Reforms O. KYN: THE ROLE OF PRICES  IN A SOCIALIST  ECONOMY

 


  2. PRICE FORMATION IN THE ESTABLISHED SYSTEM   
 

 

Pricing policy in the socialist countries has hitherto been characteristic in five major respects: prices have been centrally fixed, have been constant for long periods, have been formed into two sets, wholesale and retail, with the latter subject to systematic reduction, and a special regime has operated for agricultural prices.
In common with all other economic phenomena, prices have been centrally managed under socialism. If we may distinguish between central determination and central control, we may characterize the majority of prices as directly determined by a central agency, while others-farm produce sold by cooperatives or certain ‘local’ goods -are determined by district bodies. The term ‘central control’, which implies absence of such direct instruction, is discussed below

A second feature of price policy has been stability; prices once determined are not changed for a long time, the main exception being farm prices on the cooperative market which vary with market conditions. Stability means that price neither reflects the current relation between demand and supply, nor --save at long intervals and at the discretion of central agencies-- responds to a change in costs. The original practice, no longer followed, was annually to reduce selected retail prices and once every five years generally to adjust wholesale prices. This characteristic is not inseparable from the principle of central management, although, in the past, they were thought of as related and presented as the contrast to flexible market prices, considered to be a symptom of competitive anarchy. It is of course perfectly feasible for prices to be both centrally regulated and flexible, or market-determined and stable

 

The central agency can adjust prices according to the conditions of supply and demand without infringing, in our opinion, the principle of planning; indeed, planning can be inconsistent with stable prices. Some countries (e.g. Poland) have already rejected strict stability of prices and frequently adjust prices in accordance with market conditions; during 1963 certain steps were taken in this direction in Czechoslovakia, although prices continue to remain stable for the majority of consumers' goods. Price stability is undoubtedly desirable, but only if it does not cloak a violation of economic equilibrium. As long as the economic system is kept in equilibrium, by means of planning and central management, prices can be stabilized without resort to directive fixing
The price system here described is formed at two levels. Retail prices are determined so as to clear the market of planned household expenditure, itself dependent on the volume of income; this procedure does not require that the price of any individual product correspond to Marxian value, although the average of all assures equality with c + v + m. The level of wholesale prices, on the other hand, does not include the entirety of surplus value (m), and, in practice, wholesale prices are computed by adding a very small profit (three per cent would be a usual rate) to the costs of production; wholesale prices for a number of producers' goods have been fixed even below production cost, requiring state subsidies.

With some exceptions, retail prices are used only for final products sold to consumers, while almost all intermediate products are transferred at wholesale prices, this gap being bridged by the turnover tax. Historically, the turnover tax evolved from an indirect tax of the kind its name implies, but it has now lost all connection with a fixed impost per unit of turnover; on the contrary, it is a differential tax, the amount of which is determined as a difference between the calculated wholesale price and retail price. The rates of turnover tax differ widely from item to item even within a single commodity group: rates range from a few per cent to thirty, fifty per cent and more. Because the state owns the taxable enterprises, there seems to be little difference between profit and tax, since all accrue to the state, which represents society, and economists in these countries used to declare that there was hence no element of taxation in the turnover tax, but merely an alternative channel to the appropriation of profit by the state. Such an approach could be justified only from the point of view of the ownership, not of the functioning, of the economic system

 

A fourth rule, less absolute than the three just listed and inoperative since about 1960, was that the only possible movement of retail prices was downward. The extreme theoretical formulation of this policy excluded the possibility of raising prices even in exceptional cases. On a given day of the year, a massive reduction of retail prices of selected goods was decreed. Since about 1960 price adjustments have taken place in both directions throughout the socialist countries: while the practice of synchronized bulk actions has weakened, its principle is woven into the logic of that form of price policy.
The final element in pricing practice common to the countries concerned, farm prices, evolved through two stages. During the first period low procurement prices (in some cases even less than the cost of production) were applied to obligatory deliveries to the state by cooperative farms, and state purchase prices - higher, but generally failing to represent the whole Marxian surplus product -were accorded to supplementary deliveries, although cooperatives, after having fulfilled their compulsory deliveries, were allowed to sell some produce at free prices on the cooperative market.

The state procurement prices used to be considered as a tool by means of which part of the surplus product created in agriculture was withdrawn into the centralized funds; part was returned to agriculture in the form of government subsidies, loans, etc. During a second period, this system of dual prices was abolished and all deliveries to the state by the cooperatives were paid for at uniform prices, the level of which ranged somewhere between each of the former prices. Transfers were maintained of a certain part of surplus product to the state, by means of lower prices, with direct taxation playing a considerably less significant role. Problems of differentiating prices according to production conditions may be mentioned, but are not here discussed.

 

 

 

 

 

 

 

OK Economics was designed and it is maintained by Oldrich Kyn.
To send me a message, please use one of the following addresses:

okyn@bu.edu --- okyn@verizon.net

This website contains the following sections:

General  Economics:

http://econc10.bu.edu/GENEC/Default.htm

Economic Systems:  

http://econc10.bu.edu/economic_systems/economics_system_frame.htm

Money and Banking:

http://econc10.bu.edu/Ec341_money/ec341_frame.htm

Past students:

http://econc10.bu.edu/okyn/OKpers/okyn_pub_frame.htm

Czech Republic

http://econc10.bu.edu/Czech_rep/czech_rep.htm

Kyn’s Publications

http://econc10.bu.edu/okyn/OKpers/okyn_pub_frame.htm

 American education

http://econc10.bu.edu/DECAMEDU/Decline/decline.htm

free hit counters
Nutrisystem Diet Coupons