Socialism, Labour-Notes, and Black Markets: does private currency lead to private capital?

Floating around in socialist headspace there is sometimes the idea of what I’ll call here ‘labour notes’, a form of currency for a society that was socialist but not fully communist (or at least not yet – sometimes this is seen as a ‘transitional stage’ as culture adapts away from capitalist habits of thought).

The essential idea is that if it turns out that material incentives continue to be useful and necessary, then people could be ‘paid wages’ by the commue (whether local, national, whatever) for doing useful work, which they could then spend on buying certain priced goods. Not all work need by paid, and not all goods need be priced – this system could take up a high or a low percentage of the economy, and presumably that percentage would be changed over time as non-material incentives became more effective (e.g. work was re-organised to be more rewarding, or whatever).

The idea is that this isn’t money, i.e. can’t function as capital, because it can’t be used to gain ownership of means of production, i.e. can’t be invested. It just goes to the individual from the commune for work, and then goes back to the community for consumption goods – and the commune need not keep a ‘stock’ of it at all. Indeed, it might even be given a ‘negative interest rate’ so that over a certain period of time it ‘evaporates’ and ceases to be valid.

Now I’m not particularly keen to endorse or recommend such a scheme over proper communism (where goods are generally just freely available, or in some cases rationed with equal rations – i.e. ‘from each according to ability, to each according to need’). But I do think it’s useful to have as a possibility, especially for arguing with people who are convinced of human depravity.

In a recent comment, though, SnowdropExplodes says

“Honestly, I don’t know how you could stop it from circulating and becoming capital. Even if the currency itself is not transferable from one person to another then the goods for which it can be exchanged, are. From there, it is only a short step to a black market economy using a currency of its own devising, for the trade of commodities obtained using the official currency. At that point, official currency will be redeemed not for goods with use-value to the person who earned the points, but for trade-value in the black market system.

A further problem is that it clearly opens up the door to corruption if one person obtains a large amount of this official currency, and uses it to bribe others by obtaining for them goods that those others do not have the currency to buy themselves; this could in turn potentially lead to individuals obtaining control over means of production through bribery.”

This is a common question that I think is provoked by what I’ll call ‘labour-note socialism’ – is it stable? Would it morph back into capitalism? I think that it would be stable, and that black markets wouldn’t morph it into anything, so I wanted to talk a bit about why.

As a preface, I’ll say that I think it’s easy to imagine a remote possibility, of how a skilled and lucky entrepreneurial capitalist might manipulate a vulnerable society to set up in business, and then suppose that this will inevitably become the rule and invert everything. I think what’s happening here is just that our stored conviction that ‘capitalism is all that’s possible, socialism is a fantasy’, which we’ve accumulated by living in a capitalist world, is looking for, and finding, the narrowest channel, and then flowing rapidly through it.

So rather than that, I want to approach the matter in what is (hopefully) a ‘materialist’ way – that is, what are the concrete variables and forces that would be needed to make this happen.

Black Markets in General

If I lend a friend some money, without adhering to any of the legal regulations concerning loans and finances, that’s not yet a ‘black market’. Similarly, even if labour notes are officially meant to be traded only between the individual and the commune, they would no doubt be passed between individuals as people did each favours and so forth. There’s no need to worry about this – indeed sharing is good and fluffy, to be encouraged as a way of propelling society towards full communism.

To become a black market, i.e. to take on a really ‘economic’ role, these interactions need an infrastructure. Becaue with my friend, I can make a deal and just trust that they’ll keep their side of it. If I’m dealing more broadly, with people I don’t trust, and with acquisitive motives, then I need something that can enforce the deal.

So for ‘legal’ agreements this would be the official bodies of the commune. The task of, as right-libertarians sometimes put it, ‘outlawing capitalist interactions between consenting adults’ is accomplished here, simply by refusing to recognise certain sorts of contract as legally binding. In the same way, our society’s ‘outlawing slavery between consenting adults’ consists not in policing individual actions and forcibly stopping them, but in refusing to recognise or enforce slave contracts.

For a black market to arise means for some alternative such infrastructure to arise – for there to be means of enforcing ‘illegal’ agreements. With enough people involved, this could just be a refusal to deal with you in the future if you break the deal, or it might involve violence. So it will be something characterisable in political terms – who holds power, who controls violence, etc.

Now as a general rule, black market infrastructure will be both much less effective and competent, and much less democratic, than we might expect ‘official’ society to be: so for each individual what it offers is, relative to the official infrastructure, less convenient, less reliable, and less fair.

What this means, I think, is that we should expect the scope and size of black markets to be proportional to the failings or restrictions that the official market imposes. There has to be some need or desire that ‘pushes’ people into it – something they can’t get otherwise.

And of course the quality of this infrastructure will be negatively proportional to how effective are the efforts of official society to detect and disperse it.

Now I’m going to suggest at this point, without discussing it too deeply, that I think a socialist society will have a lot of information public that is currently kept secret, because that secrecy is important for antagonistic private companies (and handy for governments too). As a result, I think it will generally be much easier to detect untoward dealings, security purchased at the price of privacy, but of a sort of privacy that was pernicious anyway.

How far does this extend to personal economic data – i.e. what will be the contours of privacy in a socialist society – is an interesting question, but one for another day. I’m just suggesting that illegal deals will find it harder to hide under socialism.

Anyway, I think at this point we could draw a distinction between two patterns here, pattern A and pattern B. Pattern A is people who already, for whatever reason, have power, and who make deals with each other to increase that power in illegal ways – what we would typically call ‘corruption’. I have the political power of being a minister, you have the economic power of being filthy rich, we can make a deal – you pay me and I direct political advantages your way. Here the ‘deficiency’ of the legal economy is simply the limits put on power to make it ‘accountable’.

Pattern B is where for whatever reason fairly ordinary people get ‘pushed’ into the black market because either 1) a particular desire (for drugs, prostitutes, gambling, or some scarce commodity) can’t be had legally, or 2) they can’t satisfy their general economic needs (they can’t get enough money, can’t get a job, etc). Within this economy, by and large, imbalances of power might be expected to open up, because there’s so little democratic oversight – there’s a ‘power vacuum’ that lets the more ruthless prosper.

(A combination might be where people are able to turn their legal power into greater power illegally, just from exploiting the less powerful – e.g. an official demanding bribes)


So we can now ask – will people in ‘labour note socialism’ be pushed into such a market, and by what desire?

In a well-designed such system, there would be very little scope for pattern A – because nobody has much concentrated power. If there’s nobody very rich, the advantages of accepting bribes, to anyone in an official position of power, are slight, and likely to be outweighed by the risks of being found out (and the loss of self-esteem). And if official positions are balanced, rotated, held painfully accountable, etc., then bribery is liable to be an unproductive investment of whatever wealth you can get together. This sort of corruption, that is, depends on their already being big power imbalances.

What about pattern B? This allows for power-imbalances to open up of themselves, as long as enough ordinary people are pushed into the black market. So will they?

The first answer is, hopefully not, since the legal economy won’t have the kind of deficiencies that would push them in such a direction. Goods won’t be needlessly prohibited, nor will people be left in poverty or without opportunities.

But there might still be some pressures of this sort – the two that comes to mind are 1, scarce goods which are rationed equally, where those with more labour notes than average would have an incentive to seek more illegally, and 2, goods which are prohibited for good reason, but still desired (the main ‘good reason’ I can think of is ‘their consumption harms others – i.e. environmental consequences etc).

So we have, so to speak, an equation: on the one side, the burdensomeness of restrictions imposed by legal economy, and on the other, the burdens of entering the illegal economy – which involves the risk of detection, the unreliability or abusiveness of the illegal infrastructure, and any personal attachment to the ideals of socialism.

I’ve suggested that the former is likely to be quite low, and the latter quite high. So under most circumstances, participation in any black economy will be very low, and not enough to make any substantial difference.


On the other hand, what if the scales did in fact tip the other way? Reasons for this might include 1) very harsh circumstances that forced the legal economy to impose strict rations or to prohibit a lot of things (e.g. major environmental crisis), or 2) bad politics – perhaps a priggish majority decides that their legal economy will exclude music, bright colours, and alcohol. Or it’s just shockingly mismanaged.

What happens then? Well, if the illegal economy gets so big, as I said, its organisation becomes a political question. The people participating in it will have to ask themselves how they want it to be run.

The critic of labour note socialism suggests that, at this point, capitalism will re-emerge, i.e. a certain pattern of strong inequality and hence control by a powerful minority, with whatever political enforcement system it finds useful.

But we are assuming that people don’t want capitalism – if they do, then of course capitalism will re-emerge. But if they don’t, and have simply entered the black market from self-interest, that same self-interest now cautions them: if you do not want to live under the rule of gangsters, you had better get some democratic organising going, to make this illegal economy work fairly and in everyone’s interests.

At present, most of the time, people don’t succeed in this, and black markets are run by gangsters. But this is for two reasons: 1) at present, collective self-rule in general is pretty weak, as appropriate to capitalism, and 2) being illegal prevents the necessary openness for this to work.

Under socialism, 1) is presumably not a problem. What about 2)?

Here’s where anarchism becomes important. If a socialist state says ‘this legal economy is the only one you can participate in, you cannot leave’, then the illegal economy stays illegal and quite possibly becomes run by gangsters, who bring back capitalism (or something worse).

But in anarchist communism, the worst that can be threatened is ‘you can only participate in one economy – either ours, or your new one’. That is, the only available punishment (for purely economic transgressions at least) is to progressively withdraw the services that economy provides.

So what happens now, if our black marketeers are sensible and socialist, is that they go ahead and openly declare that they are leaving the ‘legal economy’ and establishing a second society, with different economic regulations.

Now, this doesn’t end all the problems. If this is a society of people keen to pollute the planet because they belief the end of world is near, then a big disagreement between the groups remains. But it is a political disagreement, and can be solved, if at all, by negotiation and so forth. In extreme circumstances this disagreement may turn violent – but under those sorts of circumstances, it would turn violent under any system. No political or economic system can stop people destroying themselves if they really really want to.


Under extreme conditions, labour-note socialist may fragment politically – but if it is anarchist, or just sensible, it will be able to manage this fragmentation as non-destructively as possible.

But under normal circumstances, black markets proper, as an alternative economy, won’t have the conditions needed to nourish them – and if they do, it’s probably because people are being needlessly restrictive, or stupid, and the possibility of a black market is a good thing, as it sometimes is at present.

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