-
in said: “Every factory from which the capitalist has been expelled, or at
least in which the capitalist is controlled by genuine worker supervision, and
every village from which the landlord exploiter has been expelled and his
226
 15. Develop Socialist Production with Greater, Faster, and Better Results
land expropriated only then becomes the domain of the laborer. Here, the
laborer can express his talent, keep his back straight, be proud of himself,
and feel that he too is a human being. He has been toiling for others for mil-
lennia, performing hard labor for exploiters. Now for the first time, he can
work for himself, using all the newest achievements of technology and cul-
ture.” (5) The socialist labor process is a process in which the worker, the
peasant, and other laborers create material wealth for the laboring class it-
self. Its characteristics are: The laboring people, as their own masters, are
engaged in organized and planned labor in socialist production. The whole
labor product is distributed by the laboring class itself. Therefore, socialist
labor is planned labor not subject to exploitation and is voluntary labor of
the laboring people for the creation of social wealth.
However, the socialist society is a society with classes. In addition to the
laboring class, there is the exploitative class. The former exploiters must also
labor in the socialist society in which consumption depends on labor. Super-
vised labor is imposed on the landlords, the rich peasants, and members of
other antagonistic classes. The bourgeois elements are allowed to reform
through labor in the enterprise. The treatment given to these two exploitative
classes is different because the nature of their contradictions with the labor-
ing people is different. But as exploiters, their labor necessarily carries with
it varying degrees of coercion. Naturally, this coercion imposed on the ex-
ploiter by the laborer is fundamentally different from the coercion imposed
by the exploiter on the laborer. In the past, the exploiter coerced the laborer
to labor in order to exploit the surplus value of the laborer. Now the laborer
coerces the exploiter to labor in order to transform him into a new person.
Therefore, the socialist labor process is also a process for reforming the ex-
ploiter. This is to say, the socialist labor process does not merely involve
material conversion between man and Nature but also contains social and
class reform.
As far as the laboring people are concerned, the socialist labor process
still carries with it traditions and influences of the old society. This is be-
cause the old social division of labor left behind by the capitalist society can
only gradually be eliminated in the whole historical stage of socialism. The
position of the laboring people in socialist production cannot but be restrict-
ed and affected by the old social division of labor: Some people are primari-
ly engaged in mental labor, while some people are primarily engaged in
physical labor; some people occupy a position of leadership and manage-
ment in production, while others occupy the position of being direct produc-
ers. The opposition between mental and physical labor is one of the most
important sources of inequality in the capitalist society. The socialist society
has overcome this opposition. But an essential difference still exists. This
essential difference can also develop into opposition under certain condi-
tions. The Soviet Union, under the rule of the Brezhnev renegade clique, is
227
Fundamentals of Political Economy
ruled precisely by the bureaucratic monopoly bourgeoisie, namely, a handful
of “people using their brains” including Party bureaucrats, intellectual aris-
tocrats, and technical bureaucrats. Therefore, the process by which the labor-
ing people come to be the masters of society and enterprise in socialist socie-
ty is a long process of struggle. It is not only a process of struggle with the
bourgeoisie and its agents in the Party, but also a process in which favorable
conditions are created gradually to eliminate the essential difference between
mental and physical labor. In the socialist period, although all the laboring
people are free from exploitation, labor has still not become the primary
commitment in the lives of all the laborers. This remaining tradition and in-
fluence of the old society concerning the nature of labor can only finally be
swept away in the highest stage of communism.
These characteristics of the socialist labor process are also reflected in
the value-creation process.
Every commodity embodies the duality of labor: Concrete labor creates
use values, while abstract labor creates exchange values. Value reflects cer-
tain social relations. Under different social and economic conditions, the
social relations reflected by value are different and so is the formation of
value.
Under the conditions of a simple commodity economy, the peasant or
handicraftsman produces using his own means of production. Labor prod-
ucts and their values naturally belong to him. After the commodity is sold,
he gets back the value of the means of production expended in the produc-
tion process. But he also realizes the new value created by his own labor.
This new value compensates for the value of the means of livelihood re-
quired for the reproduction of labor power. This way, the production process
can continue on the scale of simple reproduction. Marx called the value-
formation process under simple commodity production the simple value-
formation process.
Under capitalism, the purpose of commodity production by the capitalist
is to exploit the surplus value of the worker. Through the production and
sale of commodities, the capitalist gets back the value of the means of pro-
duction expended in the production process. At the same time, the new value
created by the labor of the worker not only compensates for the variable cap-
ital used by the capitalist to purchase labor power, but also creates a surplus.
This surplus is the surplus value extracted by the capitalist. Marx called this
value-formation process in capitalist production the value- augmenting pro-
cess. This category of the value-augmenting process reflects the exploitative
relations between capital and hired labor.
In the socialist production process, the labor of the laborer, as concrete
labor, transfers and preserves the value of the means of production expended
in the production process. As abstract labor, it creates new value. Should this
new value created by the producer belong totally to the producer himself?
228
 15. Develop Socialist Production with Greater, Faster, and Better Results
No. To realize socialist expanded reproduction and to satisfy the various
common needs of the laborers, society must control various social funds.
These social funds can only come from the new value created by the produc-
er. If the newly created value belongs entirely to the producer himself, then
the socialist economy will not be able to carry on expanded reproduction. It
can only maintain simple reproduction. The common needs of the laborers
cannot be satisfied either. Therefore, in the socialist society, the new value
created by the producer must be divided into two parts. One part is at the
disposal of the producer himself. It constitutes the labor remuneration fund
for the producer and is used to satisfy personal livelihood needs of the pro-
ducer. Another part is at the disposal of society. It constitutes various social
funds, namely, social net income, and is used to further develop socialist
production and satisfy the various common needs of the whole laboring peo-
ple. Consequently, as a producer, a part of the new value created by him has
to be deducted for the disposal of society as social funds. As a member of
the laboring people, he is fully entitled to enjoy, with the other laboring peo-
ple, the welfare brought about by the social funds. Therefore, the distribution
of the new value created by the producer into the labor remuneration fund
and the social fund under the socialist system is fundamentally different
from the distribution of the new value created by the worker into wages and
surplus value under the capitalist system. Under the capitalist system, labor
is a commodity and is subject to the law of value. Wage means the price of
labor power. No matter how large the newly created value is, the part that
belongs to the worker himself is only equal to the value of those means of
livelihood necessary for the reproduction of labor power. The rest, namely,
the surplus value, is not only possessed by the capitalist, but is used as a
means to increase the exploitation of the worker. Under the socialist system,
labor power is no longer a commodity. The laborer is no longer exploited.
All of the value created by the producer is at the service of the laboring
class. The distribution of the labor remuneration fund of the producer and
the social fund is regulated by an overall consideration of common and indi-
vidual interests and the long-term and short-term interests of the laboring
people.
Consequently, the value-formation process under the socialist system is
different not only from the simple value-formation process under simple
commodity production but also from the value-augmenting process in capi-
talist production. It is a special value-creation process reflecting socialist
production relations. The socialist production process is a unity of this labor
process and the value-creation process.

229
Fundamentals of Political Economy

The Basic Economic Law of Socialism Embodies the

Most Essential Relations of Socialist Production
The Purpose of Socialist Production Is to Satisfy the Ever-
Increasing Needs of the State and the People
The socialist production process is a unity of the labor process and the
value-creation process. What then is the dominant aspect of the contradiction
in this duality?
One dominant aspect of the contradiction in social production embodies
the objective purpose of this social production and reflects the most essential
relations of this social production. It is independent of the people’s will; it is
ultimately determined by the nature of the ownership of the means of pro-
duction. Social production has to serve the interests of the class who owns
the means of production.
Under the capitalist ownership system of the means of production, the
labor process also provides use values. But this is not the purpose of capital-
ist production. The capitalist operates factories in order to exploit the worker
and obtain profit through the value-augmenting process. Value augmentation
is the dominant aspect of capitalist production. It embodies the most essen-
tial relations in capitalist production. Marx pointed out, “The purpose of cap-
ital accumulation is not the satisfaction of needs but the production of prof-
it.” (6) “Capital and its accumulation are manifested as the beginning and the
end of production and the motive and purpose of production.” (7)
The socialist public ownership system of the means of production makes
the laboring people become the masters of production. Social production
must serve the needs of the whole laboring people. Therefore, a labor pro-
cess that creates use values in a planned manner to satisfy the needs of the
laboring people is the dominant aspect of socialist production. It embodies
the objective purpose of socialist production and the most essential relations
of socialist production. The value-creation process is subordinate to the so-
cialist labor process which creates use values. In the socialist production
process, it is entirely necessary to compute labor expenditure, profit, and
loss. But, what and how much to produce cannot be affected by the size of
the value of production and the size of profit. Instead, they should be based
on the needs of the whole laboring people. Whatever is urgently needed by
the laboring people should be produced in greater quantity with the greatest
possible effort, even at the risk of temporary losses. On the other hand, any-
thing that is not urgently required by the laboring people, even if its value of
production and profits are high, cannot be indiscriminately produced in great
quantity. The reason why it is necessary for the socialist enterprise to com-
pute labor expenditure, profit, and loss is in order to reduce costs so that the
enterprise can be compensated in value and can also provide an ever-

230
 15. Develop Socialist Production with Greater, Faster, and Better Results
increasing social fund for developing production at a high speed and increas-
ing the supply of social product. Ultimately, the subordination of the value-
creation process to the labor process is for the purpose of creating an ever-
increasing quantity of social wealth to satisfy the needs of the whole labor-
ing people. Before the victory of the October Revolution, Lenin pointed out
that in socialist society, “the wealth created by common labor is for the ben-
efit of the whole laboring people and not for that of a handful of rich peo-
ple.” (8)
The purpose of socialist production is to satisfy the needs of the whole
laboring people. But the long-term interests of the laboring people and their
interests as a whole have to be reflected and expressed through the state un-
der proletarian dictatorship. Therefore, the purpose of socialist production
can also be described as the satisfaction of the ever-increasing needs of the
socialist state and its people. These needs are multifaceted. To develop their
morals, intelligence, and physique, there is a need for the proletariat and the
laboring people continually to raise the level of their material and cultural
life. Since classes, class contradictions, class struggle, the danger of capital-
ist restoration, and the threat of sabotage and aggression from imperialism
and social imperialism still exist in the socialist society, there is a need for
the socialist country to consolidate proletarian dictatorship and strengthen
national defense. And since the proletariat can once and for all liberate itself
only by liberating the whole human race, there is a need for the socialist
country to discharge its obligation to internationalism and support the revo-
lutionary struggles of the peoples of the world. Therefore, the purpose of
socialist production is to raise the level of the material and cultural life of the
proletariat and the laboring people, consolidate proletarian dictatorship,
strengthen national defense, and support the revolutionary struggles of the
peoples of the world. Ultimately, it must serve to eliminate classes and real-
ize communism.
The great strategic policy formulated by Chairman Mao to “be prepared
for war, be prepared for natural disasters, and do everything for the people”
fully embodies the objective purpose of socialist production and points out a
correct direction for the development of China’s socialist production and the
whole national economy. Under the guidance of Chairman Mao’s proletarian
revolutionary line and his general and specific policies, China’s socialist
production develops vigorously. The level of the people’s material and cul-
tural life is increasing all the time. Proletarian dictatorship is continually
being strengthened and consolidated. Within our capacity, we have given aid
to the world’s revolutionary enterprises.
In the Soviet Union under the rule of the Brezhnev renegade clique, the
law of surplus value governs social production. The purpose of production is
to pursue profit and to guarantee that the largest possible amount of surplus
value is extracted from the laboring people of the Soviet Union by the bu-
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Fundamentals of Political Economy
reaucratic monopoly bourgeoisie. But in order to deceive the masses, the
Soviet revisionist renegade clique morbidly clings to pseudo-communism.
They try hard to distort the purpose of socialist production and say some-
thing like: “The highest purpose is to raise people’s welfare.” “Everybody
will have enough food, clothing, shoes, housing, and books. We call this
communism.” This renegade clique deceives the masses with the sweet talk
of bourgeois welfare. The intent is to make them forget class struggle and
revolution in order to facilitate this renegade clique’s restoration of capital-
ism. In the Soviet Union, the only people who eat well, dress well, and are
properly sheltered are the bureaucratic monopoly bourgeoisie and the revi-
sionist intellectual aristocracy under their wing. The broad laboring people
have again fallen into an abyss of exploitation and suffering.
Grasp Revolution. Promote Production
The dominant aspect of the socialist production process, namely, the
most essential thing that determines socialist production, is the satisfaction
of the ever-increasing needs of the state and the people. To realize this pur-
pose, social production must be developed in order to increase total social
output. Marx and Engels pointed out in the Communist Manifesto that after
the proletariat has overthrown bourgeois rule, it will use its political rule to
expropriate the capitalist. “[It] will put all tools of production into the hands
of the state, namely, the proletariat who has organized itself into a ruling
class, and increase total productivity as fast as possible.” (9) When China
was faced with the transition from the new democratic revolution to the so-
cialist revolution and the shift of emphasis of Party work from the rural areas
to the urban areas, Chairman Mao also earnestly taught us to pay attention to
the rehabilitation and development of production, saying, “From the day
when we take over the administration of the city, our eyes have to focus on
the recovery and development of this city’s production enterprise.” (10)
There are generally two ways of developing social production and in-
creasing total social output. One is to increase the labor force in production
as population increases. In general, this may increase the total social output,
but it cannot increase per capita product. Another way is to increase labor
productivity. This not only increases total social output, but also per capita
product. From the long-range viewpoint, the major way to develop socialist
production can only be by increasing labor productivity. When he discussed
the significance of increasing labor productivity, Lenin said, “Only by in-
creasing production and increasing labor productivity can Soviet Russia ob-
tain victory.” (11) He also said, “Labor productivity is the most important
thing that ultimately guarantees the victory of a new social system.” (12)
How then can labor productivity be increased to develop socialist pro-
duction?
Marxism holds that productive forces develop under the constraint and
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 15. Develop Socialist Production with Greater, Faster, and Better Results
impetus of production relations. In class society, production is always car-
ried on under certain class relations. Even though changes and developments
in social production always start from changes and advances in productive
forces, big advances in productive forces always occur after big transfor-
mations in production relations. In the beginning of capitalist development,
it is always necessary to have a bourgeois revolution to make capitalist pro-
duction relations become the major economic basis of society before big
advances in the productive forces occur. In socialist society, it is also only
after the establishment of proletarian dictatorship, the penetrating unfolding
of socialist revolution, socialist nationalization, and agricultural collectiviza-
tion, and the establishment of socialist production relations as the only eco-
nomic basis of society that big advances in the productive forces can occur.
When the socialist transformation of the ownership system of the means of
production is basically completed, revolution is not yet finished. In produc-
tion relations, only by consolidating socialist production relations corre-
sponding to the development of productive forces and opportunely adjusting
or transforming that part of production relations which conflicts with the
development of productive forces can socialist production be developed con-
tinuously and rapidly.
Advances in science and technology and innovations in production tools
play a big role in developing production and raising labor productivity. But,
“the determining factor is the people, not things.” (13) Science and tech-
nology are discovered by people, and production tools are created by people.
“Of all things in the world, people are the most valuable. Under the leader-
ship of the Communist Party, any miracle of the human world can be created
if we have people.” (14) The broad masses of China put it well: “Fear not
the lack of machines; fear only the lack of ambition. With one red heart and
two hands, everything can be produced through self-reliance.” The socialist
activism of the broad masses must be mobilized by the political and ideolog-
ical work of the Party. Only by lifting the key link of political and ideologi-
cal work, by widely and deeply mobilizing the masses to discuss major na-
tional issues, by criticizing and repudiating revisionism, the Confucian and
Mencian mentalities and all world outlooks of the exploitative class, and by
fundamentally raising the consciousness of the broad masses concerning
class struggle and line struggle can socialist production be continuously and
rapidly developed.
Therefore, in socialist society, the ultimate way to develop production
and increase labor productivity is to insist on continuing revolution under
proletarian dictatorship. After the proletariat seizes political power, only by
exercising the influence of the socialist superstructure to unfold penetrating-
ly socialist revolution on the political, economic, and ideological battlefronts
under the guidance of the Party’s correct line and with the aid of government
power under proletarian dictatorship can the sabotage and obstruction of the
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Fundamentals of Political Economy
bourgeoisie and capitalist influence be swept away and destroyed. Only then
can socialist production relations be consolidated and improved and can all
constructive factors be mobilized to promote the development of socialist
production at a high speed. The policy “grasp revolution and promote pro-
duction” formulated by Chairman Mao correctly reflects the requirement of
the objective law governing the motion of the basic contradiction of socialist
society. This policy teaches us that only by commanding all economic work
with proletarian politics and propelling production with revolution can Chi-
na’s socialist production be guaranteed to advance with big strides in the
correct direction.
The revisionist clique of Brezhnev, Liu Shao-ch’i, and Lin Piao always
uses the reactionary “productivity-first theory” to oppose continuous revolu-
tion under proletarian dictatorship. This renegade clique always deals with
production as production and opposes revolution under the pretext of devel-
oping production. It even attributes the development of production wholly to
the development of science and technology and the improvement of produc-
tion tools to a reliance on bourgeois experts. The revisionist line pushed by
the clique of Liu Shao-ch’i and Lin Piao has been overthrown, but the lin-
gering poison of this “productivity-first theory” has not been completely
swept away and has to be criticized and repudiated repeatedly.
The Basic Economic Law of Socialism Determines All Major
Aspects of Development of the Socialist Economy
The objective purpose of social production and the means to realize it
express the basic direction of development of social production and embody
the requirement of the basic economic law of society. Different social and
economic systems have different purposes of production and different means
to achieve it. Consequently, there are different basic economic laws. The
purpose of socialist production is to satisfy the ever-increasing needs of the
state and the people. The means to attain this purpose is by propelling the
development of technology and production through revolution. Therefore, to
sum up briefly, the major characteristics and requirements of the basic eco-
nomic law of socialism are: to continually increase the level of technology,
develop socialist production with greater, faster, and better results at lower
costs, satisfy the ever-increasing needs of the state and the people, and create
the material conditions for the ultimate elimination of classes and the reali-
zation of communism under the command of proletarian politics.
The basic economic law of socialism determines all major aspects of
development of the socialist economy and the basic content of socialist pro-
duction, exchange, distribution, and consumption.
As far as production is concerned, what and how much to produce and
how production should be arranged in the socialist society must follow what
this law demands. In setting up plans, the socialist country specifies the vari-
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 15. Develop Socialist Production with Greater, Faster, and Better Results
ety, quantity, and arrangement of production according to the requirements
of the basic economic law of socialism in order to make the development of
socialist production conducive to consolidating proletarian dictatorship,
strengthening national defense, supporting the revolutionary struggles of the
peoples of the world, and continually increasing the level of material and
cultural life of the laboring people.
Socialist exchange must also obey the requirements of the basic eco-
nomic law of socialism. In determining the proportion of export and import,
the proportion of military and civilian use, the proportion of supply to the
rural and the urban areas, and the prices of products, the first thing that the
socialist country considers is not how much money can be obtained or how
much the profit is. The first thing it considers is whether the arrangement is
favorable to increasing the level of material and cultural life of the laboring
people, consolidating the worker-peasant alliance, strengthening national
defense, and supporting the revolutionary struggles of the peoples of the
world.
The basic economic law of socialism also determines socialist distribu-
tion and consumption. In the distribution of national income and personal
consumption goods, the socialist state must obey the requirements of the
basic economic law of socialism. For example, the determination of the pro-
portion between accumulation and consumption and the level of wages must
take into account both long-term and immediate interests and the collective
and individual interests of the laboring people. Similarly, socialist consump-
tion, whether it be group or individual consumption, must be favorable to
continually improving the material and cultural life of the proletariat and the
laboring people, revolutionizing people’s thought, fostering new socialist
customs, consolidating proletarian dictatorship, and accelerating socialist
construction.
In summary, the basic economic law of socialism embodies the most es-
sential links between socialist production, exchange, distribution, and con-
sumption. It determines the ultimate direction of development of the socialist
economy. The correct understanding and use of the basic economic law of
socialism can strengthen our self-awareness, overcome blind impulses in our
work, and help us to advance with big strides in the correct socialist direc-
tion.

The Rapid Development of Socialist Production Is a

Unity of Objective Possibility and Subjective
Initiative

235
Fundamentals of Political Economy

The Socialist System Can Make Production Develop at Speeds

Which Would Be Impossible for the Old Society
The purpose of socialist production is to satisfy the ever-increasing
needs of the state and the people. The degree of satisfaction of these needs is
closely related to the speed with which production develops. The consolida-
tion of national defense in the socialist country, the development of cultural,
educational, and health facilities in socialist society, the improvement of the
material and cultural life of the people, and aid to the revolutionary enter-
prises of the world’s peoples all require rapid development of socialist pro-
duction to create the material preconditions. Also, because imperialist rule is
always overthrown at its weakest link, the first countries in which socialist
revolution is successful are likely to have a relatively weak industrial basis.
This all the more increases the objective necessity for rapidly developing
socialist production.
Under the socialist system, it is not only necessary, but possible, to have
rapid development of production. Chairman Mao pointed out: “When we say
socialist production relations are more suitable for developing the productive
forces than the old production relations, we are referring to the conditions in
which the productive forces are permitted to develop at speeds which would
be impossible in the old society, and consequently, the ever- increasing
needs of the people can be satisfied by continually expanding production.”
(15) Therefore, a rapid development of socialist production is not a mere
hope, but is based on an objective possibility of socialist production rela-
tions. It is a manifestation of the superiority of the socialist system.
How can socialist production relations propel production and the whole
national economy to develop at high speed?
First of all, the socialist system provides wide-ranging possibilities for
the exercise of the production activism and creativity of the laboring people.
Under the socialist system, the proletariat and the laboring people are no
longer sellers of labor power. They have freed themselves from enslavement
and exploitation and have become masters of the new society. They no long-
er perform hard labor for any exploiter but instead work for the interests of
their own class. Labor has become a glorious and great career. This change
in the position of the laboring people in social production makes them begin
to really concern themselves with production as masters and exercise their
inexhaustible talents. People with the ability to labor are the most important
factor in production. That socialist production relations can propel produc-
tion to develop at a high speed is primarily because the activism and creative
talents of the laboring masses which have been suppressed under the capital-
ist system are now liberated.
Second, the socialist system eliminates the immense waste of manpow-
er, material resources, and finances that is inevitable under competition and

236
 15. Develop Socialist Production with Greater, Faster, and Better Results
the chaotic conditions of capitalism. The socialist country can fully and ra-
tionally utilize labor and material resources by using a unified plan to direct
the development of the whole national economy, using facilities and natural
resources in a planned and rational manner, and training and allocating labor
power in a planned and rational manner.
Third, the socialist revolution has eliminated the system of man exploit-
ing man and has made it possible to use that part of the wealth which was
formerly used by a handful of exploitative classes on parasitic consumption
to improve the livelihood of the laboring people and to develop socialist
production.
Fourth, the socialist system has cleared a wide road for a rapid devel-
opment of science and technology. Under the capitalist system, new tech-
nology is used only when it can bring more profit to the capitalist. New
technology that has already been adopted is monopolized by the capitalist as
“trade secrets.” This inevitably restricts the development of new technology.
Under the socialist system, the adoption of new technology is for the sake of
saving labor expenditure in production. It is also for the sake of reducing the
labor intensity of the laboring people and improving labor conditions. There-
fore, the development of science and technology becomes a conscious de-
mand of the laboring people. Furthermore, the advanced experience in tech-
nical innovations of any one socialist enterprise is the common property of
the laboring people. It can be quickly adopted by other enterprises after
summing up and extension.
Fifth, the socialist system has eliminated the contradictions between
production increase and the relative decrease of mass purchasing power pe-
culiar to capitalism. This is because with the development of socialist pro-
duction, the consumption level of the proletariat and the laboring people
steadily increases and the scale of national construction steadily expands.
Economic crises due to overproduction never occur. This clears away artifi-
cial obstacles to the rapid development of production.
Although the objective possibility exists in the socialist system for a rap-
id development of production, there also exist some factors which under-
mine and inhibit the rapid development of production. Examples are the
sabotage activities of the bourgeoisie and its agents, the obstruction from the
established influence of the petty bourgeoisie, the ravages brought about by
natural calamities, and so forth. In addition to the objective existence of
these social and natural factors, there are also subjective factors related to
the proletariat itself. On their way to unfolding socialist revolution and so-
cialist construction, the proletariat will certainly be faced with new situations
and new problems. In order to understand the objective law of the new situa-
tion and to find correct methods to solve the new problem, a period of time
is needed to accumulate experience. Socialist construction is not expected to
proceed smoothly; it can only advance in a wavelike manner. To turn the
237
Fundamentals of Political Economy
objective possibility into a reality of rapid development, our subjective ef-
forts are required. Here a Marxist line which correctly reflects the objective
law plays a determining role. Once the line is correct, the political party of
the proletariat, good at summing up rich practical experience, will be able to
lead the whole laboring people to overcome the sabotage of the class enemy
and the obstruction of natural calamities and realize rapid development of
socialist production.
The General Line Is a Compass for Building Socialism with
Greater. Faster, and Better Results at Lower Costs
After summing up the internal and external experience and lessons in
socialist construction, in 1958 Chairman Mao formulated the General Line
“go all out, aim high, and build socialism with greater, faster, and better re-
sults at lower costs.” It is a Marxist line that fully utilizes the superiority of
the socialist system, fully exercises the subjective initiative of people, and
seeks to build socialism with greater, faster, and better results at lower costs.
The General Line for socialist construction requires the unification of
greater, faster, and better results at lower costs in socialist construction.
“Greater” refers to the quantity of products, “faster” refers to time, “better”
refers to quality, and “lower costs” refers to less labor expenditure. The re-
quirements of greater, faster, and better results at lower costs are mutually
reinforcing as well as interdependent. If we pay attention only to greater and
faster results at the expense of better results and lower costs, the result will
be poor quality and high costs. From the viewpoint of the long term and the
whole situation, it does not really cause greater and faster results but rather
smaller and slower results. If we pay attention only to better results and low-
er costs at the expense of greater and faster results, although product quality
may be high, there will not be enough produced. The speed of construction
will be too slow to satisfy the needs of the state and the people. Only if we
can build socialism with greater, faster, and better results at lower costs can
there by a truly rapid development and can the ever- increasing needs of the
state and the people be satisfied to the greatest possible extent. The General
Line for socialist construction and a whole series of “walking-on-two-legs”
policies formulated by Chairman Mao enable industry and agriculture, heavy
and light industry, large-scale, medium, and small-scale industry, production
by foreign and indigenous methods, and so forth to complement and pro-
mote each other, thus guaranteeing the balanced development of the various
sectors of China’s socialist national economies. This General Line correctly
reflects the objective requirements of the basic economic laws of socialism,
the law of rapid development in socialist production and the law of planned
development of the national economy, and the revolutionary will of the peo-
ple of the whole country to demand a rapid change in the backward appear-
ance of the country.
238
 15. Develop Socialist Production with Greater, Faster, and Better Results
How can greater, faster, and better results at lower costs be achieved and
smaller, slower, and worse results at higher costs be avoided in socialist con-
struction? The key lies in fully mobilizing mass activism in building social-
ism. Marxism has long held that “historical activities are the enterprise of the
masses.” (16) Chairman Mao teaches, “People, and only people, are the mo-
tive force of history.” (17) Chairman Mao pointed out more than once that
the masses have to be relied upon to seize political power and build social-
ism. The Lin Piao clique, loyal disciples of Confucius, slandered the masses
in every possible way. They boasted that their “brains are not those of the
ordinary peasant, nor those of the ordinary worker.” They tried hard to ped-
dle a Confucian fallacy that “only the most intelligent and most stupid are
not subject to change,” fully exposing their position as diehard enemies of
the people. Numerous facts demonstrate that the most humble is the most
intelligent and the most noble is the most stupid. Only by fully trusting the
masses, relying on the masses, respecting the innovative spirit of the masses,
mobilizing all constructive factors, uniting all people that can be united, and
as much as possible, converting destructive factors into constructive ones
can socialist revolution be victoriously unfolded on the political, economic,
ideological, and cultural battlefronts and can socialist production and scien-
tific, cultural, and educational enterprises be developed with greater, faster,
and better results at lower costs. The General Line for socialist construction
emphasizes the combination of Party leadership and the broad people and is
a new development of the Party’s mass line on socialist construction.
“Going all out and aiming high” refers to the spiritual condition and
subjective initiative of people. This shows that the General Line gives prom-
inence to having proletarian politics in command and emphasizes the role of
the revolutionary drive of the masses in socialist construction. The Party’s
task in socialist construction is to lift the key link of political- ideological
work, raise the socialist consciousness of the people with respect to social-
ism, help the masses master the Party’s Marxist line and general and specific
policies, and mobilize and organize the broad masses to struggle for the
great enterprise of building socialism. Chairman Mao teaches us: “Social
wealth is created by the worker, the peasant, and the educated. As long as
these people control their destiny, have a Marxist-Leninist line, and solve
problems with a constructive attitude rather than avoiding them, any difficul-
ty in the human world is solvable.” (18) Once the broad revolutionary mass-
es has mastered the Party’s Marxist line, an immense revolutionary drive
will be aroused and will become a substantial material force for creating
miracles in the human world. The Great Leap Forward in China’s national
economy appeared because of this.

239
Fundamentals of Political Economy

Realize a Great Leap Forward in the National Economy

through Independence and Self-Reliance
Under the guidance of the General Line, “Go all out, aim high, and build
socialism with greater, faster, and better results at lower costs,” the working
class and the whole laboring people of China are high-spirited and combat
ready. Their revolutionary spirit of daring to think, speak, and act is sky-
high. The upsurge in socialist competition to compare with, learn from, and
catch up to the advanced and to help the backward is rising to an ever- great-
er height. The correct leadership of the Party’s Marxist line enables China’s
national economy to develop vigorously through independence and self-
reliance. A great leap forward situation has appeared.
Under the oppression and enslavement of imperialism, feudalism, and
bureaucratic capitalism, the broad laboring people of China were in the grips
of tremendous hardship and suffering. The national economy was at a stand-
still. For a long time, many industrial products for daily use were all import-
ed from foreign countries. A box of now commonplace matches was called
“foreign fire,” machine-woven fabrics were called “foreign cloth,” and nails
were called “foreign nails.” There were also “foreign umbrellas,” “foreign
oil,” and so forth. Foreign goods flooded the domestic market, driving out
China’s domestic industries. This was what was left behind by old China.
Since liberation, under the wise leadership of the Chinese Communist
Party, the heroic Chinese working class and laboring people have stood up
and are determined to transform the backward old China and construct a
prosperous and strong socialist new China. The basic completion of socialist
revolution in the ownership system of the means of production and the an-
nouncement of the Party’s General Line for socialist construction greatly
propel the development of the socialist construction enterprise. Amid the
seething Great Leap Forward national upsurge, Chairman Mao pointed out:
“We cannot follow the old path of technological development in other coun-
tries and crawl slowly along in others’ footsteps. We must break conventions
and adopt as much as possible new technology and build China into a social-
ist and modern power within a short historical period. The Great Leap For-
ward we are talking about means exactly this.” (19) Under the guidance of
the Marxist line formulated by Chairman Mao and the direction of the policy
of national construction on the basis of independence and self-reliance, the
people of the whole country have developed their own respective industrial
sectors. Not only is the field of light industry complete, it also produces
enough for both self-sufficiency and export. The old days when the streets
were full of imported goods are completely over. China’s own machine-
building industry, metallurgical industry, chemical industry, scientific in-
struments and meters industry, and electronics industry have rapidly been
established and developed. In the development process of socialist industry,

240
 15. Develop Socialist Production with Greater, Faster, and Better Results
the lopsided concentration of industry in the maritime provinces which ex-
isted in old China has been changed. New industrial bases in the interior
have been built, thus gradually rationalizing the location of production ca-
pacities and meeting the needs of China’s economic construction and na-
tional defense construction. In the practice of the Three Great Revolutionary
Movements, new scientific and technical manpower has rapidly expanded,
and the level of science and technology is rising continually. Many large
pieces of precision equipment and major projects can now be designed and
manufactured by us without outside help. On this basis, China has exploded
atomic and hydrogen bombs and sent up man- made satellites. China was the
first country in the world to successfully synthesize insulin, making an im-
portant contribution to the inquiry concerning the origin of life. China was
the first country in the world to successfully manufacture a double internal
water-cooling turbogenerator. Under the guidance of Mao Tsetung Thought,
the Chinese people have broken through one after another scientific and
technological barriers and have set new records by leaps and bounds. With
the soaring leap in the development of industry, science, and technology,
China’s agricultural mechanization is also rapidly pushing ahead. Significant
achievements have been won in China’s farmland water control construc-
tion, and the effective irrigation acreage has greatly expanded. The “eight-
character charter” of soil, fertilizer, water, seeds, close planting, plant pro-
tection, and field management for higher agricultural output has been widely
practiced.
In the development process of China’s socialist construction, because of
the sabotage and interference of the revisionist line pushed by the Liu Shao-
ch’i and Lin Piao clique, a certain “hesitation” once appeared for some time
in some sectors. This was a manifestation of class struggle and the struggle
between the two lines in the process of socialist construction. It is a struggle
between progress and retrogression. Judging from the whole process and
from the whole situation since the establishment of the Republic, China’s
national economy has been developing by leaps and bounds under the guid-
ance of the dominant Marxist line formulated by Chairman Mao. From 1949
to 1970, China’s total value of agricultural production increased by 1.5
times. The total value of industrial production increased by more than 18
times. Along with the development of industrial and agricultural production,
China’s communications and transportation, commerce, money and finance,
and cultural and educational enterprises have also rapidly advanced. The
level of material and cultural life of the people has also been raised substan-
tially. These indisputable facts cannot be denied by anyone. The Lin Piao
clique vainly attempted to negate the brilliant achievements obtained by the
Chinese people under the illumination of the General Line by slanderously
saying that “the national economy is stagnant.” This merely further exposed
their position as agents of imperialism, revisionism, and reaction, their ha-
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Fundamentals of Political Economy
tred for socialism, and their wolfish ambition to restore capitalism.
The brilliance of the Party’s basic line for the whole historical stage of
socialism and the General Line for socialist construction illuminates our big
strides forward. Our great socialist motherland is prospering and progress-
ing. When we look to the future, we feel confident and expansive.
What the Western bourgeoisie failed to do, the Eastern proletariat must
and can achieve!
Major Study References
Lenin, “More on the Trade Union, the Present Situation, and the Errors
of Trotsky and Bukharin.”
Stalin, Socialist Economic Problems of the Soviet Union.
Chairman Mao, “We Must Pay Attention to Economic Work”
Review Problems
1. Why do we say that there is still a duality in socialist products and the
socialist production process?
2. What are the major characteristics and requirements of the basic eco-
nomic law of socialism? Why do we say that in order to realize the purpose
of socialist production, it is necessary to correctly handle the relations be-
tween politics and production and between politics and economics?
3. How do we carry through the Party’s General Line for socialist con-
struction in our practice?
Notes
* To k’uai hao sheng ti fa-chan she-hui-chu-i sheng-ch’an — she-hui-
chu-i sheng- ch’an ti hsing-chih mu-ti ho ta-tao mu-ti ti shou-tuan.
1) Engels, Anti-Dühring. Selected Works of Marx and Engels. Vol. 3,
Jen-min ch’u- pan-she, 1972, p. 348.
2) Ibid., p. 347.
3) “Instructions (Draft) to the Soviet Organs of Various Areas by the
Labor National Defense Committee,” Complete Works of Lenin. Vol. 32, p.
374.
4) “Resolutions on Several Issues concerning the People’s Commune,”
Documents of the Sixth Plenum of the Eighth Central Committee of the Chi-
nese Communist Party. Jen-min ch’u-pan-she, 1958, p. 19.
5) “How to Organize Competition?” Selected Works of Lenin. Vol. 3,
Jen-min ch’u- pan-she, 1972, p. 393.
6) Marx, Capital. Vol. 3, Jen-min ch’u-pan-she, 1966, p. 280.
7) Ibid., p. 272.
8) “May First Day,” Complete Works of Lenin. Vol. 7. p. 185.
9) Communist Manifesto. Selected Works of Marx and Engels. Vol. 1,

242
 15. Develop Socialist Production with Greater, Faster, and Better Results
Jen-min ch’u- pan-she, 1972, p. 272.
10) “Report to the Second Plenum of the Seventh Central Committee of
the Chinese Communist Party,” Selected Works of Mao Tse-tung. Vol. 4,
Jen-min ch’u-pan-she, 1968, p. 1318.
11) “Eighth Congress of the Whole of Soviet Russia,” Complete Works
of Lenin. Vol. 31, p. 454.
12) “The Great Innovation,” Selected Works of Lenin. Vol. 4, Jen-min
ch’u-pan-she, 1972, p. 16.
13) “On Protracted War,” Selected Works of Mao Tse-tung. Vol. 2, Jen-
min ch’u-pan- she, 1968, p. 437.
14) “The Bankruptcy of the Idealist Interpretation of History,” Selected
Works of Mao Tse-tung. Vol. 4, Jen-min ch’u-pan-she, 1968, p. 1401.
15) “On the Correct Handling of Contradictions among the People,” Se-
lected Readings from the Works of Mao Tse-tung, (Type A), Jen-min ch’u-
pan-she, 1965, pp. 336-37.
16) “The Sacred Clan,” Complete Works of Marx and Engels. Vol. 2, p.
104.
17) “On Coalition Government,” Selected Works of Mao Tsetung. Vol.
3, Jen-min ch’u-pan-she, 1968, p. 932.
18) Chairman Mao, “Comments on ‘The Party Secretary Participates
Physically, the Whole Party Operates the Cooperative,”’ Socialist Upsurge
in China’s Countryside. Vol. 1, pp. 5-6.
19) Quoted from Hung-ch’i [Red Flag], 1965, No. 1.

243
16. The Socialist Economy Is a Planned
Economy
Planned and Proportional Development of the
National Economy*
Any social production involves a problem of regulating social labor, that
is, the allocation of manpower (live labor) and material resources (embodied
labor) among various production sectors. The regulation of social labor and
production follows certain laws. To correctly identify and make use of the
economic law regulating socialist production and to differentiate it from the
economic law regulating capitalist production is very important for the de-
velopment of socialist production with greater, faster, and better results at
lower costs.

The Law of Planned Development Regulates Socialist

Production
The Law of Planned Development Is the Opposite of the Law
of Competition and Chaotic Production
In any large-scale social production, there exist close relations of mutual
dependence among various production departments. For example, the textile
industry needs agriculture to supply cotton and the machine-building indus-
try to supply spinning and weaving machines; the machine-building industry
needs the iron and steel industry to supply a variety of rolled steel; and the
iron and steel industry needs the coal industry to supply raw coal and the
machine-building industry to supply extracting and digging machines, refin-
ing equipment, rolling equipment, and so forth. All these industrial and min-
ing enterprises need agriculture to supply the means of living, the power
industry to supply electricity, and the communications and transportation
departments to transport raw materials and finished goods for them. These
relations of mutual dependence among various departments and enterprises
demand that they maintain proper proportions among themselves and supply
what they produce to others to satisfy each other’s needs. Otherwise, social
production will be obstructed or even disrupted.
The capitalist society is a society with a high degree of social produc-
tion. What regulates the allocation of social labor among various production
departments in this society? It is regulated by the law of competition and
chaotic production and the law of value. The purpose of capitalist production
is not to satisfy social needs but to realize value-augmentation to obtain
profit. To go after bigger profits, the capitalists are engaged in a life-and-
death struggle among themselves. Like flies going after filth, the capitalist

244
 16. The Socialist Economy Is a Planned Economy
shifts his capital around in response to the spontaneous movements of mar-
ket prices to expand commodity production first in this and then in that de-
partment. Under these conditions, the required proportional relations among
production departments are often violated. Only after spontaneous adjust-
ments through the destruction of production capacities can the violated pro-
portional relations be temporarily restored. Lenin’s statement that “capital-
ism must establish a balance which is regularly violated through crises” (l)
exactly describes this situation.
After the socialist system replaces the capitalist system, economic con-
ditions are fundamentally changed. Socialist production is based on a public
ownership system of the means of production, and its purpose is to satisfy
the needs of the socialist state and the whole laboring people. Under the so-
cialist system, on the one hand, social production is further developed. It is
all the more necessary to allocate social labor according to certain propor-
tions and to maintain a proper balance among various production depart-
ments. On the other hand, the socialist public ownership system of the
means of production turns the laboring people into the masters of produc-
tion. Their basic interests are identical. This eliminates the conflicts of inter-
est among various departments and enterprises which are inherent in capital-
ism. Thus, the socialist state, which represents the interests of the proletariat
and the whole laboring people, can allocate labor power and the means of
production among various departments of the national economy under a uni-
fied plan in accordance with the needs of the state and the people to enable
the various departments of the national economy to develop in a proportional
and balanced manner. It is exactly these economic conditions relied on by
socialist production that eliminate the law of competition and chaotic pro-
duction from the historical stage and render the law of value useless in regu-
lating social production. They also give rise to a new economic law, namely,
the law of planned development of the national economy, to regulate social
production and the development of the whole national economy. These inev-
itable changes after the replacement of capitalism by socialism were fore-
seen scientifically by Engels. He once pointed out, “Once society possesses
the means of production, ...the internal chaotic conditions in social produc-
tion will be replaced by planned and conscious organization.” (2)
The Planned Economy Demonstrates the Superiority of the
Socialist System
The replacement of competition and chaotic production by a planned
development of the national economy is an important aspect of the superiori-
ty of socialism over capitalism.
The socialist planned economy indicates the beginning of man con-
sciously creating his own history. In the capitalist society characterized by
competition and chaotic production, things rule man, rather than man ruling
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things. The laborer cannot control his own fate; nor can the capitalist free
himself from the blind manipulation of those objective economic laws that
operate behind people’s backs. In socialist society, the system of public
ownership of the means of production has been realized, and the laboring
people have become masters of society. They control their own fate and con-
sciously begin to make use of the objective law to create their own history.
These conscious activities to create history are manifested in the process of
practice as gradually identifying the objective law, formulating plans based
on the objective law to transform Nature and society, and realizing anticipat-
ed results through organized activities. Chairman Mao hailed the conscious
activities of China’s laboring people to transform the world under the leader-
ship of the Party and pointed out: “Human development has been going on
for hundreds of thousands of years. In China, the conditions for a planned
development of her own economy and culture have been obtained just now.
With these conditions, the outlook of China will change year after year.
There will be a greater change every five years. An even greater change will
occur after several five-year periods.” (3)
The superiority of the socialist planned economy over capitalist compe-
tition and chaotic production does not lie in its guarantee that the propor-
tional relations among various production sectors can be absolutely balanced
all the time. There is nothing in the world that can develop in an absolutely
balanced manner. In the development process of the socialist economy, bal-
ance is only temporary and relative. Imbalance is permanent and absolute.
Because of the ever-changing conditions between the advanced and the
backward among various enterprises, various sectors, and various regions,
the obstruction and disruption of bourgeois influence, the change in natural
conditions, the limitation of people’s understanding of objective things, and
so forth, conditions in which balance and the proportional relations are upset
will still arise regularly. But, in socialist society, this kind of imbalance
among various production sectors can be overcome continually through peo-
ple’s conscious activities and regulation by the socialist state plan. Com-
pared with the blind groping associated with competition and chaotic pro-
duction, the continual overcoming of imbalance and the establishment of
relative balance through regulation by plans permits the prevention of much
wasted manpower, material resources, and funds so as to achieve a more
rational and full utilization of social labor and to guarantee a rapid develop-
ment of socialist production. Chairman Mao pointed out: “The objective,
long-term existence of the contradictions between social production and so-
cial needs requires the people to regulate them frequently through state
plans. In China, there is an annual plan which arranges for a proper propor-
tion between accumulation and consumption in order to achieve a balance
between production and needs. Here, balance refers to a temporary and rela-
tive unity of contradictions. After one year, speaking as a whole, this balance
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is upset by the struggle within contradictions, and this unity is changed. Bal-
ance turns into imbalance; unity becomes disunity. A second year’s balance
and unity are required.” (4) Those viewpoints which regard the planned de-
velopment of the socialist economy as being free from contradictions and as
balanced development are metaphysical. The correct attitude should be to
conduct scientific analysis of imbalances in the national economy to find out
their different conditions and to prescribe treatment accordingly. After the
appearance of imbalance, we must treat it with a constructive attitude. We
cannot rigidly pull down the high to suit the low. Instead, we must in good
time pull up the backward sectors to establish a new balance according to the
needs and possibilities. Thus, the change from balance to imbalance and
from imbalance to balance in the development process of the socialist econ-
omy implies the breaking down of the old proportional relations and the es-
tablishment of new proportional relations at a higher level of development.
This is precisely the concrete manifestation of the superiority of the socialist
economy.
The Proportional Relations in the National Economy Must Be
Handled Correctly
The socialist economy requires people to regulate the various mutually
dependent sectors in the national economy with plans in order to make them
develop proportionally. What then are the objective proportional relations
among the various sectors of the national economy?
Proportional relations in the national economy are numerous and com-
plex. The main proportional relations are as follows:
First, the proportions between agriculture and industry. Agriculture and
industry are the two basic mutually dependent production sectors. The staff
and workers of the industrial sector require agriculture to supply them with
food grains and various non-staple foods. Light industry requires agriculture
to supply it with raw materials. Both light and heavy industry need the agri-
cultural sector as an important market for their products. On the other hand,
the rural population needs industry to supply industrial products for daily
use. Agricultural production needs industry to supply it with chemical ferti-
lizers, insecticide, agricultural machinery, electricity, and other means of
production. That part of the agricultural products not retained by the agricul-
tural sector also needs industry and the urban population as a market. Be-
cause of the existence of these mutually dependent relations between agri-
culture and industry and because the relations between industry and agricul-
ture are, in fact, relations between the worker and the peasant and between
the state ownership system and the collective ownership system, it is a key
issue in a planned development of the national economy to maintain a proper
proportion between industry and agriculture in order to make them promote
one another in the development process of the socialist economy. This issue
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Fundamentals of Political Economy
will be discussed in greater detail in the next chapter.
Second, the proportions within agriculture. This includes the proportions
among agriculture (crop growing), forestry, animal husbandry, sideline pro-
duction, and fishery, as well as the proportions among food grain, cotton,
vegetable oil, bast fibers, silk, tea, sugar, vegetables, fruit, herbal medicines,
and miscellaneous foodstuffs within crop growing itself. In the whole of
agricultural production, the production of food grains occupies the most im-
portant position. Therefore, food grains must be insisted on as the key link
when the proportional relations within agriculture are handled. The devel-
opment of cash crops, forestry, animal husbandry, sideline production, and
fishery cannot be divorced from the key link of food grains. However, this
does not imply that the development of other items of agricultural produc-
tion can be neglected. Take forestry as an example; it not only directly sup-
plies products to society, but also serves an important function in conserving
water and soil. “Without trees on the mountain, water and soil cannot be
retained; having a lot of trees on the mountain is as good as building dams.”
The importance of forestry to agricultural development can thus be seen.
The development of animal husbandry, sideline production, fishery, and
cash crops cannot be neglected either. The development of forestry, animal
husbandry, sideline production, and fishery is vital to national construction
and the people’s living. It can also promote the further development of food
grain production by accumulating capital funds and increasing fertilizers.
The policy “take food grains as the key link and ensure an all-round devel-
opment” formulated by Chairman Mao pointed out a direction for the correct
handling of the proportional relations within agriculture. This policy re-
quires, under the precondition of taking food grains as the key link, a con-
sideration of the characteristics of different regions and an overall arrange-
ment for agriculture, forestry, animal husbandry, sideline production, and
fishery as well as food grain, cotton, oil, bast fibers, silk, tea, and so forth in
order to make them promote one another and develop as a whole.
Third, the proportions within industry. These include the proportions be-
tween light and heavy industry, the raw materials industry and the pro-
cessing industry, national defense industry and foundation industry as well
as the proportions between major machines and minor machines and be-
tween whole machines and spare parts within various industries. The propor-
tional relations within industry are even more complex than the proportional
relations within agriculture. But in the complex relations, there is still a key
link. This key link is steel. With steel, we can make machines, and with ma-
chines, we can develop various industries. This key role of steel in industry
reflects a major aspect of the proportional relations within industry and illus-
trates that the development of the various sectors of industry must be based
on the development of the iron and steel industry. In addition, other propor-
tional relations must also be correctly handled. In the relationship between
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heavy and light industry, we must not neglect light industry when we give
priority to the development of heavy industry. In the relationship between
the raw materials industry and the processing industry, the leading aspect of
the contradiction is the raw materials industry. To develop the raw materials
industry, especially the mining industry which is of decisive significance in
the raw materials industry, it is important to unfold socialist construction
through independence and self-reliance and to maintain a balance between
the raw materials industry and the processing industry. In the relationship
between national defense industry and foundation industry, priority must be
given to the development of foundation industries. Without the development
of such foundation industries as the metallurgical industry, chemical indus-
try, machine-building industry, electronic instruments and meters industry,
and so forth, national defense industry cannot go very far. Only by closely
linking the development of national defense industry with the development
of foundation industry and by maintaining a relative balance between na-
tional defense industry and foundation industry can national defense industry
and industry as a whole be developed faster. In the relationships between
major and minor machines and between whole machines and spare parts
within industry, it must be noted that without the complement of minor ma-
chines, major machines simply cannot operate. With whole machines but
without spare parts, whole machines have to stop operation once some parts
are worn out. Therefore, we must overcome the tendency of emphasizing
major machines at the expense of minor machines and whole machines at
the expense of spare parts in order to maintain a proper proportion.
The proportional relations within industry, within agriculture, and be-
tween agriculture and industry are three very important proportional rela-
tions in the whole national economy. This is because among the economic
links of production, exchange, distribution, and consumption, production is
the determining link. And agriculture and industry are also basic production
sectors. Agriculture and light industry basically produce means of liveli-
hood. And heavy industry basically produces means of production. Once
these three proportional relations are properly handled, the proportional rela-
tion between the two categories of social production (means of production
and means of consumption) is basically arranged.
Fourth, the proportions between industrial and agricultural production
and the communications and transportation industry. Marx classified the
transportation industry as the fourth material production sector, coming after
the extractive industry, the processing industry, and agriculture. Large- scale
social production requires that the various sectors and enterprises receive
their supply of raw materials, processed materials, and fuel in good time and
that they ship their products to points of consumption in good time. Without
a corresponding development in the communications and transportation in-
dustry, industrial and agricultural production will be greatly hindered.
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Fundamentals of Political Economy
Fifth, the proportion between cultural and educational construction and
economic construction. Cultural and educational construction serve econom-
ic construction. Economic construction also promotes and restricts the de-
velopment of cultural and educational enterprises. To construct a socialist
country with modern agriculture, industry, and national defense, the devel-
opment of modern science and culture is indispensable. The development of
economic construction requires a corresponding development of cultural and
educational construction in order to facilitate the continual supply of educat-
ed laborers who have a socialist consciousness.
Sixth, the proportions between increases in production and the devel-
opment of cultural and educational enterprises and increases in population.
A planned development of goods production and cultural and educational
enterprises objectively requires a planned increase in population, namely,
family planning. Family planning is not only a basic precondition for the
reproduction of labor power, but also a necessary condition for a planned
arrangement of people’s livelihood, the protection of the health of the moth-
er and the baby, and a planned development of socialist construction. Blind
population increase will certainly interfere with a planned and proportional
development of the national economy. In capitalist society, population prop-
agation is as chaotic as the production of things. Family planning applied
over the whole society is inconceivable. Only under the condition in which
the proletariat and the laboring people are the masters can it be possible to
have a planned regulation of population increase simultaneously with a
planned regulation of goods production. Family planning is a result of hav-
ing the proletariat control its own destiny and is a manifestation of the supe-
riority of the socialist system.
Seventh, the proportional relations between accumulation and consump-
tion. Because socialist products possess varying degrees of commodity char-
acteristics, in addition to the above-mentioned primarily material propor-
tional relations, there exists a proportional relationship based on value be-
tween accumulation and consumption. If this proportional relationship is not
properly handled, the development of the whole national economy will be
hindered. This problem will be discussed in greater detail in Chapter 20.
Finally, the proportional relations among various regions, namely, the
rational distribution of production capacities. The socialist society develops
from the capitalist society. Distribution of production capacities in the capi-
talist society is formed under competition and chaotic production and em-
bodies many irrational factors. Take the example of the early period after
liberation in China in which the total value of industrial production in the
seven provinces and two municipalities along the coast accounted for 73
percent of the total value of national industrial production. In the iron and
steel industry, 80 percent of its production capacity was distributed along the
coast. There was almost no iron and steel industry in Inner Mongolia, the
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 16. The Socialist Economy Is a Planned Economy
northwest, or the southwest where material reserves were abundant. In the
textile industry, more than 80 percent of the spindles and more than 90 per-
cent of the weaving machines were distributed along the coast. There were
very few textile factories in the cotton-producing area and the interior.
Therefore, after the proletariat seized political power, it faced the task of
geographically reallocating production capacities. A rational geographic
distribution of production capacities must be such that it is conducive to
consolidating and strengthening national defense against possible aggression
and threats from imperialism. It must be favorable to strengthening the unity
among the laboring people of various nationalities, to utilizing various re-
sources in the most rational manner, and to building socialism with greater,
faster, and better results at lower costs. The key issue in a rational distribu-
tion of production capacities is to achieve “a distribution of large industries
over the whole country with the highest possible degree of balance.” (5) In
the more than twenty years after the establishment of the Republic and under
the guidance of Chairman Mao’s theory on the correct handling of the rela-
tions between maritime industry and interior industry, China’s interior in-
dustry has developed rapidly. The newly established industrial bases are be-
ginning to take shape. Former industrial bases in the provinces and munici-
palities along the coast have also been fully utilized and rationally devel-
oped.

The Law of Value Still Affects Socialist Production

Planning Is Primary, and Pricing Secondary
Socialist production is direct social production, and yet, to a certain ex-
tent, it is also commodity production. As commodity production, it has its
own laws of operation. “Wherever there are commodities and commodity
production, the law of value prevails.” (6) Thus, both the law of planned
development of the national economy and the law of value govern socialist
production.
The substance of the law of value is: (l) the value of commodities is de-
termined by the socially necessary labor time expended on their production;
(2) commodity exchange must be based on equivalent values. These objec-
tive requirements of the law of value will assume different forms and pro-
duce different effects on production under different social systems.
Under the capitalist system, social production is carried on under com-
petition and chaotic production conditions. The price of commodities fluctu-
ates with the change in the supply-demand relationship. Sometimes it is
higher than the production price and sometimes, lower. When the price is
higher than the production price, profit is higher than the average profit.
When the capitalist sees this opportunity for higher profit, he is happy to
invest his capital in these sectors. In the opposite situation, capital will be

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withdrawn. It is under these blind conditions that social production develops.
These conditions demonstrate that the law of value is manifested as an alien
force working behind people’s backs under the capitalist system and is the
total regulator of social production.
Under the socialist system, social production is carried on in a planned
manner. Prices are based on values and are determined by the state in a uni-
fied manner. Prices no longer fluctuate with the change in the supply – de-
mand relationship. The law of value is no longer an alien force governing
people. Basically speaking, it is consciously used by people to serve socialist
construction. Furthermore, the effects of the law of value on social produc-
tion have been greatly restricted. Their concrete manifestations are as fol-
lows:
First, production in the socialist state enterprise is not subject to fluctua-
tions according to the level of prices and the size of profit. It is not regulated
by the law of value, but rather by the national economic plan formulated
according to the requirements of the basic economic law of socialism and
the law of planned development of the national economy. Based on the
needs of the state and the people, the state plan decides what and how much
to produce, and the state enterprise must thoroughly carry this out. The en-
terprise must produce according to the plan regardless of profit. The loss is
then made up by planned subsidies. If the leadership of an enterprise diso-
beys the stipulations of the plan and expands production of highly profitable
products of its own accord, it will violate the requirements of the basic eco-
nomic law of socialism and the law of planned development of the national
economy and go astray on the capitalist road.
Second, production in socialist rural collective enterprises is also carried
out under the guidance of the state plan. Unlike the state enterprise, the col-
lective enterprise is an economic unit responsible for its own profit and loss.
The level of product prices and the size of income directly affect the accu-
mulation of the collective and the income of its members. Other conditions
being equal, the collective enterprise generally tends to be willing to produce
more of those products which have low costs and command high economic
income. In this respect, the law of value affects the production of the collec-
tive enterprise more than that of the state enterprise. However, the area sown
for food grains, cotton, vegetable oil, and other major crops is decided by the
state plan. The collective economy cannot arbitrarily expand the sown area
of those crops commanding a higher income. It can only increase the per-
unit-area yield of these crops within the sown area specified by the state
through more intensive farming, more fertilizers, and better management.
Therefore, as for the production of major products in the rural collective
economy, the regulating role of decisive importance is still the law of
planned development of the national economy. The law of value merely
plays a secondary role. Only for products which are not important to the
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 16. The Socialist Economy Is a Planned Economy
state and the people, not included in the state plan, nor procured through
contracts are the level of prices and the size of income of greater importance.
Products which command a higher revenue develop easily, while products
which command a lower revenue develop only with great difficulty. The law
of value performs a certain regulating role only with regard to these prod-
ucts.
As far as the whole of socialist production is concerned, the plan is pri-
mary, and the price is secondary. This is to say, in the allocation of social
labor among various production sectors, what and how much to produce are
regulated by the state plan which reflects the requirements of the basic law
of socialism and the law of planned development of the national economy.
The state plan plays a primary and decisive role. The law of value is still
useful, but it plays only a secondary and supportive role.
The Law of Value Is a Great School
In socialist production, not only are the form and degree of effect of the
law of value different from those applicable to capitalist production, but the
social consequences are also different.
Under the capitalist system, blind regulation of production by the law of
value, on the one hand, promotes advances of production technology. On the
other hand, it inevitably leads to an immense waste of social wealth and
mass bankruptcy among the medium and small enterprises, and intensifies
class contradictions in capitalist society.
Under the socialist system, the proletarian party and the socialist state
are capable of identifying the objective role of the law of value and can
make use of its constructive effects on socialist production and restrict or
eliminate its negative effects.
In the development process of socialist production, the direction of the
effects exerted by the law of value and the law of planned development of
the national economy is sometimes identical. For example, the law of
planned development of the national economy requires the acceleration of
production of certain cash crops to meet the demand for raw materials due to
a rapid development of some light industries. The prices of these cash crops
can also guarantee a reasonable income to the agricultural collective econo-
my. Under these conditions, the state plan’s requirements for increased pro-
duction are identical to the requirements of the agricultural collective econ-
omy for increased production and increased income. The plan for increased
production can generally be fulfilled or overfulfilled. However, the direction
of the effects exerted by these two effects can be different. With regard to
the comparative price relations between food grain crops and cash crops and
among various cash crops within agricultural production, the prices of some
cash crops can bring a relatively higher income to the collective economy
than the prices of other cash crops. If the law of value is permitted to influ-
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Fundamentals of Political Economy
ence production, it will be detrimental to the requirement of the national
economic plan that there be an overall increase in production of all crops but
in varying degrees for different crops. Thus we can see that when the effects
of the two laws are identical, the law of value plays a constructive role in
fulfilling the state plan. But when the effects of the two laws are not identi-
cal, the law of value disrupts the fulfillment of the state plan and plays a
negative role. The so-called conscious use of the law of value means that the
role of the law of value must be comprehensively understood and that
through political and ideological work, arrangement of the state plan, and
price policy, the positive role of the law of value will be played and its nega-
tive role will be curtailed so that its effects on socialist production will be
conducive to fulfilling the state plan. Our Party and government have con-
sistently emphasized socialist education of the peasant and planned leader-
ship of agricultural production. At the same time, they have also paid atten-
tion to the rational arrangement of the purchasing prices of agricultural and
sideline products and to the comparative price relationships among various
agricultural and sideline products and have struggled hard to be able both to
satisfy the state’s need for agricultural and sideline products and to promote
the development of commune and brigade production and the elevation of
the commune members’ income, thus correctly handling the interests of the
state, the collective, and the individual.
The conscious exercise of the law of value by the socialist country to
promote socialist production is also manifested in its use in the system of
economic accounting to carry through the policy of running an enterprise
with industry and frugality. Based on the requirement of the law of value,
the socialist country charges the same price for identical products according
to the average social expenditure in producing the product. But because of
different conditions in production technology and different levels of man-
agement and operation, the individual labor expended on the same product
in different enterprises may differ. The individual expenditure in enterprises
which are experienced in mobilizing the masses, continually updating pro-
duction technology, and lowering costs by careful and detailed calculation
may be lower than the average social expenditure. They can thus fulfill and
overfulfill the plan targets assigned by the state and occupy an advanced
position. Conversely, enterprises which are careless, wasteful, conservative,
and inefficient in mobilizing the masses to transform their backward techno-
logical conditions may have individual labor expenditures which are higher
than the average social expenditure. They cannot fulfill the plan targets as-
signed to them by the state and occupy a backward position. Therefore, the
unified prices set by the socialist state, making use of the law of value, are
conducive to exposing the contradictions of various enterprises in operation
and management and discovering the disparities between the advanced and
the backward in order to press various enterprises continually to improve
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 16. The Socialist Economy Is a Planned Economy
their operation and management, lower their production costs and carry
through the policy of running an enterprise with industry and frugality.
The correct application of the law of value can teach us: to follow the
requirements of the law of value to set prices rationally; to organize produc-
tion rationally using the influence of the law of value; to calculate precisely
the volume of production and tap production potentials based on actual con-
ditions; and to improve production methods, lower production costs, and
implement economic accounting continually. These positive roles demon-
strate that the law of value is a great school. Stalin observed: “This is a very
good practical school. It promotes the rapid growth of our cadres in econom-
ic work so they become real leaders in the socialist production of the present
stage.” (7)
In socialist society, the proletariat wants to make use of the law of value
to promote the development of socialist construction while the bourgeoisie
tries hard to use the law of value to set up free markets and disrupt socialist
construction. The Liu Shao-ch’i and Lin Piao clique tried hard to exaggerate
the role of the law of value. They emphasized the “almighty nature” of the
law of value and advocated the law of value as a regulator of social produc-
tion. In their capitalist restoration, the Soviet revisionist renegade clique has
flagrantly used the law of value as “an objective regulator of socialist social
production.” It has also launched a “new economic system” centering on
putting profit in command and having material incentives in accordance with
this revisionist theory. Even though the measures taken by the internal and
external revisionists are sometimes different, their purpose is the same,
namely, to disrupt socialist construction and restore capitalism. The experi-
ence reflected in the struggles between the two lines with respect to the
question of the law of value tells us that it is necessary to draw a demarca-
tion line between Marxism and revisionism and firmly adhere to the socialist
road if the law of value is to correctly serve socialist production. We should
never be careless; otherwise we will lose our way.

The National Economic Plan Must Correctly Reflect

Objective Laws
Work on the National Economic Plan Must Reflect the
Requirements of Objective Laws
The law of planned development of the national economy and the law of
value are both economic laws that objectively exist in socialist society. The
roles of these laws are realized basically through their conscious application.
The national economic plan of the socialist state is a form of conscious ap-
plication of these laws. Work on the national economic plan includes re-
search, formulation, implementation, inspection, adjustment, and summa-

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Fundamentals of Political Economy
tion. Without the work on the national economic plan, it is impossible to
realize a proportional development of the socialist national economy. Of
course, even if people do not consciously apply them, the law of planned
development of the national economy and the law of value will eventually
prevail. For example, if the economic leadership organs did not seriously
investigate and study, did not respect the objective requirements of the law
of planned development, or formulated the proportions carelessly or if they
formulated the price plan without considering the requirements of the law of
value and set prices arbitrarily such that the socially necessary expenditure
of some production departments was not compensated and production could
not be continued, then various dislocations would appear in mutually de-
pendent departments. These phenomena would teach people by negative
example to respect these laws and to reflect the requirements of these laws
by strengthening and improving the work on the national economic plan.
An important link in the work on the national economic plan is the for-
mulation of plans. Plans are formulated by people and are products of ideol-
ogy. Ideology is a reflection of reality and also interacts with reality. A cor-
rect plan promotes a rapid development of the socialist economy. An incor-
rect plan hinders the development of the socialist economy.
If the national economic plan is to be correct, it is necessary first of all
for the people to reflect the objective requirements of the law of planned
development in all its aspects in the formulation process of the plan. This is
by no means easy. In socialist society, the bourgeoisie and all exploitative
classes always try hard to disrupt and interfere with the planned develop-
ment of the national economy by various means and make it difficult for the
proletariat to understand this law. The whole national economy appears to be
a complex entity full of contradictions. Imbalances continually pop up and
are resolved and then pop up again. Objective conditions are highly change-
able. It is not easy for the subjective to correctly reflect the objective. But
this is not to say that the proportional relations in the national economy can-
not be identified. Provided that we continually sum up experience, penetrat-
ingly investigate and study, seriously analyze, rely on the masses, and do
meticulous work, it is entirely possible to gradually identify the law and
make the national economic plan more accurately reflect the requirements of
planned development.
The law of planned development of the national economy merely re-
quires that harmonious proportional relations be maintained among interde-
pendent sectors in the development process. It does not point out for us the
direction and duties of socialist economic development. It is the basic eco-
nomic law of socialism that points out the basic direction and the duties for
socialist economic development. Therefore, an accurate national economic
plan must correctly reflect not only the requirements of the law of develop-
ment, but also the requirements of the basic economic law of socialism in its
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various aspects. The national economic plan which reflects the requirements
of these objective laws embodies the interests of the proletariat and the
whole laboring people. It is the Party program for economic construction
and must be seriously treated and resolutely implemented.
Overall Balance Is the Basic Method in Planning Work
In the work on the national economic plan, it is important to master
overall balance. Overall balance is not balance within individual sectors. It is
balance in agriculture, balance in industry, and balance between industry and
agriculture. Overall balance is the basic method in a planned economy.
The task of overall balance lies mainly in the arrangement of propor-
tional relations in the national economy. In accordance with the major tasks
of the state in the planning period, it properly allocates manpower, material
resources, and finance to various sectors of the national economy and estab-
lishes a balance between social production and social needs so that the
growth of production of the means of production corresponds to the needs of
the ever-developing socialist production and so that the growth of produc-
tion in the means of consumption conforms to the needs arising from the
gradual improvement of the people’s livelihood.
The process of overall balance is a process of exposing, analyzing, and
resolving contradictions. To do a good job in overall balance, we must han-
dle contradictions with a positive attitude, energetically promote production
of short-range products (8), and accelerate the development of key sectors in
the national economy that are temporarily backward so that a new balance
can be established on a new and higher level. Only in this way can national
defense construction, capital construction, and the needs of the people’s live-
lihood be better safeguarded. To oppose Chairman Mao’s proletarian revolu-
tionary line, the Liu Shao-ch’i clique sometimes suggested so-called “short-
run balance” and practiced negative balance in a big way to pull down the
high to suit the low. Sometimes they set targets so high that they were not
feasible. When these targets could not be reached, they resorted to “total
retreats.” They pushed a Right opportunist line in planning work that was
“Left” in form but Right in substance.
Overall balance is the establishment of a balance in the whole national
economy. But it is not an even application of force without differentiating
what is more and less important. If two hands had to catch ten fish at one
time, the result would be that no fish could be caught. In the complex pro-
portional relations of the whole national economy, there are the more and the
less important, the dominant and the subordinate. To achieve overall bal-
ance, we must differentiate the more and less important and guarantee to
take care of the key points. We must first guarantee the satisfaction of the
needs of the leading links and the key sectors in the development of the na-
tional economy. In formulating a plan for capital construction, the principle
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of concentrating forces to fight a battle of annihilation must be implemented.
If we start from departmentalism, pay no attention to what is more important
and what is less important, concentrate on too many items, and spread the
limited manpower, material resources, and funds thinly over a long battle-
front, then our forces will be dispersed, and the early completion and opera-
tion of many key items will inevitably be affected. Of course, safeguarding
the key points does not mean neglecting ordinary things. There are close
complementary relations between the key points and ordinary things. Ordi-
nary things will not develop properly if we neglect the key points. But if we
neglect ordinary things, the development of the key points will also be af-
fected. Therefore, under the precondition of taking care of the key points, we
must also pay attention to ordinary things. We must start from the whole and
consider all vertical and horizontal relations in order to avoid the error of
partiality.
In overall balance work, attention must be paid to the balance of labor,
materials, and funds. People are the most important factor in the productive
forces; so of the three, the balance of labor must be arranged first. In con-
formity with the principle that agriculture is the foundation of the national
economy, sufficient labor must first be secured for agriculture. Laborers will
be transferred from agriculture to industry or other sectors of the national
economy only when the development of agricultural production and agricul-
tural mechanization enables the rural areas to succeed in providing surplus
labor power and more marketable grain and commodity crops. If we depart
from this prerequisite and transfer too much labor power away from agricul-
ture, it will disrupt the overall balance and be unfavorable to the rapid,
planned, and proportional development of the national economy.
There is an inevitable process between the appearance of imbalances
among various sectors of the national economy and the establishment of a
new balance. To guarantee a proportional development among various sec-
tors, it is necessary to establish and maintain a certain amount of material
reserves. The amount of material reserves of various kinds must be appro-
priate. If the reserves are too low, they cannot satisfy the needs for filling the
gap between two relative balances. As a result, some sectors will have to
work below capacity because of a shortage in certain material resources, and
this will affect the rapid development of the national economy. If the materi-
al reserves are so high as to exceed the need for filling a temporary shortage,
then material resources which could have been used for current production
will not be available, and this will also adversely affect the rapid develop-
ment of the national economy.
Follow the Basic Principles of Planning Work
To do a good job in planning work, in addition to the use of the basic
method of overall balance, it is also necessary to follow some basic princi-
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 16. The Socialist Economy Is a Planned Economy
ples derived from the practical experience of planning work.
Planning work must mobilize central as well as local activism and must
combine central, unified leadership with the exercise of local activism.
To formulate and carry through a unified national economic plan, it is
necessary to have a highly centralized and unified leadership. In national
economic planning work, there can be no unified national economic plan if
there is no central unified leadership and if the viewpoint of the whole situa-
tion is not promoted and excessive decentralization is not opposed so that
every local unit can make its own plans. However, socialist centralized lead-
ership is built on a wide foundation of democracy. Central unified leadership
must be combined with local activism. In formulating a national economic
plan, the central departments concerned must find out what the local opinion
is, consult with the local units, and formulate plans with the local units. In
implementing the plan, it is also necessary to allow exceptions for local con-
ditions. These exceptions are not excuses for creating independent king-
doms, but are necessary allowances that suit the interests of the whole, per-
mit full tapping of production potentials in accordance with local conditions,
and facilitate a better fulfillment of the national economic plan. As for the
system of planning work, it is necessary to implement a system with a uni-
fied plan and administration by different levels. Chairman Mao pointed out
early in the establishment of the People’s Republic of China: “What should
be unified must be unified. Excessive decentralization cannot be permitted.
But it is necessary to combine unification with local adaptations.” (9) Later,
Chairman Mao taught us more than once to exercise local activism more
often in handling the relations between the center and the local units. Under
a central, unified plan, the local units should be allowed to do more. Follow-
ing Chairman Mao’s teachings, the broad people of the country criticized
and repudiated the “dictatorship by regulations” fostered by the Liu Shao-
ch’i clique that stifled local activism, and they better exercised central and
local activism in plan management work, thus promoting the rapid, planned,
and proportional development of China’s socialist economy.
Chairman Mao remarked, “When the plan is being formulated, it is nec-
essary to mobilize the masses and to leave leeway.” (10) This is a very im-
portant principle in national economic planning work.
In socialist construction, the mass line must be followed whatever the
work may be. Mass movements must be launched in a big way. Planning
work must also follow the mass line. The masses must be mobilized to talk
about lines, expose contradictions, uncover disparities, and accelerate
changes. If the plan targets are not discussed by the masses, they are the ide-
as of the cadre. Only after the plans are discussed by the masses do they be-
come the plans of the masses. Only then will the plan targets be both ad-
vanced and reliable and will the activism of the broad masses be fully mobi-
lized.
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Fundamentals of Political Economy
Plan targets should be advanced. Only an advanced plan can embody the
superiority of the socialist system, and only an advanced plan can heighten
morale. To formulate an advanced plan, it is necessary to struggle with con-
servative thought. Some people clearly realize there is immense production
potential but they set the plan targets very low. All they care about is to be
able to fulfill the plan comfortably. The formulation process of a plan is also
a process of struggle between advanced and conservative thought.
Plan targets should be advanced. But this does not mean that the higher
the targets, the more morale will be heightened. Plan targets that are too high
to be practicable not only do not mobilize mass activism, but will discourage
mass activism. Advanced plan targets must have a scientific basis; they must
be reliable and practicable. Chairman Mao said: “Nobody should indulge in
illusions, plan his action beyond what the objective conditions allow, and
dare to do impossible things.” (11) Plan targets that are objectively possible
should not be set too high. Leave some leeway. Practical experience demon-
strates that plan targets which are not set too high and which enable the plan
to be overfulfilled through the efforts of the masses are more favorable to
mobilizing mass activism.
It is necessary to combine long-range plans (plans covering five years,
ten years, twenty years) with short-term plans (annual plans, quarterly plans,
and monthly plans) in national economic planning. If long-range plans are
not set up, it is difficult to arrange capital construction. Long-term plans em-
body long-term targets. They encourage people to stand high, to see afar and
to exert themselves. The worker comrades put it well: “Without big targets
in our minds, even one simple straw is heavy enough to bend our backs.
With big targets in our minds, even the T’ai-shan will not bend our backs.”
But long-term plans require that short-term plans materialize, are grasped,
and serve the purpose of comparison and inspection so that the realization of
long-term plans will not fall short.
The planning work for an economy under a socialist collective owner-
ship system has its own characteristics. An economy under a collective own-
ership system must obey the leadership of a unified state plan. But it can
retain a higher degree of flexibility provided that the unified state plan and
state policies and laws are not violated. This permits a fuller mobilization of
the activism and initiative of the collective economy in socialist production
through local adaptations so that the collective economy can develop with
the development of the state economy.
Major Study References
Engels, Anti-Dühring. Part 3, Chapter 2.
Stalin, Socialist Economic Problems of the Soviet Union.
Chairman Mao, “On the Correct Handling of Contradictions among the
People,” Section 1.
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 16. The Socialist Economy Is a Planned Economy

Review Problems
1. Why do we say that only socialist society can adopt a planned econ-
omy? What is the superiority of a socialist planned economy?
2. What are the important proportional relations in the national econo-
my? How should these proportional relations be correctly handled?
3. What does planning is primary and pricing is secondary tell us? How
should the law of planned development and the law of value be correctly
used to promote the development of socialist production?
Notes
* She-hui-chu-i ching-chi shih chi-hua ching-chi — kuo-min ching-chi
ti yu chi-hua an pi-li fa-chan.
1) “A Criticism That Is Not a Criticism,” Complete Works of Lenin. Vol.
3, p. 566.
2) Engels. Anti-Dühring. Selected Works of Marx and Engels. Vol. 3,
Jen-min ch’u- pan-she, 1972, p. 323.
3) Chairman Mao, “Comments on A Long-Term Plan for the Red Star
Collective Farm,” Socialist Upsurge in China’s Countryside. Vol. 1, p. 311.
4) “On the Correct Handling of Contradictions among the People,” Se-
lected Readings from the Works of Mao Tse-tung. (Type A), Jen-min ch’u-
pan-she, 1965, p. 338.
5) Engels, Anti-Dühring. Selected Works of Marx and Engels. Vol. 3,
Jen-min ch’u- pan-she, 1972, p. 336.
6) Stalin, Socialist Economic Problems of the Soviet Union. Jen-min
ch’u-pan-she, 1961, p. 14.
7) Ibid., p. 15.
8) Short-range products refer to the means of production that are in tem-
porary short supply. The so-called “short-range balance” refers to a negative
balance that accommodates these short-range products.
9) Quoted from Jen-min jih-pao [People’s Daily], December 4,1949.
10) Quoted from Jen-min jih-pao [People’s Daily], February 21,1969.
11) Chairman Mao, “Preface to Socialist Upsurge in China’s Country-
side.” Socialist Upsurge in China’s Countryside. Vol. 1, p. 4.

261
17. We Must Rely on Agriculture as the
Foundation and Industry as the Leading
Factor in Developing the National Economy
The Relations among Socialist Agriculture, Light
Industry, and Heavy Industry*
Agriculture and light and heavy industry are the three major material
production sectors in the socialist national economy. To understand correctly
the importance and role of these sectors in the national economy and to han-
dle correctly their relations are instrumental in consolidating and developing
the worker-peasant alliance and promoting rapid and planned development
of the socialist national economy.

Agriculture Is the Foundation of the National

Economy
We Must Rely on Agriculture as the Foundation in Developing
the National Economy
To live, to produce, and to engage in cultural and social activities, peo-
ple must first solve the problem of eating. Agricultural production is a pre-
condition for the survival of the human race and all production activities.
Agriculture (including gathering, planting, hunting, fishing, and animal hus-
bandry) was the only production sector in the early period of human society.
At that time, because labor productivity was very low, the whole labor pow-
er of the primitive society had to participate in agricultural labor to keep the
commune members alive. Only when labor productivity in agriculture was
raised such that a portion of the labor force could grow sufficient agricultur-
al products to support all the members of society could labor be spared to
engage in other activities. Thus, the handicraft industry was separated from
the agricultural sector to become an independent production sector, the other
new sector — commerce — appeared, and sectors that were concerned with
spiritual production such as culture and education also emerged. The higher
the labor productivity was in agriculture, the more developed were the sec-
tors outside of agriculture that were concerned with material and spiritual
production. Marx observed, “The shorter the time required by society to
produce wheat and livestock, the longer is the time available for other pro-
duction — material and spiritual production.” (l) He continued, “Agricultur-
al labor productivity beyond what is required for the personal needs of the
laborer is the basis of all societies.” (2) Therefore, in essence, agriculture is
the basis of human survival and the basis for the independence and further
development of the other sectors of the national economy. This is an eco-
262
 17. Rely on Agriculture as the Foundation and Industry as the Leading Factor
nomic law applicable to all historical periods in human society.
The role of agriculture as the foundation in the national economy is es-
pecially pronounced in socialist society as compared with any past society.
In capitalist society, the objective law of agriculture as the foundation of the
national economy plays its role under competition and chaotic production.
Some imperialist countries whose domestic agriculture was underdeveloped
plundered their colonies and semi-colonies for agricultural products by pay-
ing low prices to satisfy the development needs of monopoly capital. In
those countries, it was not domestic agriculture, but foreign agriculture, that
served as a foundation of the national economy. In socialist society, it is not
permissible to plunder the agriculture of backward countries. Even if ex-
changes are made according to equal values, it is still not permissible to rely
on foreign countries for food or to develop the socialist economy on the ba-
sis of foreign agriculture. To do so -would be contrary to the principles of
independence and self-reliance. In organizing the development of the na-
tional economy, the socialist country must consciously apply the objective
law of agriculture as the foundation of the national economy.
In concrete terms, the primary reason that the development of the socialist
national economy must rely on agriculture as the foundation is that the devel-
opment of the various departments of the socialist economy depends on agri-
culture to provide the means of subsistence. Regardless of the enterprise, be it
industry, transportation, or education, it always boils down to the prerequisite
that agriculture has to provide a certain amount of commodities and grain.
Another reason that agriculture is the foundation for developing the so-
cialist national economy is that it is the source of industrial raw materials,
with the exception of a portion of the supply which comes from industry
itself. Raw materials for light industry in particular are essentially provided
by agriculture. At present, approximately 70 percent of the raw materials for
our light industry is provided by agriculture. Heavy industry also needs cer-
tain agricultural products as inputs. If agriculture could not increase its sup-
ply of raw materials, industrial development would be gravely affected.
Chairman Mao pointed out: “Light industry and agriculture are closely relat-
ed. There will be no light industry without agriculture.” (3) Agriculture is
directly related to industrial development, particularly to light industry.
Another reason why agriculture is the foundation for developing the so-
cialist national economy is that the rural areas constitute a vast market for
industrial products. The rural population, accounting for approximately 80
percent of the total, forms a major market for industry. The more developed
agricultural production is, the more commodity grains and industrial raw
materials will be produced, and the higher the peasants’ purchasing power
will be. The peasants’ need for both light and heavy industrial products con-
tinuously grows. Soon after the victorious implementation of China’s coop-
erativization, Chairman Mao observed: “At present, people have not yet
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clearly realized the point that heavy industry must take agriculture as its
primary market. With the steady advancement of agricultural technology and
its ever-increasing modernization, such that more and more machinery, ferti-
lizers, water conservancy, and power and transportation facilities will be
available for agriculture and more fuels and construction materials will be
available to private consumption, then people will comprehend that agricul-
ture is the primary market for heavy industry.” (4)
Another reason why agriculture must be relied on as the foundation in
developing the socialist national economy is that agriculture is the reservoir
of labor power for industry and other sectors of the national economy. To
develop socialist industry, commerce, and transportation, additional labor is
required. In addition to trying hard to raise labor productivity in these sectors
in order to use the labor force thus saved for new needs, additional labor
conies partly from the urban areas and partly from the rural areas. Chairman
Mao pointed out, “The peasant is the predecessor of the Chinese worker.”
(5) However, how much of the rural population can be transferred as labor
force to support the development needs of other sectors of the national econ-
omy is not determined by these development needs, but by the level of de-
velopment of agricultural production and by how much agricultural labor
productivity can be increased. Only under the conditions that agricultural
labor productivity is continuously being raised and the output of agricultural
and sideline products is continuously increasing is it possible to transfer an
appropriate amount of labor force to support the development of other sec-
tors of the national economy.
Another reason why agriculture must be relied on as the foundation in
developing the socialist national economy is that agriculture is an important
source of state capital accumulation. In addition to directly providing the
state with capital accumulation through agricultural taxes, it indirectly pro-
vides capital accumulation to the state by supplying agricultural products to
light industry as raw materials. Therefore, the development of agriculture
also assumes significance in increasing the state revenue, expanding capital
accumulation, and supporting socialist construction.
Viewed from the above several aspects, the importance and role of agri-
culture in the national economy determine that the development of the na-
tional economy cannot be separated from the development of agriculture. If
agriculture is not properly developed, other sectors of the national economy
will not prosper either. The experience of China’s socialist construction has
demonstrated that if there is a bumper harvest in a particular year, the devel-
opment of the national economy will accelerate in the same year or in the
following one. Conversely, if there is a lean year, the development of the
national economy will slow down in the same year or the next one. This tells
us that in socialist construction we must firmly establish the idea of relying
on agriculture as the foundation for developing the national economy.
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 17. Rely on Agriculture as the Foundation and Industry as the Leading Factor

The Ultimate Solution for Agriculture Lies in Mechanization

Since agriculture is the foundation of the national economy, it is neces-
sary to treat the development of agriculture as a priority in developing the
national economy. Only when agriculture is developed as the foundation of
the national economy can light industry, heavy industry, and other econom-
ic, cultural, and educational enterprises be developed.
How can agriculture be developed? The socialist country cannot adopt
agricultural mechanization before agricultural collectivization. Agricultural
collectivization must precede the use of large machines. But after the reali-
zation of agricultural collectivization, it is very important to realize agricul-
tural mechanization on the basis of agricultural collectivization. On the eve
of China’s upsurge in agricultural cooperativization, Chairman Mao had
already pointed out that China’s countryside required not only the realization
of the social reform of converting the individual ownership system to the
collective ownership system, but also the realization of the technical innova-
tion of converting hand labor to mechanical production.
“Only when the socialist transformation of her social economic system
is thoroughly completed and machine operation is fully adopted in all sectors
and areas where machine operation is feasible in her technology can China’s
social economic outlook be completely transformed.” (6) After the victori-
ous realization of China’s agricultural cooperativization and rural people’s
communes, Chairman Mao opportunely proposed the grand task of steadily
realizing agricultural mechanization. He clearly pointed out, “The ultimate
solution of the agriculture problem lies in mechanization.” When the stimu-
lative role of socialist production relations with respect to the productive
forces is fully exploited and with the support of socialist industry, especially
heavy industry, the pace of achieving agricultural mechanization will be
quickened.
Before liberation, old China was a very backward agricultural country.
In 1949, the food grain output of the whole country amounted to only 216.2
billion chin. After liberation when socialist production relations were estab-
lished and developed in the rural areas through agricultural cooperativization
and the people’s communes, agricultural production developed substantially.
The output of food grain in 1971 reached 492 billion chin, more than twice
the amount of 1949. But the level of mechanization in China’s agriculture is
not high. Agricultural labor productivity is still relatively low. Compared
with other countries where the level of agricultural mechanization is rela-
tively high, China’s agricultural production is still in a relatively backward
condition. This condition is not in line with the development of China’s in-
dustry and other sectors of the national economy. Therefore, it is necessary
to further realize agricultural mechanization and promote a rapid develop-
ment of agricultural production on the basis of continuously consolidating

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Fundamentals of Political Economy
and developing socialist production relations in the rural areas.
When machines are used in plowing, sorting, harvesting, and transporta-
tion, agricultural labor productivity will be raised tens and hundreds of
times. If he plows by hand, a veteran worker can only plow one mou a day.
With an ox, a man can plow four mou a day. With a medium or large tractor,
several tens to several hundreds of mou can be plowed in a day, thus raising
agricultural labor productivity by tens to hundreds of times. The labor power
thus saved through agricultural mechanization can be used to increase pro-
duction both intensively and extensively by raising the per unit area yield
and promoting the rural development of agriculture, forestry, animal hus-
bandry, sideline production, and fishery. It can also be used to support the
development needs of other sectors of the national economy.
The realization of agricultural mechanization can also raise the capacity
to combat natural calamities and change the situation of depending on the
weather for food. China is a country of vast area. Some degree of drought
and flooding occurs every year. With electric drainage and irrigation ma-
chines, water can be controlled readily. The resulting reduction in damage
due to possible droughts or floods will guarantee a steady and high yield in
agricultural production. The poor and lower-middle peasants put it well:
“The sound of machines in the river brings joy to the crops in the field. With
no fear of drought and flooding, good harvests and high yields are guaran-
teed.”
Under the guidance of Chairman Mao’s proletarian revolutionary line,
and especially after the Great Proletarian Cultural Revolution, there has been
a rapid development in China’s agricultural mechanization. Comparing 1970
with 1965, the electricity consumption in the rural areas increased by 1.6
times, electric drainage and irrigation machines more than doubled, the
ownership of large and medium tractors increased by more than 70 percent,
the ownership of hand-held tractors increased by nearly 20 times, and the
machine-plowed area represented nearly 20 percent of the cultivable area.
With the gradual realization of agricultural mechanization in China, the
drought control and drainage capacity of agriculture will continuously in-
crease. The people’s ability to combat natural calamities will continuously
be strengthened. And the steady growth of agricultural production will be
more assured. From this we can see that the further realization of agricultural
mechanization on the basis of agricultural collectivization is a necessary
path for developing agricultural productivity.
In the process of gradually realizing agricultural mechanization, the ma-
terial basis of the collective economy will grow daily, and the three-level
ownership system of the rural people’s commune will be further consolidat-
ed and developed. The experience of agricultural mechanization has demon-
strated that large- and medium-sized agricultural machines can be fully ex-
ploited only if they are owned by the commune and the production brigade.
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 17. Rely on Agriculture as the Foundation and Industry as the Leading Factor
Consequently, with the development of agricultural mechanization, the scale
and role of the collective economy at the commune and brigade levels will
gradually expand, and the superiority of the people’s commune will be fur-
ther revealed. Thus, the poor and lower-middle peasants will love the peo-
ple’s commune all the more and will be all the more resolute in following
the socialist road. The poor and lower-middle peasants used a vivid language
to depict the necessity for agricultural mechanization: “The people’s com-
mune is full of power. The collective economy blooms with a red flower.
With agricultural mechanization, even a class-twelve typhoon will fail to
overpower.”
In Agriculture. Learn from Tachai
It is an inevitable trend in the development of socialist agriculture to
gradually realize agricultural mechanization on the basis of collectivization.
But, agricultural mechanization must be under the command of revolutioni-
zation. Chairman Mao teaches us, “Once the correct thought representing the
advanced class is in the hands of the masses, it becomes a material strength
to transform society and the world.” (7) When the broad masses of poor and
lower-middle peasants who are the masters of socialist agriculture have stud-
ied Marxism-Leninism-Mao Tse-tung Thought and have mastered Chairman
Mao’s line and general and specific policies, they possess overwhelming
strength and are powerful enough to tame mountains and harness rivers.
They can transform unfavorable natural conditions into favorable ones,
transform low yields into high yields, advance from a condition of owning
no agricultural machines to owning various agricultural machines and fully
realizing the superiority of agricultural mechanization. This is how Tachai
Production Brigade of Tachai Commune in Hsi-yang hsien, Shansi Prov-
ince, was transformed.
Tachai Production Brigade is situated in the Taihang Mountains. Before
agricultural collectivization, it was a poor mountainous area with plenty of
rocks and little soil. The poor and lower-middle peasants of Tachai de-
scribed it as: “The mountain is high, and rocks are plentiful. When you go
outside, you have to clamber up slopes. There are less than 3.5 mou of land
for each family. Natural disasters are commonplace.” When the primary co-
operative was started in 1953, the average per mou yield of food grain was
250 chin. In the process of developing from the primary cooperative to the
advanced cooperative and then to the people’s commune, the Party branch of
Tachai Production Brigade firmly adhered to the principle of putting prole-
tarian politics in command. It issued the slogan of “transform the people,
transform the land, and transform the yield,” used Mao Tse-tung Thought to
educate the cadres and the masses, and carried out a big transformation in
agricultural production through an ideological revolution among the people.
The cadres and the masses of Tachai Brigade smashed the sabotage of the
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Fundamentals of Political Economy
landlord, the rich peasant, the counterrevolutionary, and the bad elements
and resisted interference from the revisionist line pushed by the Liu Shao-
ch’i and Lin Piao clique. Under the guidance of Chairman Mao’s great poli-
cy of self-reliance through arduous struggle, Tachai Brigade engaged in cap-
ital construction for water control and transformed the “three lost fields” in
which water, fertilizers, and soil were lost because of poor construction into
“three retained fields” in which water, fertilizers, and soil were retained after
the fields had been leveled and terraced. The average per mou yield of food
grain in Tachai Brigade was gradually raised from 250 chin in 1953 to 543
chin in 1958, 802 chin in 1964, and 1,096 chin in 1967. Simultaneous with
the rapid growth of food-grain production, Tachai Brigade realized an all-
round development of agriculture, forestry, animal husbandry, and sideline
production. In this process of “transforming the people, transforming the
land, and transforming the yield,” the Party branch of Tachai Brigade also
led the commune members to use their own hands to combine indigenous
and foreign technology to substantially advance the mechanization of plow-
ing, cultivating, threshing, transporting, and processing food grain and fod-
der and to advance on the road of putting mechanization under the command
of revolution. The heroic attitude of the poor and lower-middle peasants to
fight Nature and farm for revolution is a powerful criticism and repudiation
of the reactionary fallacies of Lin Piao who slandered the worker-peasant
laboring people saying, “All they think about is how to make money, get
rice, oil, salt, sauce, vinegar, and firewood, and take care of their wives and
children,” and who championed the Confucian thought that “the little people
can only be persuaded by self-interest.”
Tachai Brigade is a model of how to develop socialist agriculture ac-
cording to Chairman Mao’s proletarian revolutionary line. “In agriculture,
learn from Tachai” is a great call from Chairman Mao. If only we can firmly
adhere to arming the cadres and the masses with the great thought of Mao
Tse-tung, then, like Tachai Brigade, we will have activism, organizational
discipline, and the revolutionary spirit of suffering hardship. We will cer-
tainly be able to overcome unfavorable conditions and create favorable con-
ditions to transform drastically the outlook of agricultural production.
Because of the interference and sabotage of Liu Shao-ch’i’s revisionist
line before the Great Proletarian Cultural Revolution, Hsi-yang hsien. where
Tachai Brigade is situated, did not unfold the mass movement of learning
from Tachai. Its agricultural production developed very slowly. The total
output of food grain in the hsien as a whole hovered around 70 to 80 million
chin. The annual maximum sale of food grain to the state was only 7 million
chin. The Great Proletarian Cultural Revolution transformed the outlook of
Hsi-yang hsien. Starting from 1967, the whole hsien unfolded the mass
movement of learning from Tachai in a big way. It also resisted the interfer-
ence and sabotage of Lin Piao’s revisionist line. The people of the whole
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 17. Rely on Agriculture as the Foundation and Industry as the Leading Factor
hsien fought heaven and earth, transformed mountains and rivers, and great-
ly transformed the land acreage of Hsi-yang hsien. Agricultural production
developed rapidly. The output of food grain doubled in three years and tri-
pled in five years. The total output of food grain in 1971 reached 240 million
chin, three times as high as the peak output before the Great Proletarian Cul-
tural Revolution. Commodity food grain sold to the state reached 80 million
chin, an increase of more than ten times over the record harvest before the
Great Proletarian Cultural Revolution.
The experience of Hsi-yang hsien’s learning from Tachai demonstrates
that any difficulties in the human world can be overcome and any miracle in
the human world can be created if the innovative power of the masses armed
with Mao Tse-tung Thought is relied upon. To deeply unfold the mass
movement of learning from Tachai and to let the Tachai flower bloom all
over the country will certainly accelerate the development of agricultural
production, further consolidate the socialist base in the rural areas, and per-
mit agriculture to play a greater role as the foundation of the national econ-
omy.
All Trades and Industries Must Support Agriculture with
Their Efforts
The development of socialist agriculture must primarily rely on the ef-
forts of the cadres and the poor and lower-middle peasants, the staff and
workers of the state farms, and other laboring peasants who fight on the ag-
ricultural point. But this does not mean that the development of socialist ag-
riculture has nothing to do with other trades and industries. Agriculture is the
foundation of the national economy. Agricultural production affects the de-
velopment of the whole socialist national economy. If agriculture is not
properly developed, other trades and industries cannot hope to develop ei-
ther. If agriculture is properly developed, everything else will do well too.
The development of socialist agriculture is related to all trades and indus-
tries. All trades and industries must put the support of agriculture in an im-
portant position and actively perform the job of supporting agriculture. The
industrial sectors must above all regard the support of agriculture and the
promotion of agricultural mechanization as a major task. They must reso-
lutely orient their work toward the objective of treating agriculture as the
foundation. Small local industries such as iron and steel, machine building,
chemical fertilizer, and cement must all the more firmly adhere to the correct
orientation of serving agricultural production.
The support of agriculture by all trades and industries is an important
characteristic of the socialist economy. In capitalist society, industry exploits
agriculture, and the urban areas exploit the rural areas. Therefore, the rela-
tionship between the industrial capitalist and the laboring peasant is one of
class antagonism. In the socialist economy, after the urban and rural areas
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have undergone socialist transformation and on the basis of the socialist pub-
lic ownership system, the antagonism between the urban and rural areas and
between industry and agriculture is eliminated. But there are still two forms
of the socialist public ownership system. And because the economic, cultur-
al, and technological level of the rural areas is still below that of the urban
areas, there still exist substantial disparities between them. The great pro-
gram of the proletariat to build socialism and communism requires that in
the process of continually developing agricultural production and extending
social reform and technical innovation in agriculture, these essential dispari-
ties be gradually narrowed and finally eliminated. Therefore, it is an objec-
tive necessity that in developing the socialist economy all trades and indus-
tries lend their support to agriculture and to raising the economic, cultural,
and technical level of the rural areas. The proletarian party calls on all trades
and industries to firmly establish the thought of treating agriculture as the
foundation of the national economy and to render their assistance to devel-
oping socialist agriculture from all aspects.
Out of their need to restore capitalism, the bourgeoisie and its agents in-
side the proletarian party not only will not narrow the disparities between the
urban and the rural areas, but introduce the capitalist method of letting in-
dustry exploit agriculture and the urban areas exploit the rural areas. The
process of restoring capitalism in the Soviet Union is also the process of in-
creasing the control and exploitation of the rural areas by the bureaucratic
monopoly bourgeoisie headed by Brezhnev. The revisionist line of “empha-
sizing industry at the expense of agriculture” and “squeezing agriculture to
benefit industry” advocated by the Liu Shao-ch’i clique was also a line that
sought to widen the disparities between the urban and rural areas and be-
tween industry and agriculture and finally to restore capitalism.
Among the people, it is not an easy job to firmly establish the idea of
treating agriculture as the foundation and resolutely carry through the policy
having all trades and industries support agriculture. Under the influence of
the revisionist line, people often develop the idea of upgrading industry and
downgrading agriculture. After agriculture has reaped bumper harvests for
several years in succession, the idea of treating agriculture as the foundation
loses ground in people’s minds. They give lip service to “agriculture, light
industry, heavy industry” but act according to “heavy industry, light indus-
try, agriculture.” The tendency to neglect agriculture in the allocation of cap-
ital funds and the supply of material goods is obvious. These conditions
demonstrate that to firmly establish the idea of agriculture as the foundation,
it is necessary to study seriously the Chairman’s theories about the interrela-
tions among agriculture and light and heavy industry, study seriously the
general policy of developing the national economy with “agriculture as the
foundation and industry as the leading factor,” and further criticize and re-
pudiate the various reactionary fallacies of modern revisionism that look
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 17. Rely on Agriculture as the Foundation and Industry as the Leading Factor
down on agriculture.
Under the guidance of Chairman Mao’s revolutionary line, tens of mil-
lions of educated youths in China have answered his great call that “educat-
ed youths must go to the villages and receive reeducation from the poor and
lower-middle peasants” and have gone to the rural areas and mountainous
areas to fight in the forefront of agricultural production. This is a social
revolution that changes the established customs of society and a strategic
measure for training a large number of successors to the proletarian revolu-
tionary enterprise. Confucius, the spokesman for the declining slave- owning
class, greatly despised agricultural labor. His student Fan Ch’ih asked him
how to grow crops and vegetables. He scolded him for being “a small man.”
Lin Piao, the faithful disciple of Confucius, completely inherited this reac-
tionary idea. He maliciously attacked the idea of having educated youths go
to the rural and mountainous areas as being “equivalent to disguised labor
reform.” All exploitative classes despise both agriculture and the peasants.
The hopeless intention of these classes is to ride as long as they can on the
shoulders of the laboring people and exploit them. Chairman Mao thorough-
ly criticized and repudiated the reactionary ideas of people like Confucius.
He pointed out that “it is correct in political orientation and work method”
(8) for the revolutionary youth to study revolutionary theories, participate in
production, and join the worker-peasant masses. The rural areas are wide
open. It is extremely important for the maturation of the educated youths
themselves, the construction of a new socialist countryside, the criticism of
Lin Piao and Confucius, and the narrowing of the essential disparities be-
tween the worker and the peasant and between mental and physical labor
that the educated youths go to the rural areas to accept reeducation from the
poor and lower-middle peasants, to participate in class struggle, production
struggle, and scientific experiments in the rural areas, and to be exposed to
various tests and experiences.

Industry Is the Leading Factor in the Socialist

Economy
Fully Exploit the Role of Industry as the Leading Factor
Agriculture is the foundation of the national economy. Industry is the
leading factor of the national economy. Industry is not only a sector which
produces the means of livelihood, but is also a sector which manufactures
the means of production. The improvement of the means of production plays
a significant role in the development of social production. From the histori-
cal aspect, the evolution from stone implements to metal tools to various
machines represents not only milestones but also benchmarks for the various
economic epochs of human society. That industry is the leading factor of the
national economy means that the development of industry will certainly
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Fundamentals of Political Economy
bring forth advanced tools for the various sectors of the national economy,
promote technical innovations in the national economy, and consequently
increase labor productivity and social production.
Industry is divided into light industry and heavy industry. Light industry
is primarily concerned with producing the means of livelihood. Heavy indus-
try is primarily concerned with producing capital goods and manufacturing
the means of production [tools]. To play the role of the leading factor in the
national economy, it is necessary to give full scope to heavy industry which
produces capital goods and manufactures the means of production. In social-
ist society, the role of heavy industry as the leading factor in the national
economy is described as follows: to provide various modern agricultural
machines, motive power, chemical fertilizers, pesticides, and other means of
production for agriculture; to produce various light industrial machines and
light industrial raw materials and promote technical innovation and labor
productivity in light industry so that light industry can provide ever-richer
and more varied industrial products for daily use; and to provide modern
equipment for transportation, construction, and national defense industries in
order to promote technical innovation and development in these fields. From
these, we can see that the role of heavy industry as the leading factor is not
only manifested as the necessary condition for realizing agricultural mecha-
nization, but is also manifested as a necessary condition for realizing tech-
nical innovation for the whole national economy and is a necessary condi-
tion for consolidating national defense, guaranteeing national security,
strengthening proletarian dictatorship, and supporting world revolution. Just
as Chairman Mao pointed out, “Without industry, there will be no strong
national defense, no welfare for the people, and no rich and strong country.”
(9) The role of industry as the leading factor is determined by its important
role in the above-mentioned aspects.
That the role of industry as the leading factor is primarily realized by
heavy industry does not mean that light industry is not important. Although
light industry does not produce production tools, it is still an important sec-
tor of the socialist national economy. It is basically a sector for the produc-
tion of the means of livelihood. Like agriculture, it is an indispensable sector
for reproduction of labor power. Light industry is a necessary complement to
agriculture. It processes agricultural and sideline products, produces various
necessary means of livelihood for the laboring people of the urban and rural
areas, and assists agriculture to play better the role of the foundation in the
national economy. Compared with heavy industry, light industry is charac-
terized by small investment and quick returns. Light industry provides capi-
tal accumulation for the state and is an important source of capital funds for
building heavy industry. Chairman Mao paid special attention to the position
and role of light industry in the national economy. He pointed out, “When
agriculture and light industry are developed, heavy industry will develop
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 17. Rely on Agriculture as the Foundation and Industry as the Leading Factor
faster with the availability of markets and capital funds.” (10) Chairman
Mao clearly pointed out that the development of heavy industry depends not
only on agriculture, but also on light industry. He pointed out the important
role of light industry which people easily forget.
Gradually Realize Socialist Industrialization
The important role of industry in the national economy objectively re-
quires the socialist country to pay attention to the development of socialist
industry. For countries in which industrial development is relatively back-
ward, an important task facing the proletariat after it seizes political power is
rapidly to develop modern industry, realize socialist industrialization, and
build the originally economically backward country into a strong socialist
country with modern agriculture, modern industry, modern national defense,
and modern science and technology.
In addition to more fully bringing into play the role of industry as the
leading factor and thus guaranteeing the independence of the national econ-
omy and consolidating national defense, the realization of socialist industri-
alization has a more far-reaching significance. The gradual realization of
socialist industrialization will certainly increase the proportion of the sector
of the economy under state ownership and strengthen the leading capacity of
the state economy in the whole national economy. The development of so-
cialist industrialization will accelerate the development of industry in areas
where industry was formerly backward and change the irrational distribution
of industries. At the same time, the ranks of the working class will expand,
which will be favorable to strengthening the leadership of the working class
over the whole country. The gradual realization of socialist industrialization
will also certainly accelerate agricultural mechanization and raise industry’s
capacity to support agriculture, thus creating favorable conditions for gradu-
ally narrowing the disparities between the urban and rural areas and between
the worker and the peasant. It is precisely because of the significance of the
realization of socialist industrialization that Chairman Mao, in personally
directing the formulation of the Party’s General Line in the 1953 transition
period, stipulated that gradual socialist industrialization is an important task
which the whole Party and the whole people should strive to achieve.
Old China was a semicolonial and semifeudal country. Under the op-
pression of imperialism, feudalism, and bureaucratic capitalism, the level of
production was extremely backward. There were very few modern indus-
tries. The few modern industries that existed consisted primarily of light
industry and textile industry. When the country was liberated in 1949, the
annual output of steel was only 158,000 tons. There was nothing to speak of
in many important industrial sectors.
Faced with this “poor and blank” condition inherited from old China, to
rapidly realize socialist industrialization was a very pressing problem for the
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Chinese proletariat who wielded political power. In the past more than twen-
ty years under the brilliant leadership of Chairman Mao, significant
measures have been taken to accelerate the realization of socialist industrial-
ization.
To realize socialist industrialization in China, it is necessary to build a
complete socialist industrial system which combines large, medium, and
small enterprises, which is distributed geographically in a comparatively
rational manner, and in which the iron and steel industry and the machine-
building industry are the center. This national industrial system is built on
the foundation of existing industrial systems in various coordinated regions
and provinces. Once modern industrial systems that are complete and rela-
tively independent but which all vary according to local conditions have
been established in a planned fashion and step by step in every coordinated
region and within the framework of many provinces, the formation of the
national industrial system will take place very quickly.
How to realize socialist industrialization? Chairman Mao pointed out to
us that “the problem of what path to follow in industrialization refers primar-
ily to the interrelation among heavy industry, light industry, and agricul-
ture.” (11) To realize socialist industrialization, it is of course necessary to
give priority to developing heavy industry. But, giving priority to developing
heavy industry does not mean that agriculture and light industry can be ig-
nored. Chairman Mao pointed out: “China’s economic construction is cen-
tered around heavy industry. This point must be affirmed. But at the same
time we must pay full attention to developing agriculture and light industry.”
(12) Based on the interrelations among agriculture, light industry, and heavy
industry, Chairman Mao formulated a revolutionary line to realize socialist
industrialization with greater, faster, and better results at lower costs, name-
ly, to develop heavy industry by developing more light industry and agricul-
ture. Through this method, agriculture and light industry have developed.
They not only can provide ever-greater amounts of the means of livelihood
and improve people’s lives, but can also solve the problem of capital accu-
mulation and markets for heavy industry in order to make the development
of heavy industry more stable and reliable. From a long-range viewpoint,
this method will lead to greater and better development of heavy industry.
In opposition to Chairman Mao’s revolutionary line, there was the revi-
sionist line advocated by the Liu Shao-ch’i and Lin Piao clique which had
fewer, slower, and poorer results at higher costs, namely, developing heavy
industry at the expense of agriculture and light industry. Because it neglects
the development of agriculture and light industry, this line of lopsidedly de-
veloping heavy industry does not meet the requirements of the peasants to
strengthen the collective economy; it does not take care of the livelihood of
the broad masses and will certainly result in discontent among the people
and the improper development of heavy industry.
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 17. Rely on Agriculture as the Foundation and Industry as the Leading Factor
Under the guidance of Chairman Mao’s revolutionary line, the revision-
ist line of Liu Shao-ch’i and Lin Piao has been criticized and repudiated, the
interrelations among agriculture, light industry, and heavy industry have
been correctly handled, brilliant results have been achieved in China’s so-
cialist industrialization, and the rudiments of an independent and modern
industrial system have been developed.
In Industry, Learn from Tach’ing
The process of socialist industrialization is a process of intense struggle
between two classes, two roads, and two lines. In the process of leading
China to realize socialist industrialization, Chairman Mao advocated, in ad-
dition to scientifically pointing out a road for socialist industrialization based
on the interrelations among agriculture, light industry, and heavy industry,
important policies such as independence, self-reliance, arduous struggle, and
“smash foreign conventions and follow our own road to develop industry.” It
was a pointed criticism and repudiation of the “slavish submission to foreign
conventions” and the “snail’s pace” advocated by the Liu Shao-ch’i and Lin
Piao clique. Following Chairman Mao’s teaching, China’s working class
displayed the revolutionary spirit of daring to think, daring to speak up, and
daring to act and gave impetus to the rapid development of China’s industri-
al construction. The Tach’ing Oil Field is an industrial model for building
socialism with greater, faster, and better results at lower costs. In the strug-
gle between the two lines, it firmly adhered to Chairman Mao’s proletarian
revolutionary line.
The new Tach’ing Oil Field was formerly a barren plain. When several
hundreds of thousands of staff and workers arrived there in 1960 to construct
the oil field, it was “a blue sky above and a grass plain below.” The weather
was cold and the ground was frozen. There were no houses, no beds, no
cooking equipment. Production conditions were also very difficult. Several
dozens giant drilling machines were soon set up on the grass plain. But the
equipment was incomplete; there were not enough trucks or cranes and no
highways. Roads were muddy. Water and electricity supplies were grossly
inadequate. Under such difficult conditions, the heroic Tach’ing workers
firmly adhered to putting proletarian politics in command and repeatedly
studied Chairman Mao’s works, especially “On Practice” and “On Contra-
dictions.” They armed their minds with Marxism-Leninism-Mao Tsetung
Thought, fought heaven and earth, fought class enemies, and displayed the
revolutionary spirit of self-reliance and arduous struggle. In just a little over
three years, a big, first-class oil field had been established in China with high
speed and high quality. China has been basically self-sufficient in oil prod-
ucts since 1963. The Tach’ing workers also conducted a large amount of
scientific research and solved several important technical problems concern-
ing world oil field exploitation. Following Chairman Mao’s teaching con-
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cerning how to run an enterprise with diligence and thrift, the total state in-
vestment was recovered in 1963. On the eve of “May Day” in 1974, the cap-
ital it had accumulated for the state amounted to eleven times the state in-
vestment, achieving greater, faster, and better results at lower costs. Even
more important, the Tach’ing Oil Field has trained a worker corps that has
class consciousness, drive, a good style of work, organization, and discipline
and which can endure hardship and fight hard battles. It is because of this
revolutionized corps that the Tach’ing Oil Field develops continuously and
rapidly and embodies a great victory for Chairman Mao’s proletarian revolu-
tionary line.
The Tach’ing Oil Field is a red banner on China’s socialist industrial
front. “In industry, learn from Tach’ing” is Chairman Mao’s great call.
There is a basic similarity between the Tach’ing Oil Field and the Tachai
Brigade. Comrade Chou Enlai pointed out in his Political Report to the
Tenth National Party Congress: “The basic experience of our socialist con-
struction over the past twenty years is to rely on the masses. To learn from
Tach’ing in industry and Tachai in agriculture, it is necessary to adhere firm-
ly to putting proletarian politics in command, launch mass movements in a
big way, and fully exploit the enthusiasm, wisdom, and creativity of the
broad masses.” The experience of Tach’ing demonstrated that to educate
people with Marxism-Leninism-Mao Tse-tung Thought and to build a work-
ers corps is the most basic thing in socialist enterprise construction. With
such a corps of iron and steel armed with Mao Tse-tung Thought, there is no
fear of hardship or difficulties. The harder it is, the further the corps will
advance, overcoming all difficulties in order to build socialist industries with
greater, faster, and better results at lower costs. People like Lin Piao slan-
dered the working class as being merely interested in “livelihood.” The
Tach’ing experience is a slap in their faces. In building socialist industry,
whether the political and ideological education of the staff and workers is
given priority, whether we trust the masses, whether we dare to mobilize the
masses, whether we insist on following the mass line, and whether the road
of self-reliance and arduous struggle is followed are important indicators of
whether the banner of “In industry, learn from Tach’ing” is truly upheld and
whether Chairman Mao’s revolutionary line has been truly executed.
Chairman Mao’s call for “In industry, learn from Tach’ing” indicated
the direction for China’s industrial development. It greatly aroused the work-
ing class of China to be self-reliant, strive hard, and rapidly transform the
outlook of China’s industry. The penetrating unfolding of the mass move-
ment to “Learn from Tach’ing in industry” will certainly accelerate the pace
of China’s socialist industrialization and build China into a great socialist
country with modern agriculture, modern industry, modern national defense,
and modern science and technology.

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 17. Rely on Agriculture as the Foundation and Industry as the Leading Factor

The National Economic Plan Must Follow the Order

of Agriculture. Light Industry, and Heavy Industry
Promote the Rapid Development of the National Economy
Following the Order of Agriculture. Light Industry, and Heavy
Industry
That agriculture is the foundation and industry is the leading factor of
the national economy is an objective necessity. The general policy of “agri-
culture as the foundation, industry as the leading factor” formulated by
Chairman Mao to develop the national economy correctly reflects this ne-
cessity and is a model for developing the socialist national economy.
Under the guidance of the General Line for building socialism and the
general policy for developing the national economy, China’s national eco-
nomic plan is arranged in the order of agriculture, light industry, and heavy
industry which Chairman Mao suggested. That is to say, in arranging the
national economic plan, we must start from agriculture and place agriculture
in the primary position. Whether it is in the allocation of capital funds or the
supply of material goods, the needs of agriculture cannot be neglected. At
the same time, we must also take care that the development of heavy indus-
try and other sectors of the national economy cannot exceed the amount of
food grain, raw materials, capital funds, and labor force that can be provided
by agriculture. The development of heavy industry must be based on the
foundation of developing agriculture and light industry. In China, as a result
of the implementation of this policy, the relations between industry and agri-
culture are relatively harmonious. Agricultural production and industrial
production steadily increase. The market is thriving, and prices are stable. A
prosperous and lively scene prevails over industrial and agricultural produc-
tion. Historical experience demonstrates that the development of the national
economy in the socialist country must take agriculture as the foundation and
industry as the leading factor and correctly handle the relations among agri-
culture, light industry, and heavy industry. This is an indisputable truth. Un-
like China, Soviet revisionist social imperialism exploits and oppresses its
laboring people at home and engages in aggression and expansion abroad. It
frantically militarizes its national economy, develops the armament industry
at all costs, destroys the development relations among agriculture, light in-
dustry, and heavy industry, and leads its national economy into severe crises.
These measures of the Brezhnev clique that wants “more guns at the expense
of butter” lead to severe inflation, commodity shortages in the market, and
short supplies. The laboring people are impoverished.

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The Order of Agriculture. Light Industry, and Heavy Industry

Will Certainly Promote the Consolidation of the Worker-
Peasant Alliance
The problem of the development relations among agriculture, light in-
dustry, and heavy industry in the socialist national economy is not only a
question of the proportional relations among these national production sec-
tors; it is also a question of the interrelations between the workers and the
peasants and a question of the worker-peasant alliance.
Under the socialist system, the basic interests of the worker and the
peasant are identical. Under the leadership of the working class, the mutually
supporting and promoting worker-peasant alliance is established for a com-
mon struggle to build socialism and realize communism. But certain dispari-
ties still exist between the urban and rural areas and between the worker and
the peasant with respect to economics, culture, technology, and material
livelihood. These disparities are the remnants of the old society. To allow
these disparities to exist for a long time, or even to expand, and not to create
conditions to narrow or eliminate the disparities is detrimental to the consol-
idation of the worker-peasant alliance.
In his analysis of the relations between the leading class and the class
which is led, Chairman Mao pointed out: “The leading class and Party, in
order to exercise leadership over the class, stratum, political party or peo-
ple’s organization to be led, must possess two characteristics: (A) lead the
one which is led (the ally) to fight a determined battle against the common
enemy and win and (B) provide material welfare to the one which is led; at
least, do not hurt their interests and give them political education.” (13) Af-
ter the working class has seized political power, led the peasants to over-
throw the landlord class, and realized land reform and agricultural collectivi-
zation, it is still necessary to lead the peasants to fight a determined battle
against the class enemy in the rural areas, conduct socialist education to help
them further realize agricultural mechanization on the basis of collectiviza-
tion, raise their material and cultural living standards gradually on the basis
of production development, and lead them to follow resolutely the socialist
road. This way, the disparities between the urban and rural areas can be nar-
rowed and the worker-peasant alliance can be further consolidated.
Therefore, the arrangement of the national economic plan according to
the order of agriculture, light industry, and heavy industry is basically an
important aspect in the correct handling of the relations between the worker
and the peasant. The essence of this problem is the issue of consolidating the
leadership of the working class, consolidating the alliance between the
worker and the peasant, having the working class struggle with the bour-
geoisie for the allegiance of the peasants, and a new issue of class struggle
under the socialist system. Chairman Mao’s theory concerning the interrela-

278
 17. Rely on Agriculture as the Foundation and Industry as the Leading Factor
tions among agriculture, light industry, and heavy industry, the general poli-
cy of developing the national economy with “agriculture as the foundation
and industry as the leading factor,” and the arrangement of the national eco-
nomic plan according to the order of agriculture, light industry, and heavy
industry indicated the road to solving these problems.
Major Study References
Marx, Capital. Vol. 3, Chapter 37.
Chairman Mao, “On the Correct Handling of Contradictions among the
People,” Sections 3 and 12.
Review Problems
1. Why do we say that agriculture is the foundation of the national
economy? How can the job of supporting agriculture be done well?
2. Why do we say industry is the leading factor of the national econo-
my? Why must attention be paid to the development of agriculture and light
industry while developing heavy industry?
3. What is the immense significance of correctly handling the relations
among agriculture, light industry, and heavy industry?
Notes
* Fa-chan kuo-min ching-chi pi-hsii i nung-yeh wei chi-ch’u kung-yeh
wei chu-tao - she-hui-chu-i nung-yeh ch'ing kungyeh ho chung kung-yeh ti
hsiang-hu kuan-hsi.
1) Marx, “‘Money’: One of the 1857-1858 Manuscripts on Economics,”
quoted from Marx. Engels. Lenin, and Stalin on Communist Society. Jen-min
ch’u-pan-she. 1958, p. 67.
2) Marx, Capital. Vol. 3, Jen-min ch’u-pan-she, 1966, p. 918.
3) “On the Correct Handling of Contradictions among the People,” Se-
lected Readings from the Works of Mao Tse-tung. (Type A), Jen-min ch’u-
pan-she, 1965, p. 362.
4) Ibid., p. 362.
5) “On Coalition Government,” Selected Works of Mao Tse-tung. Vol.
3, Jen-min ch’u- pan-she, 1968, p. 978.
6) “On Agricultural Cooperativization,” Selected Readings from the
Works of Mao Tse-tung. (Type A), Jen-min ch’u-pan-she, 1965, p. 314.
7) “Where Does People’s Correct Thought Come from?” Selected Read-
ings from the Works of Mao Tse-tung. Jen-min ch’u-pan-she, 1965, p. 383.
8) “The Orientation of the Youth Movement,” Selected Works of Mao
Tse-tung. Vol. 2, Jen-min ch’u-pan-she, 1968, pp. 532-33.
9) “On Coalition Government,” Selected Works of Mao Tse-tung. Vol.
3, Jen-min ch’u- pan-she, 1968, p. 981.

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Fundamentals of Political Economy
10) “On the Correct Handling of Contradictions among the People,” Se-
lected Readings from the Works of Mao Tse-tung. (Type A), Jen-min ch’u-
pan-she, 1965, p. 362.
11) Ibid., p. 362.
12) Ibid., p. 362.
13) “On Some Important Problems of the Party’s Present Policy,” Se-
lected Works of Mao Tse-tung. Vol. 4, Jen-min ch’u-pan-she, 1968, p. 1168.

280
18. Frugality Is an Important Principle in the
Socialist Economy
Practice Frugality and Economic Accounting*
The socialist production process is one of planned allocation of labor
time and striving to economize on labor time. To practice frugality and eco-
nomic accounting in all enterprises and in managing the national economy is
the essential condition for building socialism with greater, faster, and better
results at lower costs.

Frugality Is a Necessity in Socialist Economic

Development
The Significance of Frugality to Socialist Economic
Development
What frugality means here is the economizing of manpower, materials,
and funds. Economizing manpower means to save live labor; economizing
materials means to save embodied labor; and economizing funds means to
save live and embodied labor manifested in currency circulation. Therefore,
all frugality is in fact the economizing of live and embodied labor, or the
economizing of labor time.
In socialist society, saving labor time assumes an immense significance.
Marx pointed out: “All saving is ultimately the saving of time. Every person
should rationally allocate his own time in order to gain necessary knowledge
or to satisfy the various requirements governing his activities.
Similarly, society should also allocate its time in order to achieve pro-
duction that satisfies its total requirements. Therefore, the saving of time and
the planned allocation of labor time in various production sectors become a
primary economic law of collective production. This is even a very ad-
vanced law.” (l)
The goal of socialist production is to satisfy the needs of the state and its
people. Frugality in labor time and planned allocation of labor time over the
whole society in order to produce the maximum possible amount of use val-
ue with the minimum amount of labor expenditure is a basic path to guaran-
teeing to the greatest extent the satisfaction of the ever-increasing needs of
the state and its people. It is also in line with the objective requirement of the
basic economic law of socialism. To violate the law of frugality is to violate
the basic requirement of socialist economic development and to violate the
basic interests of the proletariat and the laboring people. Therefore, whether
frugality is enforced is primarily an issue of whether the objective law of the
socialist economy is accepted and an issue of whether the basic interests of

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the proletariat and the laboring people are valued.
To practice frugality is an important way to increase accumulation
through self-reliance in the socialist country. To engage in large-scale eco-
nomic construction, the socialist country requires a large amount of capital
funds. Where do the funds come from? Unlike capital imperialism and social
imperialism, the socialist country cannot exploit its own people, engage in
external aggression and plundering, demand war damages, or sell national
resources to develop its economy. The socialist country can only rely on the
diligent labor of its whole laboring people and internal frugality for accumu-
lation. On the one hand, the production unit saves as much manpower, mate-
rials, and funds as possible, rationally allocates funds, and continuously ex-
pands the scale of production. On the other hand, nonproduction units such
as state organs, military units, schools, and people’s organizations must
economize and eliminate waste in order to minimize the share of nonproduc-
tion expenditure in the state budget. This way, a large amount of capital
funds can be accumulated for economic construction. The socialist country
must practice frugality and oppose waste in order to accelerate socialist con-
struction and better satisfy the ever- increasing needs of the state and the
people.
To practice frugality is especially important to China’s socialist con-
struction. China is a big country but is also an economically backward and
poor country, a developing country. Chairman Mao pointed out: “We must
engage in large-scale construction. But China is still a very poor country.
This is a contradiction. To practice frugality totally and steadily is one of the
methods that will resolve this contradiction.” (2) Therefore, Chairman Mao
called upon the whole people: “To run factories with diligence and econo-
my, to run shops with diligence and thrift, to run all state enterprises and
cooperative enterprises with diligence and economy, and to run all other
enterprises with diligence and thrift. The principle of diligence and economy
must be applied to everything. This, then, is the principle of frugality.” (3)
The broad workers and poor and lower-middle peasants fighting at the fore-
front of production pay close attention to Chairman Mao’s instructions. They
understand the major significance of frugality. The laboring masses put it
nicely, “Diligence without economy means pure waste of effort.” Only
through diligence and thrift can the laboring masses create wealth and play
the greatest possible role and can China soon be developed into a big and
strong socialist country.
To practice frugality is also necessary if a socialist country is to dis-
charge its obligations related to internationalism. Only by saving more can
we contribute more to world revolution.
Chairman Mao pointed out: “Our 600 million people must all increase
production, practice frugality, and oppose ostentatious display and waste.
This is not only economically significant, but also politically significant.”
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(4) Diligence and frugality have always been the virtue of the proletariat and
the laboring people. Under the guidance of Chairman Mao’s revolutionary
line, the broad masses of China practice diligence and frugality. It has de-
veloped into a common habit. Ostentatious display and waste are the poison
of the bourgeoisie and all exploitative classes. Like their master Confucius,
the Liu Shao-ch’i and Lin Piao clique were all people who “never worked
with [their] four limbs and [who] could not distinguish the five cereals.” Ex-
travagance and waste are the innate nature of the exploitative class. They
hated the policy of “building the country with diligence and economy” for-
mulated by Chairman Mao. In capital construction work, they went after
“the big, the foreign, and the glamorous” projects. In resource management,
they resorted to what was nominally known as “generous budget but tight
expenditure.” In fact, it was “generous budget and generous expenditure” In
operation and management, they even clamored that “money will not escape
abroad even if accounts are not reckoned for three years” Their criminal in-
tent was to corrode those people among the revolutionary ranks who were
irresolute, waste national resources, undermine socialism, sabotage proletar-
ian dictatorship, and restore capitalism. Therefore, to practice frugality and
oppose waste will not only accelerate socialist construction, but will also
represent a powerful political struggle against people like Liu Shao-ch’i and
Lin Piao. It is also a thorough criticism and repudiation of traditional con-
cepts and established influence. We must consciously resist the corrosion
and attacks of bourgeois ideology and extend the glorious tradition of the
proletariat to establish new enterprises with ardor and to practice diligence
and economy. “We must make all youths realize that our country is still very
poor and that it is not possible to fundamentally change this condition in a
short time. We must rely on the youth and the whole people to unite and
struggle during several decades and create a rich and strong country with our
own hands.” (5)
The Socialist System Opens a Broad Avenue to Frugality
In socialist society, there is not only a need for practicing frugality, but
also a possibility for rationally and widely achieving frugality with respect to
live and embodied labor on various battlefronts and in each individual sector
of socialist production. This is chiefly because the laboring people in social-
ist society have become their own masters. The ultimate purpose of saving
as much manpower, material resources, and funds as possible in order to
provide more accumulation for the state and the collective and to better ex-
pand reproduction is to serve the interests of the proletariat and the laboring
people. Therefore, practicing frugality is a conscious objective of the broad
masses of laboring people. Once the socialist activism of the masses has
been mobilized, all methods for frugality are employed: Warehouses and
storehouses are inventoried to tap potential material resources; technical in-
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novations are made in a big way to tap the potential of unused equipment;
labor organization and methods of operation are improved to tap labor po-
tential; and comprehensive utilization is unfolded to turn “waste” into valua-
ble items and transform “the useless” into the useful. For example, the main
plant of Northeast Pharmaceuticals mobilized the masses to unfold compre-
hensive utilization. The broad laboring masses and technicians all taxed their
brains to find ways to use “solid waste,” “fluid waste,” and “gaseous waste.”
As a result, several tens of new products were added. The main distillery in
Peking formerly produced only liquor. After unfolding a mass movement to
increase production and practice economy, several tens of important prod-
ucts were produced from the “three wastes” of the plant. It developed a
comprehensive enterprise, turning out a great variety of products. The broad
laboring masses are concerned with frugality and practice it in thousands of
ways. This is not possible in a capitalist society. Under capitalism, the capi-
talist practices frugality in his own enterprise. The purpose is to minimize
costs and extract maximum surplus value. The essence of frugality is to in-
crease the exploitation of hired labor. Marx pointed out: “Capitalist produc-
tion economizes the labor that is realized and embodied in commodities.
But, capitalism is more wasteful of man and live labor than any other pro-
duction method. It not only wastes blood and flesh, but also mind and
brain.” (6) The working masses are extremely resentful of the so-called fru-
gality practiced by the capitalist and will resolutely resist and rebel against
it.
Under the conditions of socialist public ownership, the law of frugality
not only plays a role within various enterprises; more importantly, it plays a
role in the whole national economy. The socialist economy is a planned
economy. “The social and planned allocation of labor time regulates the
proper proportion among various labor functions and various needs.” (7)
The socialist country can, through the national economic plan, rationally use
manpower, material resources, and funds, centrally organize production and
circulation, unfold socialist cooperation over the whole country, and com-
bine the frugality of individual enterprises with the frugality of the whole
society. Under capitalism, because of competition among enterprises and
chaotic production, it is basically not possible to practice frugality in a sys-
tematic manner throughout the whole society. This is especially so because
of the serious waste of manpower, material resources, and funds connected
with the periodic occurrence of business cycles. Marx pointed out: “The cap-
italist production method forces individual enterprises to practice frugality.
But its chaotic competitive system results in substantial waste in social
means of production and labor power.” (8)
Frugality and waste constitute a unity of opposites. The process of prac-
ticing frugality must inevitably be the process of opposing waste. To prac-
tice frugality, it is first necessary to strengthen the masses’ and cadres’ edu-
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cation concerning ideology and the political line, continuously unfold the
struggle against waste, and establish the idea of building the country with
diligence and economy and arduous struggle. The Party’s ideological and
political work is the basic guarantee that the consciousness of the masses
and the cadres to practice frugality will be raised and the policy of running
enterprises with diligence and economy will be carried out. To combine ide-
ological and political work with meticulous economic work, a rational sys-
tem must be established. To strengthen economic accounting in the national
economy and in various enterprises and to run the enterprises on the basis of
economic accounting is a very important system.

Economic Accounting Is an Important Means to

Develop the Socialist Economy with Greater. Faster.
and Better Results at Lower Costs
Use Economic Accounting to Realize Greater. Faster, and
Better Results at Lower Costs
Economic accounting is the analysis of economic activities through
bookkeeping. In the production struggle, people learned a long time ago the
importance of economic accounting. In the primitive commune of India
there was a bookkeeper to record agricultural accounts and all events con-
nected with them. (9) Marx borrowed the story of Robinson Crusoe, popular
among bourgeois economists, to explain the necessity of bookkeeping in the
production process. Marx pointed out: For Robinson, who lived on an isolat-
ed island, “however simple his life, he had to satisfy his various needs. As a
result, he had to engage in a variety of useful labor, such as making tools,
furniture, raising goats, catching fish, and hunting animals.” “He had to
force himself to precisely allocate his time for various activities.” “His ac-
counts recorded various things that he possessed, various activities required
to produce these things, and finally the average labor time expended to make
these quantities of products.” (10) The more social the production process
becomes, the greater the necessity for economic accounting. “Bookkeeping
is more necessary to capitalist production than to the decentralized produc-
tion of handicraftsmen and peasants. It is more necessary for production un-
der public ownership than for capitalist production.” (11)
Under different social systems, the content, format, and social conse-
quences of economic accounting are different. In capitalist society, the capi-
talist uses economic accounting to extract the greatest possible amount of
surplus value with the smallest possible amount of capital. The stricter this
economic accounting, the more capital is saved, the more cruel is the exploi-
tation of hired labor, and the poorer the laboring people become. In socialist
society, economic accounting no longer reflects capitalist production rela-

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tions. Rather, it reflects socialist production relations. Through economic
accounting, the proletariat and the laboring people consciously employ the
law of saving labor time to develop socialist production with greater, faster,
and better results at lower costs and to better satisfy the needs of the state
and the people.
Greater, faster, and better results at lower costs are important character-
istics of socialist production. Socialist economic accounting is an important
means to realize greater, faster, and better results at lower costs. Looking at
it from the whole national economy, greater, faster, and better results at low-
er costs are inseparable. In production, if frugality is practiced to reduce
consumption of raw materials, fuel, labor, and costs, the same amount of
manpower, material resources, and funds can produce more products. At the
same time, meticulous calculation, diligence and economy, the rational
choice of raw materials, and the substitution of cheaper and better raw mate-
rials for more expensive and poorer quality raw materials can also lead to an
increase in production by raising the quality of products and improving the
durability of products. The manpower, material resources, and funds thus
saved can be used to develop production of other items to accelerate socialist
construction.
The bourgeoisie tries its best to extract the greatest possible amount of
surplus value by using the smallest amount of capital. Soviet revisionism
regards the pursuit of profit as the highest principle of economic accounting.
Profits in the enterprises of Soviet revisionist state monopoly capitalism are
a transformation of surplus value. Economic accounting in capital imperial-
ism and social imperialism is the economic accounting of the exploitative
class. It is diametrically opposed to socialist economic accounting.
The Laboring Masses Are the Masters of Economic
Accounting
The position of the laboring masses in socialist economic accounting
and capitalist economic accounting is entirely different. Because economic
accounting in the capitalist enterprise serves the bourgeoisie but is funda-
mentally opposed to the interests of the laboring people, economic account-
ing is the business of only a few experts employed by the bourgeoisie. So-
cialist economic accounting serves the interests of the laboring people and is
in line with their basic interests. Therefore, economic accounting in the so-
cialist enterprise is not merely the work of experts, but should and can be-
come an economic activity which has the conscious participation of the la-
boring masses.
Economic accounting in China’s socialist enterprise combines the labor-
ing masses and the experts. China’s experience demonstrates that to do a
good job in economic accounting, the masses must participate. Economic
accounting by experts must be based on mass accounting. Because the broad
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 18. Frugality Is an Important Principle in the Socialist Economy
laboring masses have rich practical experience gained from fighting a long
battle on the production forefront, they are familiar with their own produc-
tion conditions. They know clearly where waste exists and where frugality
can be further increased. They know very well how to improve techniques to
raise efficiency, and how to calculate labor costs, material resources, and
funds in order to achieve greater, faster, and better results at lower costs.
Group accounting, organizations for economic supervision, and conferences
to analyze economic activities in China’s socialist enterprises are some of
the better forms of economic accounting activities resulting from the masses
taking control of financial management and the combination of the laboring
masses and the experts. In the socialist enterprise, the masses, as their own
masters, participate in group accounting, analysis of economic activities, and
financial management. This way, not only does economic accounting play a
greater role in realizing greater, faster, and better results at lower costs, but it
also presses the leadership personnel and the broad cadres to act according
to the Party line and general and specific policies so that the enterprise will
advance along the socialist road.
In socialist economic accounting, it is also important to exercise the role
of the experts. Keeping in touch with the various workshops and depart-
ments in the enterprise makes the experts more familiar with the situation of
the economic activities of the whole enterprise and facilitates the leadership
and organization of the various economic activities. Of course, the experts
must also go down to the production forefront, fully rely on the masses,
strengthen investigation and research, respect the creativity of the masses,
and promptly solve problems of economic accounting arising in the process
of production. Only thus can their proper role be fully exercised.

The System of Economic Accounting Is a

Management System of the Socialist Enterprise
The System of Economic Accounting Embodies the Relations
between the State and State Enterprises and the Relations
among Enterprises
After the socialist country establishes a socialist state economy, how
should the state enterprise be managed?
The socialist state economy based on the socialist state ownership sys-
tem is the property of the whole laboring people. The socialist state possess-
es and manages the state economy as the representative of the whole labor-
ing people. The socialist state stipulates production and operational plan as-
signments for the state enterprise and centrally allocates the output and earn-
ings of the state enterprise to meet the needs of the state and the people.
Does state management of the state economy imply that there is no rela-

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tive economic independence in the many state enterprises? Does this mean
that all means of production and compensation for personnel are provided
free to the state enterprise, that all products of the state enterprise are passed
on to the state without any compensation, and that there is no independent
accounting of profit or loss in the state enterprise? This kind of management
system existed in history and is called the free supply system in enterprise
management. In the 1918 to 1920 period of military communism in the So-
viet Union, this system of management of state enterprises was adopted. It
was necessary under the special historical condition of military communism.
But it is not practicable under the general conditions of building socialism.
Under the condition of a free supply system, the absence of an independent
accounting of profit and loss would make it difficult to detect where effi-
ciencies or waste existed in the process of production and operation. Thus, it
would be unfavorable to mobilizing the operation activism and strengthening
the responsibility of the working personnel of the state enterprise. This
would be in contradiction to the law of frugality.
Then, is it all right to let state enterprises be independently responsible
for their profits and losses? This is even less practicable. If this were the
case, the socialist state ownership system could exist only in name and
would degenerate into an enterprise ownership system, a small group owner-
ship system, and ultimately a private ownership system. The economic law
of capitalism would certainly exert itself.
In socialist society, the economic management of enterprises by the state
objectively requires a system such as the system of economic accounting.
What is the economic accounting system? In simple terms, it is an economic
management system which guarantees the central leadership of the state and
at the same time permits the relatively independent operation of enterprises.
As early as 1942, Chairman Mao brought up the principle of “centraliza-
tion in leadership, and decentralization in management” in his directive to
establish an economic accounting system in all state sectors of the economy.
Centralized leadership means planned management of state enterprises ac-
cording to centralized lines, directives, and policies and, in the light of con-
crete conditions, assigning enterprises various production targets including
variety, quantity, quality, product value, labor productivity, costs, and profits
to be turned over to the state. The enterprise must be responsible for the state
plan and fulfill the various targets assigned by the state. Decentralized man-
agement means state allocation of funds to state enterprises according to
their production and operational needs. Enterprises use funds allocated by
the state and organize production, supply, and marketing activities according
to the plan assignments set up by the state. Every state enterprise possesses
some relative independence. It is responsible for its own profit and losses
and relies on its own income to pay for its expenses and to furnish accumu-
lation to the state. Decentralized management under centralized state leader-
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 18. Frugality Is an Important Principle in the Socialist Economy
ship requires, on the one hand, that the state enterprise improve management
of production and operation, strengthen economic accounting, and guarantee
the fulfillment of the state plan. On the other hand, the state must create the
necessary conditions for the state enterprise to improve production and oper-
ation, such as the prompt announcement of production plans and the proper
organization of raw materials supply and production cooperation. The man-
agement of the state enterprise by the state through the economic accounting
system guarantees centralized leadership by the state over state enterprises
and also facilitates the enterprise’s exercise of socialist operational activism.
It both avoids excessive control unfavorable to enterprise economic account-
ing and prevents excessive enterprise independence which may lead to the
capitalist tendency of free operation.
Under the system of economic accounting, the characteristic feature of
the economic relations among state enterprises is joint cooperation but inde-
pendent accounting. State enterprises are the property of the proletariat and
the whole laboring people. They belong to the same owners. They are relat-
ed not only by the division of labor, but also by the fact that their identical
basic interests require them to coordinate and closely cooperate on their own
initiative. They are fundamentally different from capitalist enterprises based
on the private ownership system. However, under the system of economic
accounting, state enterprises are all units with relatively independent ac-
counting and independent operation. Economic transactions and cooperation
among them must be recorded to facilitate the calculation of economic bene-
fits. The exchange of manpower, material resources, and funds among enter-
prises must therefore be inspired by the cooperative style of communism and
follow the principle of equivalent exchange.
The above-mentioned relations between the state and state enterprises and
among state enterprises under the system of economic accounting enable the
state enterprises to fully exercise their operation responsibility and activism
under the centralized leadership of the state. Lenin once pointed out: “The
purpose of establishing enterprises on the basis of an economic accounting
system is to make them responsible, and totally responsible, so that the enter-
prises will not run at a loss.” (12) Some people wonder, since all state enter-
prises are state property, why it is necessary to have such a refined accounting
system among them. This idea, which negates the system of economic ac-
counting, violates the socialist principle of frugality. In socialist society, in-
creases in production and the practice of economy rely primarily on the Par-
ty’s ideological and political work to raise the consciousness of the cadres and
the masses. But it is also necessary to establish a system of responsibility with
respect to operation and management. If the system of economic accounting
were not implemented, it would not be favorable to strengthening the opera-
tional responsibility of the management personnel, and substantial waste of
manpower, material resources, and funds would result.
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Fundamentals of Political Economy
Corresponding with the duality in the socialist production process, the
state enterprise must, in its process of economic accounting, calculate out-
put, variety, and quality in light of their use value. It must also calculate
costs, prices, profits, and so forth in light of their exchange value. Plan tar-
gets assigned by the state-to-state enterprises in its management through the
system of economic accounting include product variety, specifications,
quantity, quality, and other material targets as well as the value targets such
as costs, output value, and surrendered profits. Material targets and value
targets are complementary and necessary. But, the existence of value catego-
ries indicates the existence of commodity production and the existence of
contradictions between use value and exchange value in commodities. The
proletariat must develop production to satisfy the needs of the socialist state
and the people according to the requirements of the basic socialist economic
law. They must correctly handle the contradictions between use value and
exchange value and realize greater, faster, and better results at lower costs
throughout the whole economy. The agents of the bourgeoisie in the socialist
economy will certainly exploit the contradictions between use value and
exchange value to push the revisionist line of “producing more if profits are
high and less if profits are low; don’t produce if there are no profits” and
conspire to restore capitalism. Therefore, the process of implementing the
system of economic accounting will be full of the struggle between the two
classes, the two roads, and the two lines. To win victory in this struggle, we
must correctly understand and use the various value categories in the system
of economic accounting.
Correctly Use the Value System to Do a Good Job in the
System of Economic Accounting
Capital funds, production costs, profits, and other value categories in the
socialist economic accounting system reflect socialist production relations.
They are essentially different from capital funds, production costs, profits,
and other categories in the capitalist economy.
Capital funds in the socialist state enterprise are state property and are
fundamentally different from capital in the capitalist enterprise. Capital is
created by surplus value and reflects the exploitative relations of capital over
hired labor. Capital funds in the socialist state enterprise are that part of the
accumulated state wealth used for production and operation. The use of
these funds by the enterprise to engage in production and operational activi-
ties follows the requirements of the basic socialist economic law and serves
to expand reproduction and satisfy the ever-increasing needs of the state and
the people. The rational use of capital funds has tremendous significance in
developing the socialist economy.
The production funds of the state enterprise can be classified as fixed
capital and working capital according to the nature of their circulation in the
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 18. Frugality Is an Important Principle in the Socialist Economy
production process. The material form of fixed capital funds is manifested
by machines, plants, and so forth. The full exploitation of fixed capital assets
is equivalent to the expansion of production capacity with a given amount of
fixed assets. The state must stipulate a rational depreciation method and de-
preciation rate for fixed assets for the state enterprise (including visible and
invisible depreciation) in order to ensure a continuous replacement of the
fixed assets of the enterprise and permit necessary technical innovation. This
is a necessary economic condition for the enterprise to maintain simple re-
production and a certain degree of expanded reproduction. The state also
allocates to state enterprises a certain amount of working capital for their
own use. If their needs exceed their allocated quota, they can borrow funds
from the state bank. This is instrumental in urging the enterprises to acceler-
ate the turnover of working capital and continuously reduce the ratio be-
tween production and funds (the amount of working capital funds required
for each 100 yuan of production) through the correct calculation of the in-
ventory quota of various materials and goods and the consumption quota of
raw materials and fuel per unit output, and reduction of the production cycle,
the improvement of production and marketing work, and other means.
The production cost of socialist products and the production cost of cap-
italist products are two essentially different economic categories. Capitalist
production cost is capital consumption. The reduction of production costs in
a capitalist enterprise indicates capital saving and the intensification of labor
exploitation. Production costs in a socialist enterprise are expenses connect-
ed with the production of a certain amount of products. Because enterprises
under the economic accounting system have to depend on income from the
sale of products to pay for their expenses and to obtain profits, the continu-
ous reduction of production costs indicates the saving of labor time and
higher labor productivity. More accumulation is thus available to the state or
the collective. The role of cost reduction in socialist construction can be
gauged by the following figures: According to 1972 data, every 1 percent
reduction in total costs in China’s industrial enterprises amounted to enough
capital investment for three Yangtze River bridges in Nanking.
Profits in socialist state enterprises are essentially different from profits
in capitalist enterprises. Capitalist profits consist of transformed surplus val-
ue expropriated by the capitalist. Profits in socialist enterprises are the net
social income created by the laboring masses. They are concentrated in the
hands of the state through surrendered profits and taxes and are mainly used
to expand socialist production and improve the people’s livelihood.
Profits in the socialist economy can also be looked at from the view-
point of the whole national economy. Under certain conditions, the socialist
state can allow some enterprises to just break even or even to run at losses.
For example, some interior and local industrial enterprises established to
effect a more rational geographical distribution may not be making profits
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Fundamentals of Political Economy
for the time being because of unfavorable conditions. But, the development
of these industries is favorable to the long-term interests of the national
economy and the establishment of a strategic, strong, and stable hinterland.
Therefore, even though these enterprises do not make any profit for the time
being, the state still supports their development. Another example is that
some enterprises producing certain products, especially new products, new
materials, and products which support agriculture, may run at losses within a
certain period of time. But the development of these products is instrumental
in industrial construction and agricultural production. Temporary and
planned losses can be allowed for the interests of the whole national econo-
my and to consolidate the worker-peasant alliance. Needless to say, the en-
terprise must mobilize the masses to actively reduce production costs by
improving production techniques and labor productivity and change losses
into profits. These profits from the viewpoint of the whole national economy
are called “advanced profits.” These advanced profits embody the superiori-
ty of the socialist system. Of course, this does not mean that profits in indus-
trial enterprises and sectors are no longer important and losses can be legiti-
mately made because of poor operation on the part of individual enterprises.
Profits of the whole national economy are ultimately based on profits from
individual enterprises and sectors. Therefore, enterprises suffering temporary
losses should try hard to improve operation, reduce production costs, reduce
losses, and turn losses into profits to provide more accumulation to the state.
Profits from socialist state enterprises are the main source of socialist
accumulation. The socialist enterprise must criticize and repudiate putting
“profits in command” on the one hand and oppose erroneous ideas that pay
no attention to costs, profits, and increasing accumulation for the state on the
other.
Having “profits in command” puts the achievement of the highest possi-
ble profits in the primary position. Production is guided only by profit. Pro-
duction plan assignments from the state are ignored. This is a capitalist prin-
ciple of operation and must be criticized and repudiated. Under the socialist
system, because of different production conditions and supply- demand con-
ditions, state plan prices may not always be identical with the value of prod-
ucts. Other things being equal, when the product price is higher than the val-
ue, profits are higher. If the reverse is true, profits are lower. If state enter-
prises violate plan targets set by the state with respect to quantity and variety
and expand production of products with high production value and high
profits and reduce production of products with small production value and
low profits, this is a manifestation of putting “profits in command.” The “to-
tal economic accounting system” implemented by the Soviet revisionist ren-
egade clique to put profits in command is an important measure to restore
capitalism. The essence of the “total economic accounting system” is the
thoroughly capitalistic principle of profits. In the ’’total economic account-
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 18. Frugality Is an Important Principle in the Socialist Economy
ing system,” “the most important summary indicators of enterprise finance
are profits and the profit rate.” To a very large extent, the enterprise can de-
termine the variety and quantity of production according to the size of ex-
pected profits. To increase profits, the enterprise can dismiss workers and
increase labor intensity to “reduce production costs.” This “total economic
accounting system” that puts profits in command is an exploitative system
imposed on the laboring people of the Soviet Union by the Soviet revisionist
bureaucratic monopoly bourgeoisie.
The socialist state enterprise must also make profits. But there is no sim-
ilarity to having profits in command. The socialist state enterprise only al-
lows socialist profits to be increased by following the Party’s line and gen-
eral and specific policies, fulfilling the assignments specified by the state
plan, and increasing production and practicing economy with proletarian
politics in command.
Through increasing production and practicing economy, the socialist
state enterprise increases profits and provides more accumulation to the
state. In this way, it contributes to socialist revolution and socialist construc-
tion. Revenue from state enterprises (surrendered profits, taxes, and so forth)
represents more than 90 percent of the revenue in China’s state budget. If the
enterprise cannot actively increase accumulation for the state, or even suffers
unnecessary losses, revenue in the state budget will be reduced, thus ad-
versely affecting socialist revolution and construction and the discharge of
the obligations to internationalism.
In summary, the state’s implementation of management by means of the
economic accounting system in state enterprises is for the purpose of better
realizing this directive of Chairman Mao: “Any socialist economic enterprise
should pay attention to utilizing manpower and equipment as fully as possi-
ble, improving labor organization as much as possible, improving operations
and management and raising labor productivity, economizing all manpower
and material resources that can be economized, and adopting labor competi-
tion and economic accounting to reduce costs and increase personal income
and accumulation year after year.” (13)
Strengthen Management with the Economic Accounting
System in the Rural People’s Communes
The means of production and labor power under the socialist collective
ownership system belong to individual collective organizations of the labor-
ing people. Each collective economic organization is an accounting unit. It
organizes production under the direction of the state plan and sells com-
modities according to prices set by the state. It operates independently and is
responsible for its profits and losses. Production and income distribution are
carried on within the collective. At the same time, accumulation is provided
to the state through taxes. The socialist national economy is a unified whole.
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The unified national economic plan drawn up by the state includes the state
economy as well as the collective economy.
It is necessary to practice economic accounting not only in the manage-
ment of state enterprises but also in the sector of the collective economy be-
cause it will strengthen the economic accounting system and consolidate and
promote the development of the collective economy.
China’s socialist economy under the collective ownership system of the
laboring masses exists in agriculture, industry (including the handicraft in-
dustry), transportation, and commerce. But it is most important in agricul-
ture. Here we are mainly concerned with the problem of strengthening man-
agement by means of the economic accounting system in the collective
economy of the rural people’s commune.
China’s rural people’s commune at present uses the three-level owner-
ship system of the commune, the production brigade, and the production
team. The commune, the brigade, and the production team are all accounting
units which operate independently and are responsible for their profits and
losses. Financial transactions among the commune, the production brigade,
and the production team and the allocation of material resources and labor
power must be based on the principle of “equivalent exchange on a volun-
tary and mutually profitable basis.”
In the economy of the rural people’s commune under the collective
ownership system, management by means of the economic accounting sys-
tem is implemented in commune-operated enterprises by the commune and
in brigade-operated enterprises by the brigade. The commune and the bri-
gade exercise unified leadership over their respective enterprises, allocate a
certain amount of capital funds to each enterprise, demand that they use
these funds in a responsible way to fulfill the production plan assignments
given to them by the state, the commune, and the brigade, and require them
to discharge their expenses with their incomes and fulfill or overfulfill the
accumulation assignments set by the commune and the brigade. With the
development of commune- and brigade-operated enterprises and with the
development of the collective economy at various levels, more and more
units within the people’s commune are adopting management by the eco-
nomic accounting system, and management by the economic accounting
system must be further strengthened.
The production team is a basic accounting unit which operates inde-
pendently. The collective fund of the production team is not allocated by the
production brigade or the commune. It comes from the contribution and ac-
cumulation of the members. The commune and the brigade should lead,
help, and support the production team to develop the collective economy.
They cannot use the funds of the production team to develop the commune
or brigade economies. Between the production brigade and the production
team, there does not exist a relationship of management by the economic
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 18. Frugality Is an Important Principle in the Socialist Economy
accounting system. This is to say, the production brigade is not ultimately
responsible for profits or losses incurred by the production team. The teams
themselves are responsible for their own profits and losses.
Although there does not exist a relationship of management by the eco-
nomic accounting system among the commune, the production brigade, and
the production team, the production team must also adopt economic account-
ing. Economic accounting in the production team consists primarily of cal-
culating the annual consumption of embodied and live labor in production,
accounting for annual income and expenses, reducing expenses and costs,
avoiding nonproduction labor and other expenditures, and firmly opposing
careless expenses and waste. Especially important is the establishment of a
sound system of financial management. All financial expenditures must be
subject to the required approval procedure. Democracy in financial matters
must be practiced. All incoming and outgoing items must be announced
monthly to the members. People must have separate responsibilities for food
grain, material resources, money, and accounts to prevent excessive con-
sumption, theft, and losses. Once economic accounting is strengthened and
the system of financial management is improved, production costs can be
reduced, the accumulation of production funds and members’ income can be
increased, and the broad members will love the collective economy all the
more and will struggle for further consolidation and development of the col-
lective economy and oppose spontaneous capitalist tendencies.
Major Study References
Marx, Engels, Lenin, and Stalin on Communist Society, Chapter 7.
Chairman Mao, “Comments on ‘To Run a Cooperative with Diligence
and Economy.’“
Chairman Mao, “On the Correct Handling of Contradictions among the
People,” Section 11.
Review Problems
1. Why do we say that only socialist society is capable of practicing to-
tal frugality?
2. What are the effects of adopting management by the economic ac-
counting system on building the socialist economy with greater, faster, and
better results at lower costs?
3. How can the issue of profits in the socialist economy be correctly
handled?
Notes
* Chieh-yiieh shih she-hui-chu-i ching-chi ti chung-yao yuantse — li-
hsing chieh- yueh ho ching-chi ho-suan-chih.

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Fundamentals of Political Economy
1) Marx, “‘Money’: One of the 1857-1858 Manuscripts on Economics,”
quoted from Marx. Engels. Lenin, and Stalin on Communist Society. Jen-min
ch’u-pan-she. 1958, p. 67.
2) “On the Correct Handling of Contradictions among the People,” Se-
lected Readings from the Works of Mao Tse-tung. (Type A), Jen-min ch’u-
pan-she, 1965, p. 360.
3) Chairman Mao, “Comments on ‘To Run a Cooperative with Dili-
gence and Economy,’” Socialist Upsurge in China’s Countryside, Vol. 1, p.
16.
4) “On the Correct Handling of Contradictions among the People,” Se-
lected Readings from the Works of Mao Tse-tung. (Type A), Jen-min ch’u-
pan-she, 1965, p. 361.
5) Ibid., p. 348.
6) Marx, Capital. Vol. 3, Jen-min ch’u-pan-she, 1966, p. 78
7) Marx, Capital. Vol. 1, Complete Works of Marx and Engels. Vol. 23,
p. 96.
8) Ibid., p. 579.
9) Ibid., p. 396.
10) Ibid., pp. 93-94.
11) Marx, Capital. Vol. 2, Complete Works of Marx and Engels. Vol.
24, p. 152.
12) “To the People’s Committee on Finance,” Complete Works of Lenin.
Vol. 35, p. 549.
13) Chairman Mao, “Comments on ‘The Experience of the Li-tzu-yuan
Agricultural Production Cooperative of Chen-ju District in Reducing Pro-
duction Expenses,’” Socialist Upsurge in China’s Countryside. Vol. 2, p.
768.

296
19. Exchange Is an Economic Form That
Relates Production to Consumption
Socialist Exchange and Currency Circulation*
Most of the products of socialist labor enter the realm of production
consumption and personal consumption only through exchange. What are
the characteristics of socialist exchange? How is it realized? What are the
objective laws governing it? In developing the socialist economy, these are
the issues that must be clearly understood.

Socialist Exchange Possesses Brand-new Qualities and

Characteristics
Socialist Exchange Is a New Type of Exchange in History
Exchange is determined by production. The fact that socialist production
is a new type of production in the history of mankind determines that social-
ist exchange must also be a new type of exchange in the history of mankind.
To recognize the qualities and characteristics of socialist exchange, first and
foremost, one must see what essential exchange relations actually exist in
socialist society.
For a considerable period of time, there have existed in socialist society
the following major exchange relations: (1) the exchange relations among
socialist state enterprises, the basis of which is the relative operational and
managerial independence of state enterprises; (2) the exchange relations be-
tween the socialist state economy and the collective economy, the basis of
which is the existence of two systems of socialist ownership; (3) the ex-
change relations within the socialist collective economy, the basis of which
is that the means of production and the products belong to the different col-
lective economies; (4) the exchange relations among peasants, as well as
between peasants and the urban population and between peasants and the
socialist commercial sector, the basis of which is the existence of family
sideline production carried on by members of the rural people’s commune;
and (5) the exchange relations between state enterprises and their staff and
workers, the basis of which is the socialist state’s distribution of personal
consumer goods to the staff and workers by means of money wages.
The above five types of exchange can be classified into three forms ac-
cording to the economic relations they reflect.
The first exchange relationship represents one form. This is exchange
within the socialist state ownership system. Through exchange, products
pass from one state enterprise to another, but they are still state property; no
transfer of ownership rights is involved. The only change is that these prod-

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Fundamentals of Political Economy
ucts are used by different enterprises. We know that the exchange of com-
modities is an exchange between different owners. Exchange between state
enterprises is not exchange between different owners. Therefore, this type of
exchange has lost the basic characteristic of commodity exchange. It begins
to resemble the direct social distribution of products of the future communist
society. However, because each state enterprise is still a relatively independ-
ent unit of operation, prices are still set in exchanges, and the principle of
equivalent compensation is adopted. Thus, exchanges between state enter-
prises still possess certain characteristics of commodity exchange.** This
form of exchange, because it has lost the basic property of commodity ex-
change, should be called product exchange to distinguish it from commodity
exchange between different owners.
The second through fourth types of exchange relations represent another
form. Even though there are big differences in these three types of exchange
relations, some exchanges being based on the socialist public ownership sys-
tem and others on family sideline production, reflecting the complex rela-
tions of labor exchange between workers and peasants and among peasants,
these types of exchange are still exchanges between different ownership sys-
tems or different owners. Here, after an exchange, the ownership rights to
the products have been transferred. Therefore, they still possess the basic
features of general commodity exchange. This form of exchange should be
called commodity exchange.
The fifth type of exchange relationship differs from the above two
forms. The way in which the staff and workers of state enterprises use their
labor compensation to buy consumer goods resembles Marx’s description:
“He obtains a certificate from society, certifying that he provided a certain
amount of labor (minus the labor he contributed to the social fund). He uses
this certificate to get from the society’s accumulation an amount of consum-
er goods equal to the labor he provided. He provides society with one form
of labor and takes back the whole amount in another form.” (1) This is also
an exchange. The same principle is used to regulate commodity exchange.
Namely, a certain amount of labor in one form is exchanged for an equal
amount of labor in another form. However, this exchange has already as-
sumed a new content. The staff and workers of the socialist society are the
masters of the state and the enterprises. They do not sell their labor power.
The exchange between the state and the staff and workers is a special type of
exchange. It is actually a form of distribution of personal consumer goods
among staff and workers in the socialist state. This type of exchange, be-
cause it involves a transfer of ownership rights and because the same princi-
ple used in the exchange of commodities of equal value applies here, will
still be treated in the category of commodity exchange in our later analysis.
These five types of exchange relations which take three different forms
can finally be grouped according to two aspects, product exchange and
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 19. Exchange Is an Economic Form That Relates Production to Consumption
commodity exchange. These two types of exchange are different in nature
and have their own characteristics.
Product exchanges between state enterprises are mainly exchanges of
means of production. This type of exchange is a link between production and
production consumption and is directly related to production; it is an act of
production.
Because socialist product exchange is directly related to production and
because socialist production develops in a planned and proportional way, the
exchange of important means of production must be allocated by the state
strictly according to the plan rather than through market transactions. Alt-
hough socialist commodity exchange is also carried on under the guidance of
state plans, it cannot be allocated through the plans because the objects of
exchange, being mainly personal consumer goods, can only be exchanged
through market transactions.
Since socialist product exchange is realized through state planned allo-
cation, any contradictions in supply and demand can be resolved in a
planned manner by the state by adjusting production or product circulation
plans or by economizing and finding substitutes. Here, the law of value no
longer has any regulatory significance; it merely has a little influence. The
law of value, however, does have a certain regulatory function in socialist
commodity exchange. Although the total amount and composition of con-
sumer goods entering circulation are determined by the state plans and alt-
hough the society’s purchasing power is also regulated by the state plans,
state planning is for the purpose of guaranteeing people’s livelihood needs.
Through a state circulation plan for consumer goods, personal consumer
goods still go through the market. The socialist state cannot dictate what and
how much the consumer should buy. Under normal circumstances, if the
prices of some personal consumer goods are too high, their sales volume
declines. If their prices are too low, their sales volume expands. Having rec-
ognized this law, the socialist state has to use this regulatory function under
specified conditions to bring about an equilibrium between supply and de-
mand. For example, some luxury commodities can be sold in definite
amounts at prices higher than their value if demand exceeds supply. Con-
versely, to expand the market and satisfy people’s livelihood needs, daily
necessities can be sold at prices equal to or below their values if they are
produced in a sufficiently large quantity to meet all demand.
Product exchange in the socialist society is unprecedented in history.
Commodity exchange in the socialist society is also different in principle
from any historical commodity exchange. Commodity exchange from the
slave society to the capitalist society is all based on the private ownership
system. With the exception of those exchanges of family sideline products
produced by members of rural people’s communes and inhabitants of cities
and towns, commodity exchange in the socialist society is all based on the
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Fundamentals of Political Economy
socialist public ownership system. Its purpose is to satisfy the needs of the
state and the people. It is a new form of exchange. Under socialist product
exchange and commodity exchange, there begin to emerge elements of di-
rect social distribution of the means of production and consumer goods, un-
folding the promising prospect of developing from a socialist to a com-
munist society.
Exchange in Turn Promotes the Development of Production
and the Improvement of People’s Livelihood
In the process of social reproduction, production plays a determining
role. However, exchange directly and indirectly reacts with it. Engels said:
“The two functions [of production and exchange] are always mutually con-
strained and interdependent. They can be called the abscissa and the coordi-
nate of the economic curve.” (2) This statement of Engels is applicable to
commodity as well as to product exchange.
The development of socialist industrial and agricultural production is the
material basis of socialist product and commodity exchanges. Chairman
Mao pointed out as early as 1942 that to “develop the economy and guaran-
tee supplies constitute the general policy of our economic and financial
work.” (3) This is to say, only when agricultural production is developed can
there be enough means of production to satisfy the needs for further devel-
oping production and expanding capital construction and can there be
enough consumer goods to enliven the market and stabilize prices. Without
the development of industrial and agricultural production, it is impossible to
improve socialist product and commodity exchanges.
On the other hand, socialist exchange also plays an immense initiating
role in the development of socialist industrial and agricultural production.
Through socialist product exchange, the exchange of material resources
among various regions of the country and among various state enterprises in
different sectors of the national economy is realized. Through socialist
commodity exchange, the economic relations between agriculture and indus-
try, production and consumption, the economy under the state ownership
system and that under the collective ownership system, and the urban and
rural areas are achieved. State material resources departments in charge of
socialist product exchange actively organize the exchange of the means of
production among state enterprises. The socialist commercial departments
responsible for socialist commodity exchange actively organize and pur-
chase commodities at the appropriate time from the industrial and agricul-
tural production sectors and sell them to the consumers in a planned and sys-
tematic manner. This plays an immense role in rapidly developing the na-
tional economy in a planned and proportional manner and in improving the
livelihood of the urban and rural areas. It is also an important aspect of con-
solidating the worker-peasant alliance.
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 19. Exchange Is an Economic Form That Relates Production to Consumption
The promotional role of socialist exchange with respect to production
and consumption can only be fully exercised through people’s correct han-
dling of the various contradictions in the exchange process.
A very important link in actively promoting the development of produc-
tion through socialist product exchange is whether the material resources
departments can fully understand and correctly handle the contradictions
between the supply of and the demand for the means of production within
the state ownership system. In the process of high-speed development in the
socialist national economy, on the one hand, the supply of the means of pro-
duction generally increases at a higher speed than that of consumer goods.
On the other hand, the quantity, quality, variety, and specifications of the
means of production often do not fully satisfy the development requirements
of socialist construction. These contradictions between the supply of and the
demand for the means of production will objectively exist for a long time
and will be manifested in the various departments of the national economy,
various regions, and various state enterprises. Only through regular study
and correct management, properly balancing plans and matching supply with
demand, can a continuous relative balance between the production of, and
the requirements for, means of production be maintained and rapid devel-
opment of socialist production be achieved.
The process of socialist commodity exchange is even more complex.
The objects of commodity exchange are mainly consumer goods, but they
also include a certain amount of means of production. Relations between the
state economy and the collective economy, within the state economy, and
among the collective economies all exist in commodity exchange. In com-
plex commodity exchanges, the contradictions between supply and demand
will also exist for a long time. It is concretely manifested in the contradic-
tions within the specialized commercial departments responsible for com-
modity exchange work, agriculture, industry, and consumers.
The contradictions between socialist commerce and agriculture are
mainly manifested by the proportions of agricultural and sideline products
that are purchased or retained, by purchasing prices, by the forms in which
such products are purchased, and by the supply and prices of industrial
products. Some part of agricultural and sideline production is commodity
production for the satisfaction of social needs. The other part is self-
sufficient production to satisfy the peasant’s own needs. In the process of
purchasing, it is necessary to arrange suitably the proportions of agricultural
and sideline products to be purchased or retained so that the state can obtain
the required amount of agricultural and sideline products and so the peasant
can also take care of his production and livelihood. At the same time, when
socialist commerce purchases agricultural and sideline products, it must also
be good at sending industrial products to the rural areas. It must strive to
ensure the inflow and outflow of goods to satisfy fully the requirements of
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Fundamentals of Political Economy
both socialist agricultural production and the peasants’ livelihood. The pur-
chasing prices of agricultural and sideline products and the supply prices of
industrial products directly affect the income of the peasant, the expansion
of agricultural production, and state accumulation. It is necessary to deter-
mine reasonable purchasing prices for agricultural and sideline products and
supply prices for industrial products so that an exchange relationship of
equivalent values between industrial and agricultural products can be main-
tained. Handling the contradictions between commerce and agriculture ac-
cording to correct principles makes it possible to do a good job in commodi-
ty exchanges between the urban and rural areas and is favorable to mobiliz-
ing the activism of the peasants in socialist production, promoting the devel-
opment of industrial and agricultural production, and consolidating the
worker- peasant alliance.
The contradictions between socialist commerce and industry are mainly
internal contradictions in the state economy. State industry is engaged in
production. State commerce is engaged in marketing. The contradictions
between industry and commerce are mainly contradictions involving the
quantity, quality, variety, and price of industrial products on the one hand
and market requirements on the other. There is a relative stability in indus-
trial production. But market requirements change. The contradictions be-
tween relatively stable industrial production and variable market require-
ments often bring about contradictions between industry and commerce.
Another contradiction is the lack of coordination between the production
plan and the marketing plan, which results from inadequate investigation and
research in the development, changes, and laws of production and the mar-
ket. The influence of capitalist ideas of operation or the interference of the
revisionist line further aggravates the contradictions between industry and
commerce. To correctly handle the contradictions between industry and
commerce, the commercial departments must follow the requirements of the
basic economic law of socialism, strengthen investigation and research, duly
report the consumers’ requirements to the industrial departments, bring
about closer cooperation between industry and commerce, and actively help
the industrial branches develop production, expand variety, and raise quality
in order to together better satisfy the needs of the state and the people.
The contradictions between supply and demand in the commodity ex-
change process are ultimately manifested as contradictions between socialist
commerce and the broad masses of consumers. With the rapid growth of
industrial and agricultural development, the purchasing power of the people
has been continuously raised. It is natural that they require socialist com-
merce to provide a better and greater variety of consumer goods. However,
the growth of social production always lags behind the growth of social de-
mand. Therefore, correctly handling the contradictions between commerce
and agriculture and between commerce and industry is the precondition for
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 19. Exchange Is an Economic Form That Relates Production to Consumption
correctly handling the contradictions between commerce and the consumers.
But this is not enough. To correctly resolve the contradictions between
commerce and the consumers, those who work in commerce must further
establish the concept of wholeheartedly serving the people. China’s com-
mercial workers put it well: “The counter is limited to three feet high, but
service to the workers, peasants, and soldiers is unlimited.” Only when this
mental outlook is established can socialist commerce actively organize sup-
plies of commodities, rationally allocate commodities, and properly arrange
the socialist market according to the various requirements of the workers,
peasants, and soldiers. At the same time, in organizing for the people’s live-
lihood, socialist commerce should not merely passively adapt to consumer
demand; it should actively influence consumption, direct consumption, and
do a better job of organizing for the people’s livelihood according to the de-
velopment conditions of socialist industrial and agricultural production and
the conditions of national resources.
The sphere of distribution is not merely a place where products and
commodities are exchanged. It is also a battleground for class struggle be-
tween the proletariat and the bourgeoisie. This battleground is familiar to the
bourgeoisie, but not as familiar to the proletariat. New and old bourgeois
elements resort to bribery, speculation, and other illegal means and to incit-
ing improper practices such as barter and backdoor deals to corrode people’s
ideology and undermine socialism.*** The agents of the bourgeoisie inside
the Party try hard to push the revisionist line which aims at restoring capital-
ism in the circulation sphere. The clique of Liu Shao-ch’i, that renegade,
traitor, and scab, widely instituted the idea of putting “regulations in com-
mand” in product exchange, advocated “service to all the people” in com-
modity exchange, and encouraged the evil practice of backdoor deals. This is
a betrayal of Marxism. To push back the frantic attack of the bourgeoisie, we
must hold firmly to Chairman Mao’s proletarian revolutionary line, criticize
the revisionist line, hold firmly to having proletarian politics in command,
and observe and handle problems with the viewpoint of class struggle so that
socialist exchange not only promotes production development and improves
the people’s livelihood, but also consolidates the socialist economic base and
proletarian dictatorship.

Socialist Exchange Must Have Appropriate Forms of

Organization
Product Exchange Needs an Appropriate Supply System and
Channels
The circulation process of the means of production from production to
production consumption is very complex. Appropriate forms of exchange

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Fundamentals of Political Economy
under the guidance of a central state plan are required so that the means of
production can go from the production sphere to the production consumption
sphere at the proper time, in the right amount, and with quality to promote
the development of production.
The form of product exchange reflects the interrelations in product ex-
change among enterprises, among regions, and among departments within
the state ownership system and between the central economic departments
and the local economic departments. China’s socialist construction experi-
ence tells us that it is very significant to set up rationally a system of supply
of material resources in handling these interrelations.
China’s material resources supply system adopts the principles of “uni-
fied leadership, control by level, and specialized operation” in line with
Chairman Mao’s great strategic policy of “be prepared for war, be prepared
for natural disasters, and do everything for the people” and his teaching “Let
the local units do more things under a unified central plan.” As manifested in
product exchange, the state classifies the means of production into three
groups according to their significance and functions in the national econo-
my. The first group is “material resources under unified allocation.” These
resources are vital for developing the national economy. Examples are steel,
copper, and important mechanical and electrical equipment. They are allo-
cated centrally by the state planning departments to ensure the needs of the
state’s important construction projects. The second category is “material
resources which are under the control of a department [of the central gov-
ernment].” These are important resources in the national economy, such as
tin, nickel, and those which are either highly specialized or are used as sup-
plements to other products, such as metallurgical furnace materials. They are
allocated by the responsible control departments in a balanced manner. The
third group is “material resources under local control.” These are resources
not included in the first and second groups which are controlled by provinc-
es, municipalities, and autonomous regions. The material resources required
for socialist construction are numerous and varied. If they were all centrally
controlled by the state planning department, socialist construction could be
adversely affected. “Unified leadership, managed by different levels and
operated according to specialization, meets the need for building socialism
with greater, faster, and better results at lower costs.”
At present, based on the above principle, China’s material resources
supply system is selectively and systematically adopting the method of “re-
gional balance, differential allocation, regulation of variety, and guaranteed
delivery to the state under a unified state plan.” This requires that, with a
unified state plan and guaranteed delivery to the state as preconditions, lo-
cally produced raw materials and equipment are balanced locally and com-
plemented locally. This method supports the implementation of the great
strategic policy of preparing for wars, preparing for natural disasters and
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 19. Exchange Is an Economic Form That Relates Production to Consumption
doing everything for the people. It encourages the gradual establishment of
an industrial system among various cooperation regions or even among
provinces, the mobilization of central and local activism, the proper handling
of the interrelations between the central and local units as well as among
regions and among enterprises, and the promotion of production growth.
After a proper material resources supply system is established, appropri-
ate concrete forms of product exchange and channels for it are also required
to expedite the flow of goods so that the means of production can be circu-
lated from one state enterprise to another state enterprise more quickly and
economically through rational circulation links. At present, there are basical-
ly three types of concrete forms and circulation channels in China’s product
exchange.
The first is direct supply. This is a form of exchange in which raw mate-
rials and equipment produced by a state enterprise are directly delivered to
the user without going through any middle link. However, it is arranged un-
der a unified state plan and according to the supply contract among enter-
prises. This form of product exchange shortens the circulation time, reduces
circulation expenses, stabilizes the supply and demand relations, and helps
improve product equality. It is the direction of development for the form of
product exchange. But, this form of exchange cannot be used under all cir-
cumstances. In general, it is suitable for circulation among those enterprises
where supply and demand volumes are large and the supply-demand relation
of products is stable.
The second is supply by material resources branches. This is also con-
ducted under a unified state plan. Like the previous form of exchange, it is
also within the scope of plan allocation. However, it must go through the
material resources branches. In other words, according to the product supply
contract, raw materials and equipment produced by a state enterprise must
first be collected and sent to state material resources branches. After neces-
sary processing and arrangement by the material resources branches, they
are supplied to enterprises for consumption. Raw materials and equipment
subject to this form of exchange are generally in great demand, but the de-
mand from individual units is small. If they were all to be delivered directly
by the producing enterprise to the consuming enterprises, the producing en-
terprise would have to have a vast supply organization in order to deliver
goods on time. Consequently, although it seems slower and more expensive
to use state material resources branches rather than direct supply, in fact, it
means that storage charges and transportation fees can be reduced and the
means of production can be supplied faster to the consuming enterprises. In
addition, because the state needs to keep a reserve of some means of produc-
tion and state enterprises may also have a sudden demand for some means of
production because of changes in plan assignments, state material resources
branches are needed to form a middle link for managing and organizing the
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Fundamentals of Political Economy
supplies of the means of production.
The third is supply organized by commercial branches. These are prod-
ucts which can be used for production consumption or personal consump-
tion. Some are small spare parts and small metal tools with assorted specifi-
cations and limited usage. It is more convenient to have these small and as-
sorted means of production managed by commercial branches so that they
can be bought by the user unit in the market at any time.
The Three Channels of Commodity Exchange
Socialist commodity exchange must also have appropriate channels in
order to facilitate goods circulation and fully exercise its function. At the
present stage, China’s socialist commodity exchange is conducted through
the three channels of state commerce, commerce on the basis of collective
ownership, and trade fairs. These three channels of commodity exchange
constitute China’s unified socialist market. They perform different functions
according to their different positions.
State commerce is the main body and leading force in the unified social-
ist market. It leads the commerce of the collective ownership system and
rural trade fairs. Most of the commodities and all wholesale links are con-
trolled by state commerce. Commodities are delivered to the consumer in a
planned manner by state commerce according to the principle of overall de-
sign, appropriate arrangement, and guaranteeing key points.
Commerce taking place under the collective ownership system assists
state commerce. Commerce under the collective ownership system refers
mainly to rural supply and marketing cooperatives. Urban cooperative stores
also belong in the category of commerce under the collective ownership sys-
tem.
In China, after the proletariat seized political power, it was faced with
an extremely broad rural market in which the individual economy was dom-
inant. If this market were not occupied by socialism, it would be occupied by
capitalism and become a hotbed for capitalism. While actively developing
state commerce, the rural laboring people were mobilized to organize rural
supply and marketing cooperatives to purchase agricultural and sideline
products and to supply industrial products. It was extremely necessary to
make the people assistants of state commerce in the rural areas in order to
regulate supply and demand and control the market. Experience has shown
that the establishment and development of the supply and marketing cooper-
ative in China has played a very important role in strengthening socialist
commerce, severing the relationship between the individual economy and
the capitalist economy, and promoting the socialist transformation of the
individual economy.
The cooperative stores were originally formed by individual workers in
the urban areas. They were a transition from individual commerce to state
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 19. Exchange Is an Economic Form That Relates Production to Consumption
commerce. At the present stage, the existence of cooperative stores makes it
convenient for the urban inhabitants to buy daily commodities.
Rural trade fairs are a supplement to socialist commerce. The small
quantities of family sideline products produced by the collectives’ peasants,
with the exception of those retained for their own consumption and those
sold to the state, can be marketed at rural trade fairs according to state regu-
lations. Trade fairs are places where peasants exchange what they have for
what they want and where peasants exchange directly with urban people. No
middlemen are allowed.
Rural trade fairs have a dual character. On the one hand, they promote
the development of agricultural and sideline production, increase the team
members’ income, and enliven the rural economy. On the other hand, rural
trade fairs are an unplanned market. If they are allowed to develop without
control, they will interfere with the socialist planned market and nurture cap-
italist power. Under the socialist system, if rural trade fairs are to be allowed
to exist for a period of time, leadership and management over them must be
strengthened in order to foster their positive role and restrict their negative
role so that they better serve the socialist economy.

Money Must Be the Servant of Socialist Exchange

Money under the Socialist System Begins to Acquire New
Properties and Functions
In human history, money appeared as a medium of exchange when trade
developed to a certain degree. Since commodity production and commodity
exchange still exist in socialist society, money is still necessary.
In socialist society, money is not only related to socialist commodity
production and commodity exchange; it is also related to socialist product
production and product exchange. The economic conditions of socialism
have changed the nature and functions of money.
Money, in its relation to commodity production and commodity ex-
change, is still an accounting unit under the socialist system, but it no longer
reflects capitalist production relations. Capitalist commodity production and
commodity exchange, which embody the exploitation of hired labor, are no
longer associated with this money. It is associated instead with socialist
commodity production and commodity exchange, which embody the ex-
change of labor between the worker and the peasant.
The means of production exchanged among state enterprises, so far as
their leading aspect is concerned, are no longer commodities but products.
However, in its planned leadership over the national economy, the socialist
state must use money as a unified standard to measure social labor whether
in the formulation of production targets, the allocation of material resources,
or the distribution of the total social product. This means that money under

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the socialist system begins to have a new property, namely, a means to
measure labor in national economic planning work. And the further we go,
the more important this new property of money becomes. In the course of
development, with the gradual elimination of commodity production and
commodity exchange, money as an accounting unit will also gradually be
eliminated. Even then, however, a means of measuring labor will still be
necessary in national economic work.
In the distribution of personal consumer goods in socialist society, in
addition to being an accounting unit, money also serves as labor coupons.
The distribution of personal consumer goods in the departments under so-
cialist state ownership is conducted this way: the state pays money wages to
the staff and workers according to the principle of “from each according to
his ability, to each according to his labor.” The staff and workers use the
money to buy the consumer goods they need. Here, the role of money is sim-
ilar to that of labor coupons. Marx once said: “Labor coupons only show the
share of common labor contributed by the individual producer and the share
of common products to which he is entitled.” (4)
This change in the nature of money under the socialist system reflects
the characteristics of socialist production relations. This change is embodied
in the functions of money.
The first function of money is as a measure of value. This is true also in
socialist society. In socialist society, money is used to measure both the so-
cial labor embodied in commodities and the social labor embodied in all
products. The socialist state uses the function of money as a measure of val-
ue to set the prices of commodities and products and to fix targets of produc-
tion, costs, and profits in value terms in order to exercise planned manage-
ment of the national economy.
When money acts as a means of circulation in the socialist system, it
serves not only as a medium of exchange for commodities but also as a me-
dium of exchange for products. In socialist society, this function of money is
carried out by paper currencies. Paper currencies have no intrinsic value.
They are merely value symbols. In China, these value symbols are the
renminpi issued by the People’s Bank of China. The function of money in
the socialist state is as a means of circulation to promote the economic rela-
tions between industry and agriculture, between the urban and rural areas,
and among state enterprises.
In socialist society, money performs as a means of payment. The social-
ist state enterprise uses this function of money to pay taxes and profits to the
state and wages to the staff and workers and to repay loans from fraternal
enterprises. The socialist state uses this function of money to centralize and
distribute state budget funds and credit funds.
In socialist society, money also serves as a means of accumulation and
savings. The net social income created by the laboring people becomes the
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 19. Exchange Is an Economic Form That Relates Production to Consumption
socialist accumulation of the state in the form of money. The part of the la-
bor compensation of the laboring people that is not yet spent is also deposit-
ed in the state bank in the form of money to be used to promote socialist
construction.
In the foreign economic relations of the socialist state, gold serves as a
universal currency. In the socialist state’s foreign aid and foreign trade, gold
serves as a general means of payment and an embodiment of social wealth.
Because China’s renminpi is a rare and stable money in the world, it has
earned a good reputation. In China’s foreign trade, more and more countries
are willing to use the renminpi as a means of calculating prices and for in-
ternational accounting.
In socialist society, because the means of production are publicly
owned, individuals cannot purchase them. Money, therefore, cannot general-
ly be converted into capital. A decisive blow is thus dealt to the money fet-
ishism popular under the capitalist system. However, since money still exists
in an independent form as exchange value, money can be used to purchase
almost all consumer goods. Therefore, remnants of money fetishism must
still exist. Lin Piao publicly advocated the nonsense “Let us all get rich”
with the intention of corroding people’s thought with money fetishism and
undermining the socialist system. Therefore, it is an historical mission of the
proletariat and the whole laboring people in the historical stage of socialism
to repeatedly criticize and repudiate such ideas of the exploitative class as
“money can bribe gods,” “money can persuade a ghost to work the grinding
stone,” and “get promoted and make a fortune” and to wage an unending
struggle against the criminal activities such as corruption, theft, bribery,
speculation, and opening underground factories which are carried on by new
and old bourgeois elements.
Use the Law of Money Circulation to Serve Socialist
Construction
In the process of production, exchange, distribution, and consumption,
there is a movement of money corresponding to the movement of commodi-
ties and products. In capitalist society, production and exchange are carried
on blindly and spontaneously. Money circulation in the market is also car-
ried on blindly and spontaneously. In socialist society, production, exchange,
and distribution are all carried on according to plans. The socialist state can
expand and contract the money supply in a planned way, achieving planning
in money circulation in order to make it serve socialist construction. To
achieve planning in money circulation, it is first necessary to understand the
movement of money under the socialist system and to know the objective
law of money circulation.
In socialist society, product exchange among state enterprises does not
generally require actual money (cash) transactions. Price calculation in the
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Fundamentals of Political Economy
product exchange process is performed by using the function of money as a
measure of value. When money performs its function as a measure of value,
no cash is required on hand. Only the concept of money is required. Pay-
ments in the product exchange process are effected through account clear-
ings in the state bank, so no money transaction is required for this either.
In socialist society, there are four main channels for issuing and with-
drawing money (money circulation channels).
First, state enterprises, business units, and state organs obtain money
from the state bank to pay wages to staff and workers. Staff and workers use
their wages to buy personal consumer goods or to pay for other labor ex-
penses. This way, money flows back to the bank through the commercial
sector and service industries. In addition, staff and workers can save by di-
rectly depositing money in the bank without any commodity exchange.
Second, the commercial branches obtain money from the state bank to
purchase agricultural and sideline products from rural collective economies.
A part of the money income from the sale of agricultural and sideline prod-
ucts is used by the collective economies to buy chemical fertilizers, insecti-
cides, agricultural machines, and other means of production from the state.
This way, this part of the money again returns to the bank. Another part of
the money income of the collective economy is distributed to the peasants of
the collectives according to their labor contributions. The peasants use it to
buy industrial products from commercial branches or save it. This way, this
part of the money also ultimately returns to the bank.
Third, through their purchases at trade fairs, a part of the money income
of the urban people also circulates. However, it must also finally return to
the bank through the peasants’ purchases of industrial products and savings
deposits.
Fourth, economic transactions among state enterprises, business units,
and state organs are basically conducted by transfers of credit. But some
assorted and small payments also require cash. State enterprises, business
units, and state organs can only retain the amount of cash specified by the
state. Any amount over and above this limit must be deposited in the state
bank. Therefore, the amount of money needed for such circulation is limited.
These money circulation channels are closely related to socialist com-
modity exchange. Money circulation is determined by commodity circula-
tion. According to the law of money circulation explained by Marx, the for-
mula for money circulation is:
Amount of money as Total money value of commodities
=
means of circulation Money circulation velocity.
This formula is still valid under the socialist system. This formula says
that the amount of money needed for circulation in a given period of time is
directly proportional to the total money value of commodities which require

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 19. Exchange Is an Economic Form That Relates Production to Consumption
money to be realized and inversely proportional to the velocity of money
circulation. Since paper currencies are only value symbols of money, the
issue of paper currencies should correspond to the amount of money needed
for circulation. Only in this way can the value of money be stable and its
active role in socialist economic movement be fully exercised. If too little
money is issued, commodities may pile up in the circulation sphere because
the medium of exchange is lacking, and they will not reach the consumer in
time. If too much money is issued, it will result in too much money chasing
limited amounts of commodities. The prices of commodities will then rise in
the trade fairs, and the value of the paper currency will fall. The socialist
state consciously uses the law of money circulation to match money circula-
tion with commodity circulation and promote the planned movements of
socialist production, exchange, distribution, consumption, and other links
through a planned regulation of the channels of money circulation.
China’s renminpi is a rare and stable money in the world. Mainly be-
cause under the guidance of Chairman Mao’s proletarian revolutionary line,
China’s industry and agriculture continuously develop, fiscal revenues are
plentiful, and international payments are balanced. A strong socialist econ-
omy lays a stable material foundation for China’s money and permits the
state to release a large amount of commodities continuously into the market
at stable prices to match the demand from the increasing purchasing power
of the people. The stable value of the renminpi is also a result of the state’s
conscious use of the law of money circulation and the planned management
of money circulation to realize a balance between income and cash pay-
ments. On the one hand, the state controls the release of money through a
planned regulation of the number of staff and workers, the rate of wage in-
creases, the purchasing power of state enterprises, business units, and state
organs, and the regulation of the purchasing prices of agricultural products.
On the other hand, the state organizes the withdrawal of money from circula-
tion by duly and sufficiently supplying commodities required by the urban
and rural people, by regulating planned prices, and by mobilizing the people
to save. This way, the amount of renminpi in circulation is matched by the
amount of circulation required, thus guaranteeing the stable value of the
renminpi.
The planned regulation of money circulation in the socialist state is car-
ried on through the state bank. In China, the People’s Bank is the state bank.
The People’s Bank of China, which issues and withdraws renminpi and
regulates money circulation in a planned way according to the development
of production and the requirements of commodity circulation, becomes a
nationwide cash income-outgo center. The People’s Bank of China also cen-
trally organizes noncash account clearings among all the state economic
branches, enterprises, and units. It is also a nationwide credit center that
seeks to achieve a fuller use of idle money through its deposits and payments
311
Fundamentals of Political Economy
purchases. In summary, all money accounting and payment activities devel-
op from the central point of the state bank. The socialist bank is not only an
economic organization, but also a state bank in charge of managing the na-
tional economy in the proletarian state. It plays a very important role in so-
cialist revolution and socialist construction.
Major Study References
Marx, Capital. Vol. 1, chapter 3.
Stalin, Socialist Economic Issues of the Soviet Union.
Review Problems
1. What are the new features and characteristics of socialist exchange?
What is the difference between socialist product exchange and commodity
exchange?
2. What are the forms of organizations and channels through which so-
cialist product exchange and commodity exchange are realized?
3. What are the characteristics of the nature and functions of money un-
der the socialist system? How can the socialist state organize money circula-
tion in a planned way?
Notes
* Chiao-huan shih lien-hsi sheng-ch’an ho hsiao-fei ti ching-chi hsing-
shih — she-hui-chu-i chiao-huan ho huo-pi liu-t’ung.
** According to the socialist definition, the primary difference between
a commodity and a product is that the commodity involves a transfer of
ownership through the market mechanism, while a product is usually allo-
cated through direct distribution without any transfer of ownership. — Edi-
tor.
*** Implied here is the unauthorized or illegal transactions between
state enterprises. — Editor.
1) Marx, Critique of the Gotha Program. Selected Works of Marx and
Engels. Vol. 3, Jen-min ch’u-pan-she, 1972, p. 11.
2) Engels, Anti-Dühring. Selected Works of Marx and Engels. Vol. 3,
Jen-min ch’u-pan-she, 1972, p. 186.
3) “Economic and Financial Problems in the Anti-Japanese War,” Se-
lected Works of Mao Tse-tung. Vol. 3, Jen-min ch’u-pan-she, 1968, p. 846.
4) Marx, Capital. Vol. 1, Complete Works of Marx and Engels. Vol. 23,
p. 113.

312
20. Correctly Handle the Relations among the
State. the Collective, and the Individual
The Distribution and Redistribution of the Socialist
National Income*
Products produced in socialist society must generally go through ex-
change and distribution before they are consumed. The repeated and contin-
uously renewing process of production, exchange, distribution, and con-
sumption is a process of reproduction. The correct handling of the relations
among the state, the collective, and the individual with respect to distribution
and the correct distribution of the social product and national income play an
important role in the smooth conduct of socialist reproduction.

The Socialist National Income Comes from the People

and Is Spent on the People
The Socialist National Income Can Continuously Increase at a
High Speed
Socialist reproduction has its own characteristics. These characteristics
are actually simply the repeated occurrence of the characteristics of socialist
production. The purpose of reproduction is to satisfy the ever-increasing
needs of the socialist state and the people. It is not for the purpose of exploi-
tation as in capitalism. Socialist reproduction is carried on in a planned and
proportional way. It is not the blind competition of capitalism. Socialist re-
production is continuous expanded reproduction. It is not interrupted by cy-
clical economic crises as in capitalism. These characteristics of socialist re-
production are inevitably reflected in the creation and distribution of the so-
cialist national income.
National income is the total social product produced by the laborers of
the material production branches in a country at a given period of time (usu-
ally a year) minus the depreciation of the means of production. It is the
wealth created by the laborer of the material production branches.
Because of the dual character of socialist production, the national in-
come created by socialist production is manifested in products as well as in
value. National income in the form of products cannot be calculated by sim-
ple addition because of the different variety of products. But since it has val-
ue, its total and rate of increase can be calculated at current prices or con-
stant prices.
The main factors determining the creation and increase of national in-
come are as follows: increases in social labor, increases in labor productivi-
ty, and savings in the social consumption of the means of production.

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Fundamentals of Political Economy
In general, other factors being equal, the higher the amount of labor en-
gaged in social production, the higher the national income created, both in
physical and in value terms. Under socialism, the purpose of production and
reproduction is to satisfy the ever-increasing needs of the state and the peo-
ple. The scale of reproduction increases year after year, and the national in-
come can also sustain its growth. Under capitalism, the purpose of produc-
tion and reproduction is exploitation. The expansion of reproduction is often
interrupted by economic crises. Relative overproduction is aggravated, lead-
ing to mass unemployment which is a unique social problem in capitalism.
This way, the increase in the capitalist national income will certainly be ad-
versely affected.
Also, if the amount of labor is constant, then the faster the labor produc-
tivity in the production enterprise is increased, the faster the physical volume
of national income, that is, national income computed at constant prices, will
increase. In socialist society, the initiative and activism of the laboring peo-
ple can be fully exercised. Advanced technology can be widely disseminat-
ed. The unfolding of mass technical innovation and technical revolution pro-
vides a broad vista for increasing labor productivity and national income. In
capitalist society, the laboring people are oppressed and exploited. The initi-
ative and activism of labor are suppressed. Advanced technology is used
only if it results in more surplus value. Therefore, the increase in labor
productivity and national income face tremendous obstacles.
Let us look at the third factor in determining national income. If the total
social product is fixed, then the more the means of production are saved in
the production process, the smaller the deduction from the total social prod-
uct will be and the faster the growth of national income will be. In socialist
society, the laboring people are the masters. They can be actively concerned
with the saving, substitution, and comprehensive utilization of raw materials
and the regular maintenance and full utilization of the means of production.
The planned nature of socialist reproduction enables the means of produc-
tion to be more fully and rationally utilized in the whole society. All these
make it possible to save the means of production, reduce their consumption,
and increase national income. In capitalist society, although the capitalist
tries to save the means of production to reduce capital expenses, a large
amount of waste results from competition and chaotic production. In addi-
tion, underutilization of capacity in the enterprises frequently idles a large
amount of equipment. All these are unfavorable to increasing national in-
come.
Because the factors determining the creation and growth of national in-
come are different under different social conditions, the national income of
the socialist country can increase faster than the national income of the capi-
talist country in the long run.

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 20. Correctly Handle Relations among the State. Collective, and Individual

The Distribution of National Income Complies with the Basic

Interests of the Laboring People
How is national income to be distributed after it has been created? The
distribution of national income is ultimately determined by the ownership
pattern of the means of production. In socialist society, the means of produc-
tion are publicly owned. The laboring people are the masters in production.
Therefore, the distribution of national income must comply with the interests
of the laboring people and satisfy the ever-increasing needs of the state and
the laboring people in a planned manner.
National income is created by the laborer in the material production
branches. It must first undergo an initial distribution in the material produc-
tion branches. In enterprises under the socialist state ownership system, na-
tional income is divided into two parts after the initial distribution: One part
is wages to be used by the laborer in state enterprises for personal consump-
tion; the other part is net income to become the centralized net income of the
state after it is surrendered to the state in the form of taxes and profits.
In enterprises under the collective ownership system, after a primary
distribution, one part of the national income becomes labor compensation for
commune members for personal consumption; the other part becomes the
net income of the collective. The net income of enterprises under the collec-
tive ownership system, unlike state enterprises, is not surrendered wholly to
the state. A part of it is surrendered to the state as taxes to become part of the
centralized net income of the state. The other part is retained as a public ac-
cumulation fund and a public welfare fund to be used for expanded repro-
duction of collective enterprises and collective welfare.
After the initial distribution in the material production branches, the so-
cialist national income becomes state income, income of collective enter-
prises, and income of individual laborers. It is an important matter of princi-
ple to correctly handle the relations between the state, the collective, and the
individual with respect to distribution. Chairman Mao teaches us: ”In distri-
bution, we must consider the interests of the state, the collective, and the
individual. The relations among state taxes, accumulation by the coopera-
tive, and individual income of the peasant must be appropriately handled,
and the contradictions among them must be regulated regularly.” (1) This
instruction of Chairman Mao referred to the collective economy. But this
principle also applies to the distribution of the whole national income.
After the initial distribution, a part of the national income must be rein-
vested (or plowed back into the economy), thus creating income again. (2)
Why must national income be redistributed? This is because in socialist so-
ciety, in addition to the material production branches, there are also cultural,
educational, and health branches, some service industries, the armed forces,
and state administration organs. These nonmaterial production branches do

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not create national income, but they are necessary for the development of
socialist society, the enrichment of the material and cultural life of the labor-
ing people, and the consolidation of proletarian dictatorship. The personal
income of the laborer in these nonproduction branches is provided through a
redistribution of the national income. In addition, a redistribution of the na-
tional income is needed to satisfy the needs for social welfare and social as-
sistance. This way, it becomes the personal income of those who enjoy such
welfare and assistance.
The redistribution of the national income is carried on mainly through
the socialist state budget, but activities of service industries can also bring
about a redistribution of the national income. For example, barber shops and
laundries charge certain fees to those who have received their services. From
these charges, a part is used to pay wages to their employees. This way, per-
sonal income from the initial distribution is transformed into personal in-
come of laborers in service industries, constituting a redistribution of the
national income.
The redistribution of national income is also carried on to some extent
through price adjustments. For example, the lowering of selling prices for
industrial products and the raising of procurement prices for agricultural
products in effect increase the income of the peasant.
National income in socialist society is divided into two parts after distri-
bution and redistribution: One part is under the control of the socialist state
and enterprises under the collective ownership system to expand reproduc-
tion and satisfy other common social needs. The other part belongs to the
individual laborer to satisfy his personal livelihood needs. These two parts of
the national income are finally grouped into accumulation funds and con-
sumption funds according to their different uses.
After distribution and redistribution of the social product and the nation-
al income, the final result can be categorized as in the table below.
After distribution and redistribution, the part of the socialist national in-
come which goes for the laborer’s personal consumption contributes directly
to his welfare. The part that goes to society contributes to the laborer’s col-
lective welfare and his long-term interests. Just as Marx said: “All the de-
ductions from the producer as an individual will be directly and indirectly
used for the welfare of this producer as a member of society.” (3)
The socialist national income comes from the people and is spent on the
people. It is fundamentally different from the distribution of the national
income in the old society. In a society dominated by the exploitative class,
the national income created by the laboring people is largely expropriated by
the exploitative class to support a handful of parasites. People like Lin Piao
vainly attempted to restore in China this order in which man exploits man.
They advocated what Mencius, a faithful disciple of Confucius, said: “With-
out the gentleman, no one will rule the uncultured, without the uncultured,
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 20. Correctly Handle Relations among the State. Collective, and Individual
no one will support the gentleman.” In their eyes, the domination and op-
pression of the laboring people were immutable laws. However, today is the
age of imperialism and proletarian revolution; the exploitative system is
doomed. This system is already extinct in socialist society. The laboring
people will no longer support the “gentleman” of the exploitative class. Peo-
ple like Lin Piao who vainly attempted to turn history backward could not
escape being crushed by the wheel of history.

The important Role of Public Finance in the

Distribution and Redistribution of National Income
The State Budget Is an Important Link in the Financial System
In socialist society, the distribution and redistribution of national income
is carried on mainly through finance. The socialist financial system consists
of the state budget, state bank credits and loans, and state enterprise finance.
Of these, state enterprise finance is the basis of the socialist finance system.
It systematically reflects the use and turnover of capital funds in the produc-
tion activities of enterprises. It also effects an initial distribution of national
income to form the centralized net income of the state. State banks distribute
temporarily idle funds in the national economy through loans to meet the
needs for short-term working capital in production. The state budget obtains
its revenues from its participation in the distribution of national income to
meet the needs of consolidating proletarian dictatorship and economic and
cultural construction. A fairly large part of the national income, especially a
major part of socialist accumulation, is effected through state budget alloca-
tions. The state budget is a major link in the socialist finance system.

317
Fundamentals of Political Economy
How does the state budget participate in the distribution of national in-
come? Because the state budget consists of revenues and expenditures, this
question has to be answered from the two aspects of the budget: revenues
and expenditures. Budget revenues of the socialist state generally include
income from enterprise and services, various taxes, and other income items.
These budget income items come largely from the net income of socialist
enterprises. In China, the net income of socialist state enterprises are at pre-
sent surrendered entirely to the state budget in the form of taxes and profits.
As early as 1959, payments surrendered by China’s state enterprises repre-
sented 91.8 percent of the state budget. Payments surrendered in the form of
taxes by rural people’s communes represented 7.4 percent of the state budg-
et. Together, the two sources represented 99.2 percent of state budget reve-
nues. In China’s budget revenues, the items of public debt and foreign debt
no longer exist. China has become a socialist country without any internal or
external debt.
Socialist state budget expenditures generally include economic construc-
tion expenditures, social, cultural, and education expenditures, and national
defense and foreign aid expenditures. Through these budget expenditures,
various funds are established in a planned manner to meet the needs of con-
solidating proletarian dictatorship, expanding production, and developing
cultural, educational and health services. Among budget expenditures, eco-
nomic construction and social, cultural, and educational expenditures are of
major importance. Expenditures for these two items increased from about 36
percent in 1950 to about 70 percent of China’s state budget expenditures in
1970. However, in imperialist and social imperialist countries, in order to
encroach upon and plunder the laboring people of foreign countries and to
oppress and exploit the laboring people of their own countries, expenditures
for armament expansion and government administration represent a very
substantial proportion of state budget expenditures. Expenditures often ex-
ceed revenues, resulting in sizable budget deficits.
The above conditions show that socialist finance is a distribution rela-
tionship centering on the socialist state’s participation in the distribution and
redistribution of national income. Its purpose is to consolidate proletarian
dictatorship, develop the economy and cultural, educational, and health ser-
vices, and discharge its internationalist obligations. The differences between
socialist finance and capitalist finance lie in the fact that socialist finance
ultimately serves the interests of the broad masses of laboring people, rather
than encroaching on those interests, and that it participates in the distribution
and redistribution of national income outside the production sphere, as well
as in the production sphere. It links the state budget, state bank credit, and
state enterprise finance closely together to serve production growth.

318
 20. Correctly Handle Relations among the State. Collective, and Individual

The Economy Determines Finance, and Finance Affects the

Economy
Since socialist finance is a relationship of distribution and redistribution
of national income centered on the state, it is thus closely related to the de-
velopment of the national economy. Marxism tells us that production deter-
mines distribution and distribution in turn affects production. Different
forms of distribution in different societies are determined by different forms
of social production. And the wealth made available by society for distribu-
tion is also determined by the national income created by the production
sphere. Chairman Mao instructed us on the dialectical relations between the
economy and finance: “To develop the economy and guarantee surplus con-
stitute the general policy of our economic and financial work.” “Whether
financial policies are good or bad will certainly affect the economy. But
what determines finance is the economy.” (4) Since liberation, the vast num-
bers of financial personnel have followed Chairman Mao’s instruction. They
first paid special attention to the economy to promote a sustained increase in
industrial and agricultural production. As a result, a stable and reliable mate-
rial basis for China’s finance has been secured, and the scale of revenues and
expenditures has developed at a relatively high speed. From 1950 to 1970,
China’s total agricultural production in value terms increased by 1.1 times,
and the total industrial production in value terms increased by 13.1 times.
China’s state budget revenues increased by more than 9 times and state
budget expenditures increased by more than 8 times.
The fact that the economy determines finance shows that a one-sided
emphasis on finance, an ignorance of the importance of developing the
economy, and a pure financial viewpoint which seeks to solve financial
problems through purely financial means are erroneous. People holding a
purely financial view-point who do not understand the dialectical relations
among the economy, finance, production, and distribution and do not active-
ly concern themselves with and promote production growth will not be able
to solve the problem of financial revenues and expenditures.
The economy determines finance, but finance is not simply a passive or
negative factor. It, in turn, plays a very important role in economic develop-
ment. When the state wants to carry out economic construction and the en-
terprise wants to increase production, the necessary funds must be arranged.
Through its participation in the distribution of national income, socialist fi-
nance allocates budget funds from its centralized net income to state enter-
prises to provide funds for economic construction. In the allocation of funds,
if a balance can be achieved in the distribution of material resources, in other
words, if the movement of value can be tied up with the movement of mate-
rial resources (that is, the movement of use values) so that a certain amount
of funds can be exchanged for a corresponding amount of material resources

319
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and so that they are used economically and properly, a high-speed develop-
ment of the national economy in a planned and proportional manner can be
guaranteed. Conversely, if socialist finance misallocates funds, such that the
movement of value does not match the movement of material resources, or if
material resources are not used rationally, the development of the national
economy will be hindered.
Socialist finance centralizes the national income which is created in the
production sphere in the hands of the state. This centralized net income of
the state is then used to develop the national economy. This in itself is not
sufficient. The vast numbers of financial workers, because of their wide con-
tact with, and their knowledge of, the conditions of various enterprises,
should also help enterprises improve management and operation, facilitate
cooperative relationships, help enterprises perfect the interrelations within
and among enterprises, and do a better job of tapping potentials in order to
continuously promote the development of social production and the increase
in national income. This way, on the basis of a developing economy, the
sources of socialist finance can be augmented and guaranteed.

The Proportional Relations between Accumulation

and Consumption Are Overall Proportional Relations
Socialist Accumulation Is the Source of Expanded
Reproduction
In the distribution and redistribution of national income, there are pro-
portional relations between accumulation and consumption which directly
affect the development of the national economy and the improvement of the
people’s livelihood. Like the proportional relations between the two major
categories and the proportional relations among agriculture, light industry,
and heavy industry, the proportional relations between accumulation and
consumption are also overall proportional relations.*
In the process of distribution and redistribution of national income, so-
cialist finance must guarantee a certain amount of accumulation to be used
for expanded reproduction. Accumulation is the source of expanded repro-
duction. However, in different societies, accumulation has different charac-
teristics. In capitalist society, the laboring people are oppressed and exploit-
ed. They do not have enough to eat or wear, to say nothing of accumulation.
Only the exploitative class has accumulation. But this accumulation serves
to further the exploitation and oppression of the laboring people by the ex-
ploitative class. In socialist society, the laboring people control political
power and own the means of production. They can thus accumulate funds
through the state and the collective to be used to expand reproduction and to
serve the interests of the laboring people. The more wealth accumulated by

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 20. Correctly Handle Relations among the State. Collective, and Individual
socialist society, the larger the scale and capacity of social production and
the higher the standard of material and cultural life. The result will be over-
all moral, intellectual, and physical development. Material and spiritual con-
ditions will also be gradually accumulated for the transition to communist
society.
However, all opportunists and revisionists have attempted to gloss over
the essential difference between socialist and capitalist accumulation. They
have advocated a complete distribution of the socialist national income.
More than a hundred years ago, a leader of the German workers’ movement,
La Salle, proposed a so-called “undiluted labor income.” Dühring proposed
another nonsensical “complete labor income.” Like La Salle, Dühring and
other swindlers of the same ilk and Liu Shao-ch’i also clamored that social-
ism meant “more distribution” and “more take-home pay.” Lin Piao mali-
ciously slandered China as “a rich state with poor people.” He attacked so-
cialist accumulation as “disguised exploitation” and conspired to get rid of
socialist accumulation. To such ridiculous propaganda, Marx and Engels
dealt head-on blows in Critique of the Gotha Program and Anti-Dühring. If
the revisionist fallacies were implemented, there would not be any social
accumulation. As a result, the socialist economy would not be able to carry
on expanded reproduction. It could only maintain simple reproduction, or
the function of accumulation would be transferred to private parties. This
way, capitalism would be restored. Thus, we can see that the fallacies of
distributing and spending everything advocated by Liu Shao-ch’i and Lin
Piao represent a vain attempt to undermine the socialist economy and restore
capitalism.
The Ratio between Accumulation and Consumption Must Be
Appropriate
Aside from what is used as accumulation funds, the rest of the socialist
national income is used as consumption funds. “The problem of distribution
between accumulation and consumption is a complex problem; it is not easy
to solve in a short time.” (5) At any given period of time, the national in-
come is limited. If the part used to increase accumulation is raised, then the
part used to increase consumption has to be somewhat lower. A higher level
of accumulation will certainly accelerate the pace of socialist reproduction,
but it will also mean that the increase in the laboring people’s standard of
living will have to be temporarily slowed down. Conversely, if the part used
to increase consumption is raised, the part used to increase accumulation
must be somewhat lower. A higher level of consumption can, of course, bet-
ter satisfy the present livelihood needs of the laboring people, but the pace of
socialist expanded production must then be slower. This will affect further
improvement of the laboring people’s livelihood. These conditions show that
there are contradictions between socialist accumulation and consumption.
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Fundamentals of Political Economy
But the contradictions are not antagonistic in nature. They are contradictions
among state interests, collective interests, and individual interests. In other
words, they are contradictions between overall interests and partial interests
and contradictions between the people’s long-term and short-term interests.
In arranging the proportional relations between accumulation and con-
sumption, we must first base any increase in accumulation on appropriately
improving the livelihood of the laboring people. At the same time, any in-
crease in consumption must also be based on continuously expanding pro-
duction and improving labor productivity. The interests of the state, the col-
lective, and the individual must be considered simultaneously. If we pay no
attention to improving the livelihood of the laboring people and one-sidedly
emphasize accumulation, it will not meet the objective requirements of so-
cialist economic development; it will discourage the production activism of
the laboring people. Conversely, if we pay no attention to accumulation and
one-sidedly emphasize consumption, it will not be in the basic and long-term
interests of the laboring people. In order to create favorable conditions for
the correct handling of this contradiction, we must endeavor to develop so-
cial production. As long as production is developed and national income is
increased, the livelihood of the laboring people can still be improved even if
accumulation is appropriately increased. Therefore, for the overall and long-
term interests of socialism, it is necessary to emphasize the revolutionary
spirit of arduous struggle and building the country with diligence and econ-
omy.
Accumulation and consumption are a proportional relation in value
terms. The proper handling of this proportional relation requires correspond-
ing material resources as a guarantee. As for accumulation, it is used for cap-
ital construction and expanded reproduction. Once a certain amount of funds
is available, there must also be a corresponding amount of the means of pro-
duction. (6) Of the total national product in socialist production, only the
added portion is to be used for expanded reproduction, while the other por-
tion, equivalent to the previous year’s consumption, is to be used for simple
reproduction. Therefore, to maintain a balance between supply and demand,
the total capital fund accumulated must first equal the increase in the means
of production. Otherwise, either the means of production will fall short of
the accumulated fund, making expanded reproduction impossible, or the
added means of production will not be sold, thereby creating a surplus. In
either case, socialist expanded reproduction will be affected.
As far as consumption is concerned, since consumption funds are used
to satisfy the material and cultural needs of the socialist state and the broad
masses of laboring people, sufficient consumer goods must be available to
guarantee that these needs will be satisfied. If the increase in consumption
funds does not correspond to the increase in consumer goods, then either the
supply of consumer goods will exceed the demand, resulting in unplanned
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 20. Correctly Handle Relations among the State. Collective, and Individual
inventory accumulation, or demand for consumer goods will exceed their
supply, resulting in shortages. Either way, it will be difficult to attain proper-
ly the goal of satisfying the needs of the state and the laboring people.
It can thus be seen that in order to maintain the proper proportional rela-
tions between accumulation and consumption, it is necessary to develop
production by all means. Only when the production of the means of produc-
tion and consumer goods is solved can both accumulation and consumption
be increased and the contradiction between accumulation and consumption
be better resolved. Here, it is of decisive importance to raise labor productiv-
ity continuously, use the means of production thriftly, and create more mate-
rial wealth without increasing the use of manpower, material resources, and
finance.
Major Study References
Marx, Critique of the Gotha Program, (l).
Engels, Anti-Dühring. Part 3, Chapter 4.
Chairman Mao, “On the Correct Handling of Contradictions among the
People,” Sections 1 and 3.
Chairman Mao, “Economic and Financial Problems in the Anti-Japanese
War.”
Review Problems
1. How is socialist national income distributed and redistributed? What
is the essential difference between this and the distribution of capitalist na-
tional income?
2. What is socialist finance? How should we understand the relations be-
tween socialist finance and the economy?
3. How do we correctly handle the proportional relations between accu-
mulation and consumption?
Notes
* Cheng-ch’iieh ch’u-li kuo-chia, chi-t’i ho ko-jen chih chien ti kuan-hsi
— she-hui- chu-i kuo-min shou-ju ti fen-p’ei ho tsai fen-p’ei.
** The two major categories in socialist enlarged reproduction are ac-
cumulation and personal consumption. — Editor.
1) “On the Correct Handling of Contradictions among the People,” Se-
lected Readings from the Works of Mao Tse-tung. Jen-min ch’u-pan-she (A),
1965, p. 343.
2) The centralized net income which the socialist state obtained in its
participation in the first-round distribution of national income is plowed
back to the economy for various purposes. However, not every item of the
income thus plowed back will generate income in the second round of in-

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Fundamentals of Political Economy
come distribution. For instance, the state appropriated funds to state operated
enterprises for production purposes that involve neither transfers of owner-
ship nor creation of income do not go through the process of redistribution
of national income.
3) Marx, Critique of the Gotha Program. Selected Works of Marx and
Engels. Vol. 3, Jen-min ch’u-pan-she, 1972, p. 10.
4) “Economic and Financial Problems in the Anti-Japanese War,” Se-
lected Works of Mao Tse-tung. Vol. 3, Jen-min ch’u-pan-she, 1968, p. 846.
5) “On the Correct Handling of Contradictions among the People,” p.
337.
6) A small part of accumulation funds is used to purchase consumer
goods, but the major part is used to purchase means of production.

324
21. How Are Personal Consumer Goods
Distributed in Socialist Society?
The Socialist Principle of “From Each according to
His Ability, to Each according to His Labor”*
The distribution of personal consumer goods is an important aspect of
production relations. Like the distribution of national income, the distribu-
tion of personal consumer goods is basically determined by how the means
of production are owned. Once this is decided, it interacts with the consoli-
dation and development of the ownership system.

“From Each according to His Ability, to Each

according to His Labor” Is a Profound Revolution in
the Distribution System
Distribution Is Determined by the Ownership of the Means of
Production
The distribution relations of consumer goods in any society are not sub-
ject to people’s willful choice. The ownership relations determine the distri-
bution relations. Who controls the means of production is a matter of deci-
sive importance. Marx pointed out: “Any distribution of the means of pro-
duction is merely a result of the distribution of production conditions them-
selves. And the distribution of production conditions reflects the production
modes themselves.” (l) In capitalist society, because the means of production
are controlled by the capitalist, the destitute worker can only sell his labor
power and subject himself to exploitation and oppression by the capitalist. In
socialist society, because the means of production are controlled by the pro-
letariat and the whole laboring people, a socialist public ownership system is
established. The distribution power is controlled by the proletariat and the
laboring people and the principle of distribution favors the laboring people.
Therefore, distribution cannot be divorced from the ownership system.
To talk about distribution without any reference to the ownership system is
“distribution determinism.” More than a hundred years ago, La Salle, a scab
hidden in the German workers’ movement, argued that poverty among the
laboring people could be eliminated if there was an “equitable distribution.”
The Liu Shao-ch’i-Lin Piao clique of renegades and traitors also nonsensi-
cally said that “the contradictions between the production relations and the
productive forces in socialist society are mainly manifested in the issue of
distribution” and that once the distribution issue is resolved, “the people will
be rich and the country will be strong.” All these are merely copies of “dis-
tribution determinism.” Before the proletariat seized political power, to ad-

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Fundamentals of Political Economy
vocate “distribution determinism” was to praise the capitalist mode of pro-
duction. According to them, the only minor fault was uneven distribution.
Therefore, the capitalist system did not need to be overthrown; all that was
needed was to improve “distribution.” However, since the means of produc-
tion were controlled by the bourgeoisie, how could the distribution relations
be fundamentally altered? “Distribution determinism” is a poison that para-
lyzes the fighting spirit of the revolutionary people. After the proletariat
seized political power, to advocate “distribution determinism” was to at-
tempt to divert the revolutionary goal of the revolutionary people to the stray
path of bourgeois welfare and make them forget the consolidation and de-
velopment of the socialist public ownership system and the historical mis-
sion of continuing revolution under proletarian dictatorship in order to facili-
tate the restoration of capitalism by Liu Shao- ch’i, Lin Piao, and such swin-
dlers.
”From Each according to His Ability, to Each according to His
Labor” Is a Negation of the Exploitative System
In socialist society, the social product belongs to the laboring people.
Does this mean that the whole social product can be distributed directly to
the laboring individuals in the production branches? Certainly not. Marx
pointed out in his Critique of the Gotha Program that in socialist society, the
following deductions should be made from the gross social product before
distribution: First, the replacement of the consumed means of production;
second, the augmentation for expanded reproduction; and third, the estab-
lishment of reserve funds and insurance funds for emergencies and natural
disasters. In addition, the following deductions have to be made before per-
sonal distribution: First, administration expenses not related to production;
second, expenses for social needs such as schools and health facilities; and
third, funds for disabled persons, and so forth. (2) Today, in addition to the
above deductions, the socialist state must also establish foreign aid funds to
support the revolutionary struggles of the world’s people.
What remains of the gross social product after necessary social deduc-
tions becomes personal consumer goods that can be distributed to the labor-
ers in the production branches. In socialist society, the basic principle for the
distribution of personal consumer goods is “from each according to his abil-
ity, to each according to his labor.” This is to say, every laborer must exert
himself to the fullest possible extent in social labor, and then society will
distribute to him an amount of consumer goods which corresponds with the
amount of labor he provided.
The realization of the principle “From each according to his ability, to
each according to his labor” is a profound revolution in the distribution sys-
tem in history. In the several thousand years during which class antagonism
has existed in human society, there have been all kinds of systems by which
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 21. How Are Personal Consumer Goods Distributed in Socialist Society?
man exploited man, man oppressed man, and man ate man according to the
principle of “those who labor do not reap, those who reap do not labor.” In
slave society, the slave owner treated his slaves as talking tools. They were
fed like livestock and led the life of cattle and horses. In feudal society, the
peasant had to deliver 50, 60, or even 80 percent of his harvest to the land-
lord while living in abject poverty. In capitalist society, the wages from the
worker’s labor are not enough to feed or clothe his family. Moreover, he is
constantly threatened by unemployment. Inequality in the ownership of the
means of production inevitably brought about this relationship between the
exploiter and the exploited in the distribution system. In socialist society,
public ownership of the means of production replaces private ownership.
This makes it possible to realize the principle of “from each according to his
ability, to each according to his labor,” which benefits the laboring people.
This principle takes labor as a yardstick for the distribution of consumer
goods. All able-bodied people must participate in labor. Those who do not
work do not eat. This is a fundamental negation of the distribution system in
which man exploited man for several thousand years. It is an epochal ad-
vance in the distribution system.
In socialist society, why must the distribution of personal consumer
goods follow the principle of “from each according to his ability, to each
according to his labor” rather than the principle of “from each according to
his ability, to each according to his need”? This is because socialist society
has just emerged from capitalist society, and the disparities between the
worker and the peasant, between the urban and the rural areas, and between
mental labor and physical labor still exist. Labor still has not become the
first requirement in the lives of the majority of the people. The social prod-
uct has not reached an affluent level. And because class and class struggle
exist in socialist society, the exploitative class always spreads the evil
thoughts of “loving leisure and hating labor” and “reaping without laboring”
to poison the laboring people. Under these conditions, it is not possible or
practical to realize distribution according to needs. Only the principle of
“from each according to his ability, to each according to his labor” meets the
development needs of the productive forces and can be understood and ac-
cepted by the broad masses of laboring people.
Of course, distribution according to labor is still not the highest ideal of
the proletariat. What the proletariat tries to realize in the future is the com-
munist principle of “from each according to his ability, to each according to
his need.” This is because equal rights embodied in distribution according to
labor still bear traces of the old society. Just as Marx pointed out, “The prin-
ciple followed is still bourgeois legal rights.” (3) The use of a uniform yard-
stick — labor — to determine the distribution of consumer goods leads to
equality. But, conditions vary among laborers. Some are stronger, while oth-
ers are weaker. Some have to support more people, and others only support a
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Fundamentals of Political Economy
few people, and so forth. Under the conditions in which an equal amount of
labor obtains an equal amount of compensation, the standard of living of
those who are strong, skilled, and have few mouths to feed is higher. For
those in the reverse situation, the standard of living is lower. De facto ine-
quality results. This inequality is fundamentally different from that in the old
society. Here, the issue of man exploiting man does not arise. But it is still a
“defect” compared with the ideal of common affluence among the proletariat
and the communist principle of from each according to his ability, to each
according to his need. “These defects are unavoidable in the first stage of
communist society when it has just emerged from capitalist society after
going through a prolonged period of birth pangs. Rights can never exceed
the development of the economic structure of society and the culture of soci-
ety which is determined by that economic structure.” (4)
On the one hand, the principle of distributing personal consumer goods
according to the labor provided is historically inevitable and cannot be ne-
gated at will. On the other hand, it does have shortcomings. As a result, it
cannot thus be idealized or solidified. With an ever-increasing abundance of
the social product and an ever higher communist consciousness among the
people, there is a transition process from distribution according to labor to
distribution according to need. In socialist society, there are some elements
of distribution according to need in the social welfare services run by the
state or the collective, such as the free medical care for staff and workers and
the labor insurance provided by the state. Therefore, at present, we must ad-
here to the stage theory of revolutionary development and implement the
socialist principle of “from each according to his ability, to each according
to his labor.” Furthermore, we must insist on the theory of continuing revo-
lution, actively create favorable conditions, gradually increase the elements
of distribution according to need and, when future conditions are ripe, re-
place “distribution according to labor” with “distribution according to need.”
Avoid Two Tendencies in the Distribution of Personal
Consumer Goods
In socialist society, there is an acute struggle over the issue of distribu-
tion according to labor. The Liu Shao-ch’i clique advocated high wages,
high bonuses, and high compensation for literary work. They attempted to
cause a gap between high and low in distribution to undermine the solidarity
among the people, discourage the production activism of the laborer, ob-
struct the development of the productive forces, and nurture a privileged
class as a social basis for their restoration of capitalism. This conspiracy of
the Liu Shao-ch’i clique was smashed during the Great Proletarian Cultural
Revolution.
To oppose polarization and gradually narrow disparities in distribution
is a revolutionary mission of the proletariat. In his summary of the experi-
328
 21. How Are Personal Consumer Goods Distributed in Socialist Society?
ence of the first proletarian government in the world, the Paris Commune,
Marx highly evaluated the practice by which “all public employees, from the
commune committee members on down, should receive only a salary equiv-
alent to a worker’s wage” which was adopted by the commune heroes. (5)
He regarded that as a great innovation and fully affirmed this revolutionary
experience. In the early period of the establishment of the Soviet govern-
ment, Lenin temporarily had to resort to high salaries for the bourgeois-
educated class because of the need for struggle. But he clearly pointed out:
“The corrupting effect of high salaries affects the Soviet government and
also the working masses. This is incontrovertible,” and he deeply criticized
and repudiated high salaries. (6) Chairman Mao consistently teaches us: “All
our work cadres, whatever their status, are the servants of the people.” (7)
He opposes high salaries for the minority and demands us to rationally bring
about a gradual narrowing of the disparities in personal income between the
working personnel of the Party, the state, the enterprises, the people’s com-
munes, and the people.
Why do the proletarian revolutionary teachers repeatedly remind us to
pay attention to this problem and repeatedly affirm the Paris Commune prin-
ciple? This is because a polarization in distribution is not consistent with the
socialist public ownership system and socialist interrelations. In socialist
society, the laboring people are masters of the state and enterprises. Their
labor skills are basically taught by society. Their labor contribution to socie-
ty may vary because of the division of labor practiced in the old society and
other conditions, but differences in the standard of living cannot be too
large. A gradual narrowing of the three disparities is objectively required to
advance on the road of common affluence. Second, if the polarization in
distribution were allowed to develop, a privileged stratum in society would
be formed. It would serve as a social basis for a bourgeois restoration of cap-
italism. This is unfavorable to the consolidation of proletarian dictatorship.
In today’s Soviet Union, a bureaucratic monopoly bourgeoisie who expro-
priates others’ labor product has formed a bourgeois privileged stratum. This
is the new exploitative class represented by the Brezhnev renegade clique
which rules the laboring people of the Soviet Union. Third, the polarization
in distribution is unfavorable to strengthening solidarity among the laboring
people. It also provides room for the bourgeois idea of fame and wealth.
Therefore, we must guard against this tendency.
To oppose polarization in distribution does not mean absolute egalitari-
anism, which equalizes all labor compensation regardless of the difficulty of
the work and of differences in labor intensity and contribution. The Paris
Commune advocated that all state employees should only get salaries equiv-
alent to those of the worker. However, it also accepted wage differentials
among workers. This differential could not be large, however. Absolute
egalitarianism is totally inconsistent with the socialist principle of “from
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Fundamentals of Political Economy
each according to his ability, to each according to his labor.” It must be op-
posed. Chairman Mao pointed out clearly more than forty years ago that:
“...absolute egalitarianism is a mere illusion of peasants and small proprie-
tors, and that even under socialism there can be no absolute equality, for
material things will then be distributed on the principle of ‘from each ac-
cording to his ability, to each according to his work’ as well as on that of
meeting the needs of the work.” (8) As with polarization in distribution, ab-
solute egalitarianism hurts labor activism, hinders production development,
affects the increase of the social product, and is unfavorable to socialist en-
terprise.
In socialist society, the distribution of personal consumer goods re-
quires, on the one hand, the implementation of the principle of distribution
according to labor and the acceptance of disparities. On the other hand, we
must also guard against polarization and expropriating others’ labor product.
The standards of living among the laborers must be gradually evened out to
achieve common affluence. This is a contradiction. Even if this contradiction
is handled relatively correctly under given conditions, new contradictions
will arise when these conditions change. This requires that we seriously
study Marxism, thoroughly understand the Party’s policies, investigate and
do research in depth, closely rely on the masses, and correctly handle these
contradictions with proletarian politics in command.

There Are Two Basic Forms of Distribution of

Personal Consumer Goods
The Wage System Is the Chief Form of Distribution in the
State Economy
In the socialist stage, because commodity production and commodity
exchange still exist, a certain amount of money is paid by the state to the
staff and workers as labor compensation for a certain amount of labor pro-
vided to society according to a fixed standard in the socialist state ownership
system. These money incomes of the staff and workers are known as wages.
Wages under the socialist system are fundamentally different from wag-
es under the capitalist system. Under the capitalist system, labor power is a
commodity. Wages are incomes for the sale of labor power. They embody
the relations between the employer and the employee, between the exploiter
and the exploited, existing between the capitalist and the worker. Under the
socialist system, workers are masters of the state and the enterprises. Labor
power is not a commodity. It cannot be sold to themselves. Wages are no
longer a transformation of the value or price of labor power. They are a form
of state distribution of personal consumer goods according to the principle of
“from each according to his ability, to each according to his labor.”

330
 21. How Are Personal Consumer Goods Distributed in Socialist Society?
There are two major forms of wages, namely, time-rate wages and
piece- rate wages. Time-rate wages are calculated on the basis of labor time.
Within a given period, a fixed wage is paid by the day or month according to
the wage level set by the socialist distribution principle. Piece-rate wages are
calculated on the basis of labor product. Wages are paid at a per unit rate
according to the number of pieces of product of a certain quality which the
laborer completes. In China, there is a development process between these
two forms of wages. Before 1958, the piece-rate wage system was used in a
large number of occupations and jobs which were done by hand. This was
consistent with the development level of the productive forces in China and
the degree of ideological consciousness among the broad staff and workers.
It was instrumental in the recovery and development of production. Howev-
er, with the development of mechanization, automation, and the ideological
consciousness of the staff and workers, especially after the Great Leap For-
ward in 1958, many defects and negative effects of the piece-rate wage sys-
tem were revealed: (l) With technical progress, it was increasingly difficult
to implement individual piece-rates in many kinds of work. Also piece-rate
wages adversely affect technical innovation. (2) The piece-rate system was
unfavorable to solidarity among workers. It easily led to contradictions be-
tween time-rate workers and piece-rate workers, between new and old work-
ers, between the upstream and downstream work processes, and between
workers of different shifts. (3) The piece-rate system easily nurtured the idea
of being primarily concerned with personal income and not with the collec-
tive enterprise. It was also unfavorable to elevating political and ideological
consciousness. Therefore, at the demand of the broad staff and workers, the
piece-rate system was abolished in most enterprises, and the time-rate sys-
tem was adopted. The form of wages used in China today is mainly time-rate
wages. Piece-rate wages are used only in some units and for some varieties
of work.
The issue of wages is a complicated one. It involves not only the rela-
tions among the state, the collective, and the individual, but also the relations
among workers, between the worker and the peasant, and between the work-
er and the peasant on the one hand and other laboring people on the other.
The issue of wages must be handled with extreme seriousness and caution.
The experience in socialist revolution and construction shows that in
handling the issue of wages, we must firmly adhere to putting politics in
command and strengthening ideological education. We must also pay atten-
tion to the following principles: On the basis of developing production and
increasing labor productivity, the wages of the staff and workers are gradual-
ly increased, but not excessively. The magnitude of wage increases cannot
exceed the increase in labor productivity. To determine wage standards and
wage increases, an overall arrangement must be made taking into account
the relation between the worker and the peasant. In determining wage scales
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Fundamentals of Political Economy
of the staff and workers, we must oppose the tendency toward polarization
and greater disparities and guard against any development that may lead to
absolute egalitarianism by denying wage differentiation. Increments in wag-
es and collective welfare must go hand in hand, so as to raise gradually the
ratio of collective welfare and to explore systematically and conditionally
the factors that will result in distribution according to needs.
Under the socialist system, the conditions of distribution according to
need have improved with the development of production. Therefore, any
increase in the standard of living among the workers is reflected not only in
wage increases, but also in the improvement of the conditions of distribution
according to need, such as social welfare. In the modern revolutionary Pe-
king opera “The Harbor,” the retired wharf worker Ma Hung-liang sang: “In
the new society, we wharf workers become proud masters. We are taken
care of in birth, old age, illness and death. The benevolence of the Com-
munist Party and Chairman Mao is higher than heaven!” These sentences
represent the true feelings of the working class who are liberated in the new
society. They reflect the immense superiority of socialist production rela-
tions. It is very important to understand the essential difference between cap-
italist wages and socialist wages and the fundamental difference between the
distribution relations of the new and the old societies. It can strengthen our
responsibility as masters of our destiny and elevate the consciousness of so-
cialist labor.
The Work-Point System Is the Chief Form of Distribution in
the Rural Collective Economy
The distribution of personal consumer goods in the rural people’s com-
mune under the collective ownership system also follows the principle of
“from each according to his ability, to each according to his labor.” Howev-
er, because the degree of public ownership in the collective ownership sys-
tem is different from that in the state ownership system, there are different
characteristics in the concrete form of distribution. In units under the state
ownership system, the means of production and products belong to the state
and are allocated and distributed centrally by the state. Therefore, labor
compensation in the whole society can be standardized and wages can be
paid in money. In the collective ownership system of the rural people’s
commune, the basic system of “three-level ownership with the production
team as the basis” has been adopted at the present stage. The means of pro-
duction and products belong to various collective units. Therefore, distribu-
tion for the whole society cannot be centralized. Even egalitarian distribution
among communes or among production teams is not possible. Distribution
can only be carried out independently within a collective unit according to
its own production conditions.
With the exception of commune-run enterprises, in which the wage sys-
332
 21. How Are Personal Consumer Goods Distributed in Socialist Society?
tem is partially in force because their revenues are relatively stable, distribu-
tion according to labor in the collective economy of the rural people’s com-
mune is carried out by means of work evaluation and points allotment. In
some production teams, work points based on labor quotas are also used for
some farm activities according to the custom of the masses. Work points are
a standard with which to evaluate the amount of the members’ participation
in collective labor. They are also a standard for the distribution of labor
compensation. The amount of income obtained by a member from a produc-
tion team is determined by the amount of work points as well as by the mon-
ey value of each work point (work-point value). The money value of work
points is not specified in advance. It is determined by the annual income of
the production team after a certain amount of accumulation has been deduct-
ed. Because of the differences in management and operation, techniques and
equipment, and natural and transportation conditions, the income of various
production teams varies. There may also be differences in accumulation de-
ductions. Therefore, the incomes of members in different production teams
are not uniform. These disparities should be gradually reduced by actively
helping the backward communes and teams catch up with the advanced
units. But absolute egalitarianism must be avoided, or the development of
agricultural production and the consolidation of the collective economy will
be adversely affected.
“We must make all efforts to increase year by year the personal income
of the peasant from the increase in production in normal years.” (9) It is im-
portant that this requirement be realized. It is not only favorable to increas-
ing the standard of living of the peasant, narrowing the disparity between the
worker and the peasant, but is also favorable to consolidating and develop-
ing the collective economy and consolidating proletarian political power.
How then can the income of the peasant be increased? Ultimately, we
must develop production before we can improve distribution. To develop
production, we must firmly adhere to putting proletarian politics in com-
mand, educate the peasants with Marxism-Leninism-Mao Tse-tung Thought,
and establish the idea of farming for revolution in order to mobilize fully the
labor activism of the broad members. We must insist on a thorough imple-
mentation of the policy of taking grain as the key link to ensure all-round
development and fully utilize the manpower, material resources, and finance
in the rural areas. We must strengthen management and operation and prac-
tice scientific farming to increase crop yields. We must budget carefully,
practice economy, and find substitutes to reduce costs as much as possible
and increase production and income, and so forth.
In calculating labor compensation for members, we must not only op-
pose the method of having “work points in command,” paying no attention
to ideological education, but must also carry out the principle of from each
according to his ability and to each according to his labor. Among male and
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Fundamentals of Political Economy
female members, “the principle of equal pay for equal work for men and
women must be carried out.” Unequal pay for equal work in which “men get
ten work points for each labor day but women should not get more than
eight points” is contrary to the socialist distribution principle.

Nurture the Communist Labor Attitude

Building Socialism and Realizing Communism Require the
Nurturing of the Communist Labor Attitude
In socialist society, the principle of “from each according to his ability,
to each according to his labor” in the distribution of personal consumer
goods must be carried out. This is for certain. But the principle of “distribu-
tion according to labor” is not immune to change. With change in condi-
tions, it will gradually evolve into “distribution according to need” and will
be completely replaced by “distribution according to need” when we ad-
vance into the communist society in the future. This requires that we grasp
the socialist distribution principle in our work. But it also requires that we
look further ahead, publicizing and advocating the communist labor attitude.
What is communist labor? Lenin said: “In a relatively narrow and strict
sense, communist labor is social labor without compensation. This labor is
not labor to fulfill a certain obligation, to enjoy the right to certain products,
or labor performed under a quota specified in advance. It is voluntary labor,
labor without quotas, labor with no expectation of compensation, and labor
with no compensation conditions.” (10)
Only after the proletariat seizes political power and when the laboring
people become masters of the state and enterprises can communist labor
arise and gradually develop. This is because under the exploitative system,
the laboring people all toil for the exploiting class. Therefore, there cannot
be any labor activism. In socialist society, things are completely different.
The laboring people have been transformed from hired slaves into masters of
the state and enterprises. Every job and every labor product is related to the
interests of the laboring people. The laboring people no longer labor for the
exploiter, but for their own class. Therefore, there is an immense socialist
activism among the laboring people. This is a basic condition for the gradual
establishment of the communist labor attitude.
The appearance and gradual development of the communist labor atti-
tude is a significant event in the history of human development. We should
publicize it and applaud it. We should extend it and forge it into a strong
force for overthrowing the old world and establishing the communist new
world.
To establish the communist labor attitude is “a thorough breach with the
traditional ownership system,” “a thorough breach with traditional ideas.”
(11) It is also a prolonged battle in which the proletarian ideology defeats the

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 21. How Are Personal Consumer Goods Distributed in Socialist Society?
bourgeois ideology in the superstructure. If we did not break with “the cold-
ly calculating narrow vision which makes us unwilling to work a little longer
than others and unwilling to earn a little less than others” (12) and if we did
not penetratingly criticize and repudiate the capitalist moral of working only
for money, the proletarian ideology would not overrun this battleground, the
communist labor attitude could not be established, and socialist revolution
and construction would be hindered. Therefore, we “should publicize the
communist ideology more broadly” so that more comrades will become
models who are willing to work hard and earn less. (13)
Establishing the communist labor attitude can accelerate socialist con-
struction and actively prepare favorable conditions for the realization of
communism. Communist society is a bright and perfect society. It is a goal
for the struggle of the proletariat and the laboring people. It is an inevitable
trend of social development. However, communist society can only be
achieved through the brave struggle and diligent hard labor of millions of
revolutionary people. Before liberation, our revolutionary seniors had only
five cents per person per day for cooking oil, salt, and vegetables. They had
no wages or welfare. They struggled with imperialism, feudalism, and bu-
reaucratic capitalism under extremely difficult conditions for the liberation
of the proletariat. They worked hard and fought courageously. It was this
communist spirit that helped our revolutionary seniors to defeat the reaction-
aries and establish a new China. Today, we still need to carry on and foster
this communist labor spirit of arduous labor without pay and the revolution-
ary tradition of courageous struggle to build the socialist society and to real-
ize the communist society in the future.
In Nurturing the Communist Labor Attitude, We Must
Criticize and Repudiate Material Incentives
The appearance and gradual establishment of the communist labor atti-
tude indicate the gradual growth of the communist ideology and the gradual
decline of the capitalist ideology. Therefore, in the process of nurturing and
fostering the communist labor attitude, it is inevitable that an acute struggle
between the two classes, the two ideologies, and the two lines will unfold. It
is the nature of the bourgeoisie to be attracted by money and profit. But the
bourgeoisie generalizes it as universal human nature. They say that “to work
for money” is “human nature” in order to poison the proletariat.
Modern revisionists try to replace the socialist principle of “from each
according to his ability, to each according to his labor” with “material incen-
tives.” They treat the laboring people as hired slaves and think that if money
is not used as an incentive, there will not be any labor activism. Soviet revi-
sionists have consistently advocated “material incentives.” They have non-
sensically declared that they are “a most important lever” for increasing la-
bor productivity. To advocate material incentives, the Liu Shao- ch’i and Lin
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Fundamentals of Political Economy
Piao clique even based their argument on such fallacies as Confucius’ saying
that “the gentleman pursues what is right, the small people seek what is prof-
itable.” They claimed that “the drive to work is stimulated by material incen-
tives” and “production activism will not be high if we don’t use a little more
money.” They slanderously said that all there is in the heads of the laboring
people is “financial windfalls” and “wealth and treasure.” They regarded
material incentives as a panacea which can “cure all illnesses.” Why did they
make so much noise? Their ultimate intention was to lead the laboring peo-
ple to the stray path of bourgeois individualism and to restore capitalism.
The worker comrades put it nicely: material incentives are the opiate to para-
lyze the revolutionary combat spirit, sugarcoated arsenic and a soft dagger
than can kill without shedding a drop of blood.
In socialist society, the bourgeois preference for leisure over labor is in-
evitably reflected among the laboring people so that some of them do not
work hard and their socialist labor activism is not high. What can we do
about such cases? Should we insist on having politics in command and
strengthening ideological education, or should we rely on putting money
incentives and cash in command? This is an issue that involves which direc-
tion the proletariat and the laboring people should follow. It is an issue of
which road to follow.
Politics is the commander and the soul. Only by holding firmly to hav-
ing proletarian politics in command, doing a good job in ideology and poli-
tics, continuously instilling in the broad masses the socialist and communist
ideology, criticizing and repudiating the capitalist tendency, and at the same
time seriously carrying out the principle of “from each according to his abil-
ity, to each according to his labor” can the socialist activism of the masses
be fully mobilized. To educate the laboring masses with Marxist ideology is
meticulous work. It has to be done with perseverance and a great deal of
effort. But, the activism thus mobilized is socialist, communist, solid, and
long-lasting.
People who had been deeply affected by the poison of capitalist material
incentives behaved differently. They had a basic doubt about the effects of
ideological work. Some began by doing some ideological work, but after a
couple of unpleasant experiences, they would shake their heads and think
that there were no lasting effects to ideological work. They would say: “It
does not work. Only money can do the trick.” They were afraid of doing
arduous and meticulous ideological work. Once difficulties were encoun-
tered, they would resort to bonuses. But the result was usually “the more
rewards are given, the worse it gets. Ideology is bankrupt and evil practices
multiply.” They were not good at discovering the essence of socialist activ-
ism of the masses. They did not have faith that anything can be transformed
under certain conditions. In fact, although the consciousness of the laboring
people may differ in level and in the rate of transformation, favorable results
336
 21. How Are Personal Consumer Goods Distributed in Socialist Society?
would be achieved if we could hold firmly to putting proletarian politics in
command, doing ideological education and being patient and meticulous in
our work.
Chairman Mao consistently extols the communist labor attitude. He
more than once has called upon us to learn from the selfless spirit of Com-
rade [Norman] Bethune and from the complete and thorough devotion to the
interests of the people of Comrade Chang Ssu-te. With the nurturing of
Marxism-Leninism-Mao Tsetung Thought, there have appeared in China
millions of Communist combatants like Comrades Bethune and Chang Ssu-
te. Their wholehearted devotion to revolution and to the people will forever
radiate the communist brilliance and encourage us to advance courageously
along the road of revolution!
Major Study References
Marx, Critique of the Gotha Program.
Lenin, “The Great Innovation,” Selected Works of Lenin. Vol. 4.
Chairman Mao, “On Correcting Mistaken Ideas in the Party.”
Chairman Mao, “On the Correct Handling of Contradictions among the
People,” Sections 3, 7, 9.
Review Problems
1. How can the principle of “from each according to his ability, to each
according to his labor” be correctly understood and thoroughly implement-
ed?
2. What are the essential differences between socialist wages and capi-
talist wages?
3. Why do we have to thoroughly implement the principle of “from each
according to his ability, to each according to his labor” as well as to promote
the communist labor attitude in the socialist stage?
Notes
* Ko-jen hsiao-fei-p’in tsai she-hui-chu-i she-hui shih tsenyang fen-p’ei
ti? — “ko chin so neng, an lao fen-p’ei” ti shehui-chu-i yuan-tse.
1) Marx, Critique of the Gotha Program. Selected Works of Marx and
Engels. Vol. 3, Jen-min ch’u-pan-she, 1972, p. 13.
2) Ibid., pp. 9-10.
3) Ibid., p. 11.
4) Ibid., p. 12.
5) Marx, The Civil War in France. Selected Works of Marx and Engels.
Vol. 2, Jen- min ch’u-pan-she, 1972, p. 375.
6) “Present Tasks of the Soviet Government,” Selected Works of Lenin.
Vol. 3, Jen- min ch’u-pan-she, 1972, pp. 503-504.

337
Fundamentals of Political Economy
7) Chi eh-fang jih-pao [Liberation Daily], Yenan, December 16,1944.
8) “On Correcting Mistaken Ideas in the Party,” Selected Works of Mao
Tse-tung. Vol. 1, Jen-min ch’u-pan-she, 1968, p. 89.
9) “On the Correct Handling of Contradictions among the People,” Se-
lected Readings from the Works of Mao Tse-tung. Part 1, Jen-min ch’u-pan-
she, 1965, p. 344.
10) “From Destroying Long-standing Old Systems to Creating New
Systems,” Selected Works of Lenin. Vol. 4, Jen-min ch’u-pan-she, 1972, p.
176.
11) Communist Manifesto. Selected Works of Marx and Engels. Vol. 1,
Jen-min ch’u- pan-she, 1972, pp. 271-72.
12) State and Revolution. Selected Works of Lenin. Vol. 3, Jen-min
ch’u-pan-she, 1972, p. 254.
13) “On New Democracy,” Selected Works of Mao Tse-tung. Vol. 2,
Jen-min ch’u-pan- she, 1968, p. 666.

338
22. Mutual Aid and Exchange
The External Economic Relations of the Socialist
State*
Our time is one of imperialism and proletarian revolution. When the
proletariat has seized political power and established socialism in one or
several countries, certain economic interrelations inevitably arise among
socialist countries, between socialist states and other states that have gained
their national independence, and between the socialist states and the imperi-
alist and capitalist countries. The external economic relations of the socialist
state are closely related to socialist economic construction at home and to
international situations. We must know something about the socialist state’s
external economic relations.

External Economic Relations Are a Component of the

Socialist State’s Foreign Relations
External Economic Relations Must Obey the Proletarian
Revolutionary Diplomatic Line
After the October Revolution, Lenin pointed out repeatedly that the so-
cialist state under proletarian dictatorship was the base from which to ad-
vance the proletarian world revolution. The state which first achieved a so-
cialist victory must raise high the combat banners “The proletariat of the
world, unite!” and “The proletariat and the oppressed nations of the world,
unite!” It must strengthen its solidarity with the proletariat, the oppressed
peoples, and the oppressed nations of the whole world and strengthen its
solidarity with all countries which are victims of imperialist aggression, sab-
otage, interference, control, and bullying in order to form an extensive unit-
ed front to oppose imperialism and new and old colonialism.
The fundamental principle of the foreign relations of the socialist state is
firm adherence to proletarian internationalism. China’s revolutionary diplo-
matic line is: To develop a relationship of mutual cooperation with socialist
countries under the principle of proletarian internationalism; to support the
revolutionary struggles of all oppressed peoples and nations; to work for
peaceful coexistence with countries under different social systems on the
basis of mutual respect for territorial integrity and sovereignty, nonaggres-
sion, noninterference in each other’s internal affairs, equality and mutual
benefit, and peaceful coexistence; to oppose imperialist policies of aggres-
sion and wars; and to oppose the power politics and hegemony of the super-
powers. This is a Marxist line. It is consistent with the basic interests of our
people and also with those of the world’s people.
The external economic relations of the socialist state are components of
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Fundamentals of Political Economy
the external relations of the socialist state. These relations must be conduct-
ed under the guidance of the revolutionary diplomatic line. Therefore, in its
handling of external economic relations, the first thing the socialist state al-
ways does is actively develop relations of friendship and cooperation among
the socialist countries and between the socialist countries and the nationalist
countries. It handles international economic relations on the basis of the five
principles of peaceful coexistence. Whatever the form of economic aid, the
sovereignty of the recipient countries must be strictly respected. No strings
should be attached, no privileges should be requested. It must be genuine
assistance to the recipient countries for their development of independent
national economies. International trade should be developed on the basis of
equality and mutual benefit. Economic development should be promoted on
a mutual basis, according to mutual needs and possibilities and with mutual
respect for each other’s sovereignty and aspirations.
In Handling External Economic Relations We Must Treat
Each Case Distinctively according to the Particular Situation
In handling external economic relations, the socialist state must treat
each case distinctively according to the social system of each country.
The relations among the socialist countries are the newest international
relations in human history. The socialist countries use Marxism and interna-
tionalism as their common ideological basis. They adopt proletarian dicta-
torship as their common economic basis and regard the building of socialism
and the realization of the great ideal of communism as their common goal of
struggle. Chairman Mao pointed out: “Since the beginning of history no re-
lations between countries have resembled those between the socialist states,
which share their ups and downs, trust and respect each other, and assist and
support each other. This is because the socialist state is a new form of state.
It is a state which has overthrown the exploitative class and in which the
laboring people are in power. In the interrelations among these states, the
principle of unifying internationalism and nationalism is realized. Common
interests and common ideals have bound us closely together.” (l)
The firm adherence to the principle of proletarian internationalism and
the mutual economic assistance and support among the socialist states have
immense significance in accelerating the building of socialism and in in-
creasing the strength to oppose imperialism and social imperialism in vari-
ous countries.
Although the social systems of the socialist states and the nationalist
states may differ, they have both suffered imperialist aggression. They have
a common desire to protect national independence and to oppose the imperi-
alist policy of aggression and wars and the hegemony of the superpowers.
Therefore, the socialist states and the nationalist states can establish and de-
velop relations of friendship and cooperation under the banner of opposition
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 22. Mutual Aid and Exchange
to imperialism and to new and old colonialism and on the basis of the five
principles of peaceful coexistence. The aid provided by the socialist states to
assist the nationalist states of Asia, Africa, and Latin America in developing
their national economies is instrumental in opposing the two superpowers
and their lackeys, protecting the national independence and sovereignty of
various countries, and promoting the progressive enterprise of mankind.
“As for the imperialist countries, we should unite with their peoples and
strive to coexist peacefully with those countries, do business with them and
prevent any possible war, but under no circumstances should we harbor any
unrealistic notions about them.” (2) Only by firmly adhering to independ-
ence and self-reliance and unfolding an acute struggle with them can these
countries be forced to agree within a certain time period to the establishment
of some degree of peaceful coexistence and the development of trade and the
organization of associations and exchanges among the people.
The Essence of Soviet Revisionist External Economic Relations
Is Overseas Aggression and Expansion
Lenin pointed out: “World hegemony is the content of imperialist poli-
cy.” (3) To conceal its criminal intention of fighting for world hegemony,
Soviet revisionist social imperialism always hides under the cloak of “social-
ism” in its external economic relations. It is, therefore, even more deceitful
and dangerous than standard imperialism. Stripped of its cloak, what stands
before the people is a ferocious devil.
The main external economic activity of Soviet revisionism is the sale of
armaments. These are the most profitable transactions. From its entrance
into the world arms market in 1955 until 1972, its accumulated sales of arms
amounted to $28.5 billion. In the beginning of the 1970s, arms sales by So-
viet revisionism represented 37.5 percent of the world arms sales. It had sur-
passed the United States and had become one of the world’s biggest arms
dealers. Especially in recent years, Soviet revisionism has stepped up its ex-
pansion of arms transactions to obtain windfall profits. They are a bunch of
old hands at fishing in troubled waters and making war profits. During the
Middle East War, the arms sold by Soviet revisionism to the Arab countries
were priced very high. They had to be paid for in liquid foreign exchanges.
In order to buy some arms to protect themselves against Israeli aggression,
some countries had to borrow dollars in the Western money market to pay
these Soviet revisionist arms dealers. Call, a periodical published by Asian
and African writers, put it nicely: “Through their own prolonged and painful
experience, the Arab people finally realize this fact: Soviet social imperial-
ism is an enemy disguised as a ‘friend.’ This type of enemy is even more
dangerous than an open enemy.”
The foreign trade and so-called economic aid of Soviet revisionism are
also tools for aggression and expansion used by the new czars. They not on-
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Fundamentals of Political Economy
ly resort to such shameful practices as buying cheap and selling dear, substi-
tuting inferior goods for regular goods, pushing unsalable goods, and all
sorts of manipulation and speculation, but also adopt coercive measures to
force other countries to trade only with them. When some “fraternal coun-
tries” want to free themselves from the control of Soviet revisionism and
trade with the Western countries, Soviet revisionism resorts to threats. In
September 1972, an attaché in the Soviet revisionist embassy in Czechoslo-
vakia was ordered to publish a public speech in the Freedom Daily [Tzuyu
pao]. He assailed “some (Czech) plants and enterprises” for “often buying
some products from the West” and for “only exploring possibilities for the
import of machines and equipment from the capitalist countries.” He said
threateningly, “We hope our partners in the socialist states understand that if
their domestic markets are not open to the machines and equipment of the
Soviet Union, then the Soviet Union will not be able to develop further our
economic relations because our supply capacity of fuels and raw materials is
limited.” This is the countenance of a rascal. However, from 1964 to 1971,
Soviet revisionism’s imports from eleven Western countries increased by
more than 61 percent, of which the majority were machines and equipment.
This is simply a case of “only the state governor can set fires while the peo-
ple are not allowed even to light their lamps.” This is the “partnership” that
Soviet revisionism wants to establish.
In its external economic relations, Soviet revisionism says all the nice
things and does all the bad things. No matter how smooth their talk is and
how attractive their outer garments look, the results of their external aggres-
sion and expansion can only meet ever greater resistance from the people of
the various countries subject to their control, enslavement, and exploitation.
The external aggression and plunder of Soviet revisionist social imperialism
are like taking up a rock to hit one’s own feet. They will only hasten its end.

External Economic Aid Given by the Socialist State Is

an Internationalist Obligation
The Revolutionary Struggle of the People of the World Is
Mutually Supporting and Mutually Assisting
The proletarian revolutionary enterprise has always been an internation-
al enterprise. The revolutionary struggles of the proletariat in various coun-
tries are components of the proletarian world revolution.
A country’s victory in its socialist revolution and socialist construction
cannot be separated from the support provided by the proletariat and the
revolutionary peoples of the whole world. In our revolutionary struggle and
in our socialist revolution and socialist construction, our people have been
consistently supported and assisted by the proletariat and revolutionary peo-

342
 22. Mutual Aid and Exchange
ple of the world. Chairman Mao pointed out, “Without the various forms of
aid from the international revolutionary forces, it would not be possible to
achieve victory; nor would it be possible to consolidate after the victory.”
The proletariat must liberate not only itself, but also the whole of man-
kind. If the whole of mankind cannot be liberated, the proletariat itself can-
not be ultimately liberated either. Therefore, those countries in which the
proletariat has already seized power should not only support the just strug-
gles of the proletariat, the oppressed peoples, and the oppressed nations of
the whole world politically and morally, but should also assist them with
material aid. This is an internationalist obligation that should be fulfilled by
every socialist country.
Whether or not the proletarian internationalist principle is firmly upheld
and whether or not the proletarian internationalist obligation is fulfilled have
always been a focal point in the struggles between Marxism and revisionism.
All revisionists oppose proletarian internationalism. What they worship are
bourgeois chauvinism and national self-interest. In the resolute struggles
with the renegades of the Second International, Lenin defended and devel-
oped the proletarian internationalist principle. He pointed out, “Proletarian
internationalism requires that: first, the interests of the proletarian struggle of
one country must be subordinate to the interests of the proletarian struggle of
the world, and second, the nation which has defeated the bourgeoisie must
make the greatest national sacrifice with power and determination for the
overthrow of international capitalists.” (5) In his struggle with modern revi-
sionism and with the revisionist line of “making peace with isms and reduc-
ing aid to international revolutionary struggles” (6) advocated by the Liu
Shao-ch’i and Lin Piao clique, Chairman Mao repeatedly educated the whole
Party and the people of the whole country with the proletarian international-
ist spirit. Chairman Mao said: “People who have attained victory in their
revolution should assist the people who are struggling for liberation. This is
our internationalist obligation.” (7) We must follow Chairman Mao’s teach-
ing, resolutely support the just struggles of the peoples of the world, and
honestly fulfill our internationalist obligation.
Only the Socialist State Provides Genuine Foreign Economic
Aid
Under the guidance of the principle of proletarian internationalism, the
economic relations among the socialist states are relations of mutual aid.
They provide aid to one another, strictly respect the sovereignty of the recip-
ient countries, attach no strings, and do not ask for privileges. They genuine-
ly help the recipient country to rely on the strength of its own people, exploit
its national resources and potential, gradually establish and develop an inde-
pendent socialist economic system according to its own characteristics, and
advance hand in hand on the socialist road.
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Fundamentals of Political Economy
At the same time, the socialist state also tries to develop economic rela-
tions with the nationalist states according to the principle of proletarian in-
ternationalism. As a result of a prolonged period of colonial rule, a lopsided
“monocultural economy” has been established in the nationalist countries.
Based on the concrete conditions of these countries, the socialist country
first of all does its best to help them develop a diversified agriculture which
aims at satisfying domestic needs, gradually altering their dependence on
imports of major agricultural products and making their national economies
develop healthily on the basis of gradually strengthening agriculture.
The socialist state also helps the nationalist countries establish the light
industry necessary to free them from dependence on imports of the necessi-
ties for people’s livelihood.
The socialist state also helps the nationalist countries use their own re-
sources to establish integrated industrial branches for everything from raw
materials to finished goods (including heavy industrial branches) and active-
ly helps these countries to advance on the road of independence and self-
reliance by gradually sweeping away the economic aggression of imperial-
ism and new or old colonialism.
In sum, foreign economic aid by the socialist state is an important factor
in coordinating the international political struggle. It stands up against the
strong and assists the weak, strengthens the world revolutionary forces, and
opposes the policy of aggression and war adopted by the imperialists and
social imperialists.
Based on the doctrine of proletarian internationalism, the Chinese gov-
ernment announced in 1964 and later repeatedly affirmed eight principles for
China’s foreign economic aid:
1. Provide foreign aid according to the principle of equality and mutual
benefit. Do not regard aid as a one-way gift. Regard aid as mutual assis-
tance.
2. In providing foreign aid, strictly respect the sovereignty of the recipi-
ent country. Attach no strings and ask for no privileges.
3. Provide economic aid without interest or at low interests. When nec-
essary, lengthen the period of loan repayment to lessen the burden on the
recipient country.
4. The purpose of aid is not to create the recipient country’s dependence
on China but to help it to advance on the road of self-reliance and independ-
ent economic development.
5. Projects chosen for aid in the recipient country should require low in-
vestment and short gestation so that the aid recipient country can increase its
income and accumulation.
6. Provide the best possible equipment and raw materials we produce
and negotiate prices according to the international market conditions. If the
equipment and raw materials provided do not meet the agreed specifications
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 22. Mutual Aid and Exchange
and quality, their return is guaranteed.
7. In providing any form of technical aid, guarantee that the personnel of
the recipient country will fully master this technical know-how.
8. Experts sent to the recipient country to help with construction should
receive the same material treatment as the experts of the recipient country.
No special requirements or treatment are allowed.
The above eight principles for foreign aid announced by our government
are the concrete embodiment of Chairman Mao’s proletarian revolutionary
diplomatic line in foreign aid work. They are also a summary of the practical
experience of China’s foreign aid work.
Since the founding of the People’s Republic, China has been pursuing
the above eight principles for foreign economic aid. According to the needs
of friendly countries, entire construction projects and general material re-
sources have been provided and have been well received by the peoples of
recipient countries in Asia, Africa, and Latin America. Take the example of
the Tanzania-Zambia Railway currently under construction. It starts from
Dar es Salaam, the capital of Tanzania, and heads west across the wide
plains of Tanzania and Zambia to Kapiri M’poshi in Zambia, connecting
with Lusaka, the capital. The total length is about 2,000 kilometers. Along
this railway are high mountains, deep gorges, rivers, and swamps. The ter-
rain is treacherous, the project huge, the investment high, and the difficulty
immense. But it plays a vital role in developing the national economies of
Tanzania and Zambia. In its construction, the workers and technicians of
Tanzania, Zambia, and China share their joys and tribulations, fight together,
and are establishing a deep and sincere friendship. The peoples of Tanzania
and Zambia fondly call this railway under construction “the road of friend-
ship.”
Soon after the People’s Republic was founded, the Chinese people be-
gan to discharge their obligation with regard to foreign economic aid. With
the development of China’s economic construction and the increase in our
economic strength, the size and scope of our foreign aid have gradually ex-
panded. But, China is still a developing socialist state. The support provided
to the peoples of various countries by China is mainly political and moral.
The economic aid that can be provided by us is extremely limited. With the
vigorous development of China’s socialist revolution and socialist construc-
tion, it is certain that we will be able to reduce this inadequacy and contrib-
ute more to the progressive enterprise of mankind.

Actively Develop the Socialist State’s Foreign Trade

There Are New Characteristics in the Foreign Trade of the
Socialist State
Foreign trade belongs to the category of commodity circulation. It is

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Fundamentals of Political Economy
commodity exchange between two countries. Differences in social systems
also lead to differences in the nature of foreign trade. Under the capitalist
system, foreign trade has always served as a means to augment capital. In
the imperialist period, commodity export was closely related to capital ex-
port. Foreign trade became an important means by which the monopoly
capitalist clique launched economic aggression, seizing high monopoly prof-
its and competing for world hegemony.
The Chinese people are deeply familiar with imperialist economic ag-
gression and plunder. In the more than one hundred years between the Opi-
um War of 1840 and the founding of a new China in 1949, the imperialist
countries, by forcing the unequal treaties on the Chinese people, seized a
series of privileges such as dumping commodities and export capital in Chi-
na. They colluded with Chinese bureaucratic capital, represented by the four
clans of Chiang, Sung, Kung, and Ch’en, to engage in cruel exploitation and
plundering, buying cheap agricultural and subsidiary products and mineral
ores and selling expensive industrial products. Consequently, the foreign
trade of old China was an important channel through which the blood and
sweat of the Chinese people were sucked by imperialism and its lackeys.
The foreign trade of the socialist state is completely different from the
foreign trade of imperialist and social-imperialist countries. It is a new form
of foreign trade. The foreign trade of the socialist country is built on the ba-
sis of socialist public ownership of the means of production. The develop-
ment of foreign trade in countries under proletarian dictatorship is favorable
to accelerating socialist revolution and socialist construction and to support-
ing world revolution.
The foreign trade of the socialist state has the following characteristics:
First, the foreign trade of the socialist state is an independent foreign
trade controlled by a state under proletarian dictatorship.
The state under proletarian dictatorship, in order to facilitate the build-
ing of socialism and defend national independence, must exercise state con-
trol over foreign trade. Chairman Mao pointed out on the eve of national
liberation that “the recovery and development of the national economy of the
People’s Republic will not be possible without a policy of control over for-
eign trade.” (8) After liberation, the Chinese government implemented
Chairman Mao’s revolutionary policy, expelled imperialist economic ag-
gression, annulled the privileges enjoyed by imperialism in China, got back
control over the customs administration, and terminated the control of for-
eign merchants over China’s foreign trade. At the same time, the Chinese
government confiscated the foreign trade business of bureaucratic capital,
gradually transformed the import and export business of medium and petty
capitalists, and fundamentally transformed the semicolonial nature of the
foreign trade of old China. The foreign trade of China has become an inde-
pendent foreign trade controlled by a state under proletarian dictatorship.
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 22. Mutual Aid and Exchange
State control over foreign trade plays an important role in guaranteeing
the political and economic independence of China, defending China from
imperialist economic aggression, minimizing the effects of economic crises
from the capitalist world, and accelerating the pace of China’s socialist con-
struction through normal commercial exchanges with many countries of the
world on the basis of equality and mutual benefit.
Second, the foreign trade of the socialist state is a foreign trade of equal-
ity and mutual benefit under the guidance of Marxism.
The foreign trade of the socialist state is an important aspect of the for-
eign activities of the socialist state. In its foreign trade relations, the socialist
state thoroughly implements the principle of equality and mutual benefit and
the principle of exchanging what one has for what one does not have, re-
quires mutual respect for each other’s sovereignty and aspirations, matches
each other’s needs and possibilities, and makes all efforts to maintain fair
and reasonable prices.
Chairman Mao pointed out: “We must endeavor to do business first with
the socialist countries and the people’s democratic countries as well as with
the capitalist countries.” (9) We must carry on planned commercial ex-
changes among the socialist countries under the guidance of the principle of
proletarian internationalism and according to the spirit of active cooperation
and no nonsense. We must also continuously expand trade and mutual ex-
changes with the countries of the Third World whenever necessary and pos-
sible in order to promote the common development of our national econo-
mies on the basis of self-reliance. We support the developing countries in
improving the terms of trade for their raw materials, primary products, and
finished products and in setting fair and profitable prices. We support them
in establishing organizations among raw materials-exporting countries and
in carrying on a united struggle against colonialism, imperialism, and he-
gemony. We must also develop commercial exchanges with the capitalist
countries according to needs, possibilities, and conditions. Chairman Mao
pointed out: “The people who prevent us from trading with foreign countries
and establishing diplomatic relations with foreign countries are none other
than the imperialists and their lackeys, the Chiang Kai-shek reactionaries.
Once we invite all domestic and international forces to smash the internal
and external reactionary clique, we can then do business, and we can estab-
lish diplomatic relations with all countries on the basis of equality, mutual
benefit, and respect for each other’s territorial integrity.” (10) Therefore, we
must soberly realize that commercial exchanges with the imperialist and
social imperialist countries are fraught with struggles.
In the world market and in commercial exchanges with the capitalist
countries, the socialist state must fight for fair and reasonable prices for im-
ports and exports. This is a class struggle between the proletariat and the
bourgeoisie in the international economic arena. The domestic market of the
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Fundamentals of Political Economy
socialist state is different from the foreign capitalist market. Prices of export
commodities should be flexibly determined according to the needs of diplo-
matic policy and changes in the international market. Only in this way can
the export commodities of the socialist state be sold at suitable prices. On
the issue of prices, we oppose confusing the two types of markets which are
different in nature, by transferring price oscillations from foreign to domes-
tic market and thereby affecting price stability in the domestic market; or by
applying stable price policy of domestic market to foreign market, thereby
inflicting unnecessary losses on the wealth created by our working people.
Third, the foreign trade of the socialist state is planned, centralized for-
eign trade under state management.
Centralized leadership and a unified external policy are the basic princi-
ples of the socialist state’s foreign trade. Firm adherence to the principles of
centralized leadership and unified external policy means that, according to
the varieties of commodity, we must make rational division of labor and
management, and bring into play both central and local activism on the basis
of “unified understanding, unified policy, centralized planning, centralized
command, and unified action.”
A planned and centralized foreign trade is a manifestation of the superi-
ority of the socialist system over the capitalist system. The private owner-
ship system and the chaotic production conditions of capitalism determine
the blind and competitive nature of capitalist foreign trade. The planned and
proportional development of the socialist national economy objectively re-
quires that foreign trade must be planned and must be conducted according
to the state’s import and export needs and capabilities and according to the
national economic plan formulated by the state. The foreign trade of the so-
cialist state grows with the development of the national economy. It also
actively promotes the development of the whole national economy.
Develop Foreign Trade on the Basis of Independence and Self-
Reliance
The foreign trade of the socialist state plays an active role in the devel-
opment of the socialist economy. However, a rapid, planned, and propor-
tional development of the socialist economy does not depend on the foreign
market, but on the superiority of the socialist system and the planned econ-
omy and on the diligent struggle of the laboring people in the country. Inde-
pendence and self-reliance constitute a basic policy of the socialist state in
conducting economic construction. It is also a policy that must be strictly
followed in foreign trade.
To develop foreign trade on the basis of independence and self-reliance
requires a correct understanding and handling of the relationship between
production and foreign trade. The relationship between foreign trade and
production is one between circulation and production. The development of
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 22. Mutual Aid and Exchange
socialist production is the material basis of the expansion of foreign trade.
Since the relationship between foreign trade and production is one between
circulation and production, only by greatly promoting the development of
industrial and agricultural production can there be adequate supplies of ex-
ports and can there be more imports of needed materials. The internal link-
age between circulation and production requires the foreign trade branches
to go deep down to the forefront of industrial and agricultural production, be
concerned with production, and promote production. They must strengthen
investigation and research on foreign markets, actively introduce new for-
eign technology, new samples, new equipment and superior varieties to the
production units, and raise new production problems in order to establish a
mutually supporting and promoting relation.
To develop foreign trade on the basis of independence and self-reliance
also requires a correct understanding and handling of the relationship be-
tween domestic trade and foreign trade. Foreign trade and domestic trade
both belong to the circulation sphere. Their basic goals are identical, namely,
to satisfy the needs of the socialist state and the people. Of course, there are
also some contradictions based on the identical goals. For example, although
there has been substantial development in China’s industry, there are often
contradictions in the allocation of goods between domestic trade and foreign
trade because of the excess of demand over supply due to the weakness of
the original foundation. To increase exports requires a corresponding reduc-
tion in the supply to domestic trade. However, the needed means of produc-
tion that can be purchased as a result of exports help increase accumulation
and expand reproduction. Therefore, this is really a contradiction between
accumulation and consumption and between long-term interests and short-
term interests. The correct handling of the relationship between domestic
and foreign trade must start from the needs of national construction and the
people’s livelihood and must be based on the domestic market. At the same
time, the importance of foreign markets should not be overlooked and must
be taken into account through suitable arrangements. All commodities that
vitally affect the national economy and the people’s livelihood must first be
used to satisfy domestic needs, and their exports should be controlled ac-
cording to the state plan. The domestic trade in commodities which are only
marginally related to the people’s livelihood should be suitably reduced, and
their exports increased. Some commodities are quite dispensable for the
people’s livelihood, and they should be exported as much as possible. There
are other commodities which are valueless if discarded but valuable if col-
lected. Their supplies should be expanded for exports.
The traitor clique of Liu Shao-ch’i and Lin Piao strongly advocated put-
ting “foreign exchange in command” on the foreign trade battlefront in a
vain attempt to basically transform the political orientation of the foreign
trade of the socialist state and to convert China into an economic satellite of
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Fundamentals of Political Economy
imperialism. This is the road that the socialist state will never follow.
Fully Exercise the Active Role of the Socialist State’s Foreign
Trade
The foreign trade of the socialist state is a component of the socialist
economy. It is also a tool for foreign contacts. To develop foreign trade in a
planned manner and to exercise fully its active role helps strengthen our own
country’s capacity for self-reliance, thereby accelerating socialist construc-
tion, and helps strengthen the friendship among the people of various coun-
tries, thereby promoting the world revolution.
As a matter of fact, there is no single country in the world that can pro-
duce all it desires. On the basis of a firm adherence to the policy of inde-
pendence and self-reliance in developing the socialist economy, the socialist
state can and should use foreign trade as a means to regulate the proportional
relations in socialist expanded reproduction. Through foreign trade, certain
badly needed materials can be imported to make up for temporary shortages
of certain products and materials resulting from production conditions and
natural conditions. Through foreign trade, some advanced technology can be
introduced to serve as a model for catching up, thereby facilitating technical
innovation in industrial and agricultural production.
To develop foreign trade in a planned way helps accelerate socialist
construction. However, we cannot therefore give up the policy of independ-
ence and self-reliance. A handful of traitors, from Tseng Kuo-fan and Li
Hung-chang in the Ch’ing dynasty to Liu Shao-ch’i and Lin Piao in the con-
temporary period, were all advocates of a slavish attitude toward foreign
things. They always criticized the inadequacies of China’s proletariat and
laboring people. Only the Western bourgeoisie made the grade. In foreign
trade, they always advocated a total dependence on imports. “Even the moon
is rounder overseas.” China’s laboring people are diligent, courageous, and
intelligent. Since liberation, China’s laboring people have become masters of
the socialist state, and their intelligence and talent have exploded forth all
the more. Whatever the Western bourgeoisie can do, the Chinese proletariat,
too, can do. Even what the Western bourgeoisie cannot do, the Chinese pro-
letariat can do. The vain attempt of the anti-Party clique of Lin Piao to de-
pend on Soviet revisionist social imperialism by way of surrender and be-
trayal merely reflected the degenerate spiritual state of the exploitative class
in China. In the sphere of foreign trade, China’s proletariat consistently ad-
heres to Chairman Mao’s policy of independence and self-reliance, continu-
ously criticizes the counterrevolutionary revisionist line of Liu Shao-ch’i and
Lin Piao which worships things foreign and adopts a slavish attitude toward
foreign things. “We should never tie the fate of socialist construction to the
waist of another person!” This is the answer from the broad masses of work-
ers.
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 22. Mutual Aid and Exchange
The development of trade relations among the socialist countries on the
basis of equality and mutual benefit can promote a rapid development of
each other’s economy and continuously strengthen the anti-imperialist and
anti-revisionist forces. The trade contacts between the socialist states and the
nationalist states help develop independent national economies and oppose
the policy of aggressive expansion of the two superpowers, the United States
and the Soviet Union. The trade contacts between the socialist states and the
capitalist states help expand the international anti-imperialist united front
and oppose the struggle for hegemony between the two superpowers, the
United States and the Soviet Union. Therefore, the foreign trade of the so-
cialist state is also a means of thoroughly implementing the proletarian dip-
lomatic line.
Since the founding of the People’s Republic, under the guidance of
Chairman Mao’s revolutionary line, China’s foreign trade has promoted the
development of industrial and agricultural production, expanded China’s
external influence, and supported the world revolution. Great achievements
have been made. From now on, any further development of foreign trade
will help us better implement proletarian internationalism, accelerate domes-
tic socialist construction, and better support the world revolution.
Major Study References
Marx, “A Speech on Free Trade,” Selected Works of Marx and Engels.
Vol. 1.
Lenin, “A Draft Outline on the Issue of Nations and Colonies.”
Lenin, “On the Monopoly System of Foreign Trade,” Complete Works
of Lenin. Vol. 33.
Chairman Mao, “Report to the Second Plenum of the Seventh Central
Committee of the Chinese Communist Party.”
Review Problems
1. Why must the external economic relations of the socialist state be
subordinate to the proletarian revolutionary diplomatic line? What is the
reactionary nature of Soviet revisionist external economic relations?
2. Why do we say that the foreign economic aid of the socialist state
must fulfill the internationalist obligation?
3. What are the characteristics of the socialist state’s foreign trade?
Notes
* Hsiang-hu yuan-chu, hu-t’ung yu-wu — she-hui-chu-i kuochia ti tui-
wai ching-chi kuan-hsi.
1) Jen-min jih-pao [People’s Daily], November 7,1957.
2) “On the Correct Handling of Contradictions among the People,” Se-

351
Fundamentals of Political Economy
lected Readings from the Works of Mao Tse-tung. Part 1, Jen-min ch’u-pan-
she, 1965, pp. 363-64.
3) “On the Ridicule of Marxism and ‘Imperialist Economism,”’ Com-
plete Works of Lenin. Vol. 23, p. 26.
4) “On the People’s Democratic Dictatorship,” Selected Works of Mao
Tse-tung. Vol. 4, Jen-min ch’u-pan-she, 1968, pp. 1362-1363.
5) “A Draft Outline on the Issue of Nations and Colonies,” Selected
Works of Lenin. Vol. 4, Jen-min ch’u-pan-she, 1972, p. 274.
6) Namely, “peace” with imperialism, modern revisionism, and the reac-
tionaries of various countries and “less” aid to the just struggles of the revo-
lutionary peoples of various countries.
7) Quoted from Jen-min jih-pao [People’s Daily], August 9,1963.
8) “Report to the Second Plenum of the Seventh Central Committee of
the Chinese Communist Party,” Selected Works of Mao Tse-tung. Vol. 4,
Jen-min ch’u-pan-she, 1968, p. 1323.
9) Ibid., p. 1325.
10) “On the People’s Democratic Dictatorship,” Selected Works of Mao
Tse-tung. Vol. 4, Jen-min ch’u-pan-she, 1968, p. 1362.

352
23. Communism Must Be Realized
From the Socialist Society to the Communist Society*
Like all other historical production relations, socialist production rela-
tions undergo a process of emergence, development, and extinction. After a
long period of movement, socialist production relations must necessarily be
transformed into communist production relations. Communism is the highest
ideal of the proletariat and the millions of laboring people. It is the most per-
fect, most progressive, most revolutionary, and most rational social system.
It is a natural tendency in human social development. It is the ultimate goal
of proletarian revolution. Chairman Mao pointed out: “The ultimate goal of
all Communists is to fight for the final attainment of socialist society and
communist society.” (1) Every revolutionary warrior should struggle for
communism all his life.

Communism Is Irresistible
Socialist Society Is a Necessary Stage on the Way to
Communist Society
Lenin pointed out, “The only thing mankind can do is to make the tran-
sition directly from capitalism to socialism, namely, to make the transition to
the public ownership of the means of production and to distribution accord-
ing to labor.” (2) In socialist society, public ownership of the means of pro-
duction has been established, the laboring people have become masters of
society and enterprises, and Marxism has become the guiding thought of
society. In these respects, socialist society possesses elements of com-
munism. However, socialist society is merely the first stage of communist
society. It is still an incomplete communist society. In socialist society, the
bourgeoisie and all exploitative classes have been overthrown, but the influ-
ence of these classes on the economy, politics, and ideology will still exist
for a long time to come. Disparities between the worker and the peasant,
between the urban and the rural areas, and between mental and physical la-
bor left behind by the old society and remnants of bourgeois legal rights re-
flecting these disparities will exist for a long time. In these respects, socialist
society is different from communist society.
The historical task of the proletariat in the socialist period is to continu-
ously sweep away capitalist elements and remnants in the production rela-
tions and the superstructure, thoroughly defeat the bourgeoisie, eliminate all
classes and class differences, eliminate all production relations based on
these differences, eliminate all social relations corresponding with such pro-
duction relations, change all concepts derived from these social relations,
and push socialist society toward a higher and more perfect communist soci-

353
Fundamentals of Political Economy
ety. Therefore, socialist society becomes the necessary preparation for com-
munist society, and communist society is, in turn, a natural tendency in the
development of socialist society.
Then, what is a complete communist society?
Communist Society Is the Most Complete, Most Progressive,
Most Revolutionary, and Most Rational Society
There is a precise content to scientific communism. According to Marx-
ism-Leninism-Mao Tse-tung Thought, communist society is a society that
has completely eliminated classes and class disparities. It is a society in
which the whole people possess a high degree of communist ideological
consciousness and moral standards. It is a society in which the whole people
possess a high degree of labor activism and initiative. It is a society in which
the social product is abundant. It is a society in which the principle of “from
each according to his ability and to each according to his need” is adopted. It
is a society in which the state will wither away.
Marx pointed out: “In a higher phase of communist society, after the en-
slaving subordination of the individual to the division of labor, and therewith
also the antithesis between mental and physical labor, has vanished; after
labor has become not only a means of life but life’s prime want; after the
productive forces have also increased with the all-round development of the
individual, and all the springs of cooperative wealth flow more abundantly
— only then can the narrow horizon of bourgeois right be crossed in its en-
tirety and society inscribe on its banners: “From each according to his abil-
ity, to each according to his need!”(3)
According to the Marxist theory of scientific communism, the realiza-
tion of communist society requires the creation of the following conditions.
First, the thorough elimination of all classes and class disparities, in-
cluding the natural disparities between the worker and the peasant, between
the urban and the rural areas, between mental and physical labor, and bour-
geois legal rights reflecting these disparities. In communist society, the basis
for capitalist restoration will have been thoroughly eliminated. At that time,
Chairman Mao’s “May 7 Directive” will be fully realized. The whole people
will become completely developed new communists. People will conscious-
ly grasp the objective law of social development and propel communist soci-
ety continuously forward. Of course, the elimination of classes and class
disparities does not mean that there will be no contradictions and no strug-
gles in communist society. At that time, there will still be contradictions be-
tween the superstructure and the economic substructure and between the
production relations and the productive forces, and there will be struggles
between the advanced and the backward and between correct and erroneous
lines. Therefore, even in communist society, it will still be necessary to con-
tinue revolution.
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 23. Communism Must Be Realized
Second, the realization of a single communist system of ownership over
the means of production by the whole people. In communist society, the
communist system of ownership by the whole people will become the only
economic substructure. The most advanced communist production relations,
which are based on this ownership system, will guarantee that the productive
forces will develop at the fastest rate in order to increase labor productivity
at an ever-increasing pace. In order to realize communist ownership by the
whole people, it is necessary to create the conditions in the socialist stage,
gradually elevating socialist collective ownership to socialist state ownership
and then from socialist state ownership to communist ownership by the
whole people. The people’s commune created by the Chinese people is a
suitable organizational form for facilitating this transition.
Third, the creation of a very abundant social product. When communist
society is achieved, the social productive forces will have developed to a
new level. People’s ability to conquer Nature will be tens of thousands of
times higher than it is now. At that time, people will fully utilize all natural
resources to serve human society and will create a very abundant social
product to satisfy the needs of the whole society and all the laborers. At that
time, commodity production will have stopped. Commodities and money,
which are in the domain of the commodity economy, will finally be retired
from the historical stage and transferred to the museum of history. In com-
munist society, the level of development of the social productive forces can-
not be compared with the present level of development of the contemporary
productive forces. Therefore, if we are enthusiastic about the communist
enterprise, we should be enthusiastic about the development of the social
productive forces.
Fourth, the cultivation of a high degree of communist ideological con-
sciousness and moral standards among the whole people. Communist society
will thoroughly sweep away bourgeois thought and all concepts of self-
interest. The whole people will consciously transform both themselves and
the world with Marxism-Leninism-Mao Tse-tung Thought. The whole world
will assume a completely new appearance, and the new thought, new cul-
ture, new customs, and new habits of the proletariat will become common
practice. Just as Chairman Mao pointed out, “When the world has reached a
point at which the whole of mankind all consciously transforms itself and
the world, then it is the communist era of the world.” (4) Of course, even at
that time, there will still be contradictions between the advanced and the
backward, between the correct and the erroneous, and between materialism
and idealism, and struggle among people. But the nature and form of the
struggle will be different from those of the class society.
Fifth, the adoption of the principle of “from each according to his ability
and to each according to his need.” When communist society is achieved,
because the means of production will all have been brought under a single
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Fundamentals of Political Economy
communist system of ownership by the whole people and because the social
product will be very abundant and people’s ideological consciousness will
have been greatly elevated, the distribution of personal consumer goods will
no longer be determined by people’s labor contribution to society but by
their needs. Since the essential difference between mental and physical labor
will be eliminated by then, every member of society will be able to exercise
fully his physical and mental capacity in labor. This will inevitably lead to a
profound change in the nature of labor. Labor will no longer be merely a
means to earn a living, but will also be the primary necessity of people’s
lives. At that time, people’s labor will no longer be for the purpose of getting
certain remuneration, but will be conscious labor without remuneration and
an important means of consciously transforming the subjective and objective
world.
Sixth, the state will automatically wither away. With a thorough extinc-
tion of imperialism, capitalism, and exploitative systems throughout the
whole world and with the extinction of classes and class disparities, the state
as a means of class struggle will naturally disappear. Chairman Mao pointed
out: “When classes disappear, all means of class struggle, parties, and state
machinery will gradually wither away as their historical missions are com-
pleted because they no longer have any function to perform and there is no
longer any need for them. Human society will advance to a higher level.” (5)
Chairman Mao instructed us a long time ago: “Communism is a whole
ideological system of the proletariat and is also a new social system. This
ideological and social system is different from any other ideological system
and any other social system. It is the most complete, most progressive, most
revolutionary, and most rational system since the beginning of human histo-
ry.” (6) Communist society is a society of boundless brilliance and bound-
less beauty. It is the most ideal society of mankind.
Pseudo-communism Is Genuine Capitalism
“The theoretical triumph of Marxism forces its enemies to disguise
themselves as Marxists. Such is the dialectics of history.” (7) The Soviet
revisionist renegade clique and swindlers like Liu Shao-ch’i and Lin Piao are
contemporary pseudo-Marxists. They use the label “communism” to engage
in capitalist restoration.
The pseudo-communism of the Soviet revisionist renegade clique is a
typical representative of all sorts of contemporary pseudo-communism. They
start from such reactionary positions as “productivity first” and “human na-
ture” and foolishly say that “communism is the most humane and benevolent
ideological system,” is “all for the people and all for people’s happiness,”
and is a good dish of “beef with beans.” They never mention the thorough
extinction of all classes, class disparities, and the bourgeois legal rights re-
flecting these disparities. They completely empty the revolutionary content
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 23. Communism Must Be Realized
of scientific communism. This brand of communism is not only false, but
also very reactionary. This is “communism” centered on the decaying bour-
geois outlook. This is “communism” modeled on the bourgeois life style.
This is pseudo-communism and genuine capitalism.
In China, the Lin Piao clique of renegades also strove to advocate pseu-
do-communism. They foolishly said that communism was “public property-
ism,” that “‘property’ is the word to be stressed on the banner,” and that
communism was to make “everyone rich.” The renegade clique never talked
about eliminating the landlord and the bourgeoisie; all they cared about were
the words “public” and “property.” What class’s “public” was it? What
class’s “property” was it? It is obvious. Their so-called “public” was what
Confucius and his kind advocated: “When the great Tao prevails in the
world, a public spirit will rule all under Heaven.” Hence, it was the slave
owner’s “public,” the landlord’s “public,” and the bourgeoisie’s “public”.
The so-called “property” was the slave owner’s “property,” the landlord’s
“property,” and the bourgeoisie’s “property.” Getting rich could only mean
that the handful of exploitative classes would become millionaires. Had the
renegades succeeded in carrying out their conspiracies, the proletariat and
the broad masses of laborers would have once again lost all the means of
production and would once again have been reduced to slaves in the abyss of
hardship and suffering. This is what has happened in the Soviet Union. The
Soviet revisionist renegade clique has already expropriated the wealth creat-
ed jointly by the proletariat and the broad masses of laborers. It has become
the “public property” of a handful of bureaucratic monopoly bourgeoisie.
The broad masses of people of the Soviet Union are once again leading the
miserable life of the czarist period and are trapped in an abyss of agony.
Chairman Mao pointed out incisively, “Today’s Soviet Union is a bourgeois
dictatorship, a big bourgeois dictatorship, German fascist dictatorship, and
Hitler-style dictatorship.” (8) Therefore, it is evident that the “public proper-
tyism” advocated by the Lin Piao clique contradicts the scientific com-
munism of Marxism and is the same type of stuff as the pseudo-communism
of Soviet revisionism.
The history of the communist movement clearly shows: communism is
irresistible. No matter how the reactionary tries to obstruct the forward
movement of the wheel of history, communism will finally win a thorough
victory in the whole world.

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The Realization of Communism Is a Profound Social

Revolution
Uphold the Idea That Continuing Revolution under
Proletarian Dictatorship Is the Only Path for Realizing
Communism
In the transformation from socialist society to communist society, the
proletariat must thoroughly defeat the bourgeoisie and its ideology and elim-
inate all classes and class disparities. Therefore, whether in production rela-
tions or in the superstructure, this transformation is a great stride in quality
and is a series of profound social revolutions.
State power under proletarian dictatorship, “to the victorious people, is
as indispensable as cloth and cereals. This is a very good thing, a magic
weapon that protects us, an inherited magic weapon. This magic weapon
should never be discarded before foreign imperialism and domestic classes
have been thoroughly eliminated.” (9) On the basis of the fundamental prin-
ciples of Marxism, Chairman Mao summed up the historical experience of
proletarian dictatorship and put forth the theory of continuing revolution
under proletarian dictatorship. Following the theory of continuing revolution
under proletarian dictatorship requires that we be good at applying the
standpoint, concept, and methodology of Marxism-Leninism-
Mao Tse-tung Thought in observing and analyzing socialist society and
that we adhere to the Party’s General Line for the whole historical stage of
socialism as the key link for further strengthening the proletariat’s total dic-
tatorship over the bourgeoisie in the political, economic, ideological, cultur-
al, and educational spheres. This is the basic guarantee for building social-
ism and making the transition to communism.
Whether or not proletarian dictatorship is firmly upheld and whether or
not continuing revolution under proletarian dictatorship is firmly upheld are
important indicators of whether we are developing toward communism or
retrogressing toward capitalism. The Soviet revisionist renegade clique tries
hard to distort the theory of Marxist scientific communism, claiming that no
revolution, class struggle, or proletarian dictatorship are necessary in the
transition from socialism to communism. They foolishly say that “there are
no antagonistic classes in socialist society. Therefore, the realization of the
transition from socialism to communism does not have to go through social
revolution or class antagonism.” Although this renegade clique also advo-
cates the realization of communism, it is merely a smoke screen to deceive
the people, sabotage proletarian dictatorship, and restore capitalism. It is
through the negation of the basic Marxist theory about the existence of clas-
ses, class contradictions, and class struggle that the Soviet revisionist rene-
gade clique abolishes proletarian dictatorship, ceases continuing revolution

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 23. Communism Must Be Realized
under proletarian dictatorship, mobilizes the bourgeoisie to attack the prole-
tariat, changes proletarian dictatorship into bourgeois dictatorship, and
changes the socialist system into the capitalist system.
Only by adhering to continuing revolution under proletarian dictatorship
can proletarian dictatorship be consolidated, the restoration of capitalism be
prevented, socialism be built, and all the conditions necessary for the realiza-
tion of communism be created. To thoroughly implement continuing revolu-
tion under proletarian dictatorship is a necessary road for realizing com-
munism.
Hold Firmly to Proletarian Internationalism and Support
World Revolution
The era we are in is the era of imperialism and proletarian revolution.
Chairman Mao pointed out, “Since the birth of this monster of imperialism,
things in the world are joined together and can no longer be separated.” (10)
To realize communism, we must thoroughly eliminate imperialism, capital-
ism, and all systems in which man exploits man, so that the whole of man-
kind can be thoroughly liberated. Therefore, the seizure of political power in
one country or several countries and the establishment of a socialist society
by the proletariat do not mean the end of revolution. Only by liberating the
whole of mankind can the proletariat finally liberate itself. This is because
capital is an international force. As long as imperialism, capitalism, and ex-
ploitative systems still exist, imperialism and social imperialism will certain-
ly use the two reactionary methods of armed intervention and peaceful frag-
mentation to oppose the socialist countries. Under these conditions, the so-
cialist state will always face the threats of aggression and sabotage from im-
perialism and social imperialism. Since capital is an international force, the
proletarian enterprise cannot but be an international enterprise. When the
Russian proletariat seized political power in the October Revolution and was
unfolding the socialist revolution and socialist construction, Lenin clearly
and precisely pointed out, “Only by relying on the common efforts of the
workers of various countries and throughout the whole world can there be a
final victory.” (11) In his struggle with Trotsky, Stalin firmly adhered to, and
defended, Leninism. But, the Khrushchev-Brezhnev renegade clique repeat-
edly claimed that in the Soviet Union, “socialism has achieved not only a
complete victory, but a thorough victory.” This is a downright betrayal of
Leninism. Domestically, the purpose of the ridiculous claims of this rene-
gade clique was to overlook the acute struggles between the proletariat and
the bourgeoisie and conceal their conspiracy to restore capitalism internally.
Abroad, it was to spread the illusion that the aggressive nature of imperial-
ism has changed and conceal their ugly countenance in their struggle for
hegemony with the other “superpower.”
Against the distortion and betrayal of Leninism by modern revisionism,
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Fundamentals of Political Economy
Chairman Mao carries on, expounds, and extends Leninism. Chairman Mao
pointed out: “We have already attained a great victory. But, the defeated
classes will still struggle. These people still exist. This class still exists.
Therefore, we cannot talk about a final victory. We may not be able to say
this for several decades. We cannot lose our vigilance. According to the
viewpoint of Leninism, the final victory in one socialist country requires not
only the efforts of its own proletariat and its broad masses of people, but
must also wait for the victory of world revolution, the elimination of systems
in which man exploits man, and the liberation of the whole of mankind.
Therefore, to talk lightly about a final victory in our revolution is erroneous
and inconsistent with Leninism. It is also contrary to the facts.” (12) To at-
tain a final victory in the socialist revolution and to realize communism in
the whole world, the proletariat of various countries is holding high the ban-
ner of proletarian internationalism, supporting each other, struggling togeth-
er, and advancing courageously along the Marxist general line of interna-
tional communism.
In the era of imperialism and proletarian revolution, part of the capitalist
system has already entered the museum (in socialist states); the moribund
rest, like a setting sun dangling precariously on a western hill, is struggling
for its last breath and will soon too enter the museum. It is the communist
doctrine and its social system which are sweeping over the world like ten
thousand thunderbolts striking at the same time, powerful as towering moun-
tains and mighty as billowing oceans, and it shall ever retain its youth and
vitality. Marxist political economy uses the objective law of human societal
development to analyze the process of movement of the production relations
of various social forms and arrives at the scientific conclusion that the capi-
talist system will surely perish and that the socialist and communist systems
will surely win out. It points out the general tendency of historical develop-
ment and is a powerful ideological weapon for the proletariat in making rev-
olution.
The characteristic of the present international situation is that “the world
is in a big mess.” This “mess” is a reflection of the intensification of various
basic contradictions in the contemporary world. It accelerates the disintegra-
tion and decline of corrupt reactionary power and promotes the awakening
and strengthening of the newly emerging people’s power. In the situation of
“a big mess,” rapid and drastic dissolution and reorganization occur after a
prolonged period of contest and struggle among the various political forces
of the world. A number of Asian, African, and Latin American countries
have obtained independence one after another and play an increasing role in
international affairs. The socialist camp that existed briefly after the war no
longer exists because the Soviet Union, once a socialist state, has become a
social-imperialist state. Owing to the law of uneven development in capital-
ism, the Western imperialist bloc is also disintegrating. Looking at it from
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the changes in international relations, there are three related, and yet op-
posed, aspects and three worlds in the contemporary world. American impe-
rialism and Soviet revisionism are the First World. These two superpowers
vainly attempt to dominate the world and are the biggest international ex-
ploiters, aggressors, and source of new world wars. They possess large
amounts of nuclear weapons and are engaged in a heated arm ament race.
Externally, they station large numbers of soldiers, maintain large numbers of
military bases, continuously control, sabotage, interfere with, and invade
other countries, and exploit other countries economically. When it comes to
bullying other people, Soviet revisionist imperialism, waving the socialist
banner, is even more malicious. The developing countries in Asia, Africa,
and Latin America and other countries are the Third World. They are op-
pressed and exploited by colonialism and imperialism. They are the revolu-
tionary motive power that pushes the wheel of history forward and are a ma-
jor impetus in opposing colonialism, imperialism, and especially the super-
powers. The developed countries between the First and Third Worlds are the
Second World. Their conditions are complex. Some of them still maintain
some forms of colonial relations with the countries in the Third World. At
the same time, all these developed countries are subject to some extent to
control, threats, and unfair treatment from this or that superpower. They
have a varying desire to free themselves from the enslavement and control of
the superpowers and to defend their national independence and the integrity
of their sovereignty. China is a socialist state and is also a developing coun-
try. China belongs to the Third World. The Chinese people have consistently
followed Chairman Mao’s teachings, resolutely supported the struggle of the
oppressed people and nations to fight for and defend national independence,
and opposed colonialism, imperialism and hegemony. They stand with the
people of the Third World and the whole world to push the wheel of history
forward.
History develops through struggle. The world pushes forward amidst in-
stability. The dawn of a new world in which there will be no imperialism, no
capitalism, and no exploitative systems is just ahead of us. The great Chair-
man Mao teaches us, “The future is bright but the road is treacherous.” (13)
Let us raise high the victorious banner of Marxism-Leninism-Mao Tsetung
Thought, unite with the world’s proletariat and the oppressed people and
nations of the world, be determined, fear no sacrifice, and overcome all dif-
ficulties to win a victory!
Major Study References
Marx and Engels, Communist Manifesto.
Marx, Critique of the Gotha Program.
Lenin, State and Revolution. Chapter 5.
Chairman Mao, “On New Democracy.”
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Fundamentals of Political Economy

Review Problems
1. What are the relationships and differences between the communist
society and the socialist society? What is the crux of pseudo-communism?
2. What conditions must be created to realize communism? Why do we
say that the realization of communism is a profound social revolution?
3. How does a revolutionary warrior establish a vast communist ideal
and fight for communism all his life?
Notes
* Kung-ch’an-chu-i i-tingyao shih-hsien — ts’ung she-huichu-i she-hui
tao kung- ch’an-chu-i she-hui.
1) “The Chinese Revolution and the Chinese Communist Party,” Select-
ed Works of Mao Tse-tung. Vol. 2, Jen-min ch’u-pan-she, 1968, p. 614.
2) “The Tasks of the Proletariat in Our Revolution,” Selected Works of
Lenin. Vol. 3, Jen-min ch’u-pan-she, 1972, p. 62.
3) Marx, Critique of the Gotha Program. Selected Works of Marx and
Engels. Vol. 3, Jen-min ch’u-pan-she, 1972, p. 12.
4) “On Practice,” Selected Works of Mao Tse-tung. Vol. 1, Jen-min
ch’u-pan-she, 1968, p. 273.
5) “On the People’s Democratic Dictatorship,” Selected Works of Mao
Tse-tung. Vol. 4, Jen-min ch’u-pan-she, 1968, p. 1357.
6) “On New Democracy,” Selected Works of Mao Tse-tung. Vol. 2, Jen-
min ch’u-pan- she, 1968, pp. 646-47.
7) “The Historical Destiny of the Doctrine of Marx,” Selected Works of
Lenin. Vol. 2, Jen-min ch’u-pan-she, 1972, p. 439.
8) Quoted from Jen-min jih-pao [People’s Daily], April 22,1970.
9) “Why It Is Necessary to Discuss the White Paper,” Selected Works of
Mao Tse- tung. Vol. 4, Jen-min ch’u-pan-she, 1968, pp. 1391-92.
10) “On Tactics against Japanese Imperialism,” Selected Works of Mao
Tse-tung. Vol. 1, Jen-min ch’u-pan-she, 1968, p. 147.
11) “Report on Foreign Policy to the Joint Conference of the Central
Executive Committee of the All Russia and the Moscow Soviet,” Complete
Works of Lenin. Vol. 27, p. 346.
12) Quoted from Hung-ch’i [Red Flag], 1969, No. 5.
13) “On the Chungking Negotiations,” Selected Works of Mao Tse-tung.
Vol. 4, Jen-min ch’u-pan-she, 1968, p. 1061.

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About the Editor
A graduate of St. John’s University in Shanghai, George Chung Wang
received his M.A. and Ph.D. in Economics from Columbia University. He
taught at the University of Tennessee and the University of Southern Cali-
fornia, and he is now Professor of Economics at California State University,
Dominguez Hills.
Dr. Wang is the Executive Vice Chairman of the Pacific Area Intercol-
legiate Council on Asian Studies, Advisor on the Asian-American Council,
and a member of Asia Science Research Associates, Stanford, California. He
is a contributor to the economic journals Journal of Economic Literature,
Economia Internazionale, and others, and he has been the editor of the jour-
nal Chinese Economic Studies since its inception in 1967.

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