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Prices 

Sekerka - Kyn - Hejl:  Price Calculations

1. Introductory Remarks

One of the most important preconditions for implementation and successful functioning of the New Economic System in Czechoslovakia turned out to be the need to change the level of wholesale prices. The problems of the present price system are as follows:

1.  Wholesale prices include only a small profit margin and in some cases even a loss, so that without an increase of price level it is not possible to implement the system of material incentives assumed in the blueprint of the New System. Current prices do not allow for reasonable interest charges on production funds (capital) and for taxes on gross income.

2. Profits are so diverse in different branches that under the present price structure taxation on gross incomes could hardly be uniform.
Distorted relative prices affect economic indicators so that the measurement of efficiency becomes meaningless. The present price system does not allow optimality of economic decisions - both centralized and decentralized - as a result the decentralized decisions cannot be made compatible with the aims of the whole society.

2. Profits are so diverse in different branches that under the present price structure taxation on gross incomes could hardly be uniform.
Distorted relative prices affect economic indicators so that the measurement of efficiency becomes meaningless. The present price system does not allow optimality of economic decisions - both centralized and decentralized - as a result the decentralized decisions cannot be made compatible with the aims of the whole society.

These deficiencies of the present price system were identified and criticized already before the discussion about the new economic system started, and this happened not only in Czechoslovakia but in several other socialist countries as well.

Already by the end of the 50's, and at the beginning of the 60's, articles started to appear in the USSR., Poland, Czechoslovakia and other socialist countries, showing that the price structure which has been formed hitherto and which were conserved because stability of prices was deemed to be absolutely necessary, was not a result of rational design but of more or less haphazard circumstances of historical development. Criticism has been voiced about negative implications of the price structure formed in that way. Broad discussions in several countries resulted in almost equally formulated demands for a radical reconstruction of the price structure i.e. correction of relative prices that did not reflect real economic needs anymore and made rational planning and managing of the economy impossible.

However, opinions differ as to the way, how the relative prices should be corrected.

 

 

 

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