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

 

   
3. THEORETICAL AND HISTORICAL ORIGINS
OF THE PRICE SYSTEM  
 

 

In turning to the theoretical aspects and to the historical circumstances which helped to create this price system, it may be observed that, while there always existed some relationship between the practical organization of the price system and its underpinning theory, the situation resulted, in some cases, from a set of a priori theories, and, in others, from certain historical conditions which endowed the practice with a concrete form before it was interpreted in theory. There is perhaps no need to stress that the theoretical conclusions criticized in this connection are to be considered as a product of a dogmatic misrepresentation of Marxism in the past and not of Marxism as such.

The incompatibility of planned development based on central management with the automatic functioning of a market mechanism was part of a theory, particularly prevalent during the cult of Stalin, that socialist economic relations were a simple negation of the corresponding feature of capitalism. The so-called 'law of planned proportionate development' was supposed to be valid under socialism, and a similar 'law of competition and anarchy in production' precluded planning and proportionate development under capitalism. An automatic (spontaneous) functioning of the market was considered a source of anarchy, and the existence of commodities and prices was regarded as nothing but a temporary phenomenon, which would be liquidated during the transition towards communism. Under socialism prices had merely an accounting function and could affect decisions' only on consumption and never on production. Such views looked to an ideal economic organization which rested on central balancing of production in kind (including labour in numbers of hours worked), and a direct and centrally-organized distribution of consumers' goods without recourse to a market.

 

As just described, the idea of planning was erroneously presented as inseparable from the administrative determination of targets and of prices. In fact, there was no planning of prices, for they remained constant until glaringly proved incompatible with evolving economic conditions; sets of such prices were more random in their relative values than those formed on the market, for they were a compound of errors in computations, false appraisals of the situation, and lack of information and subjective criteria on the part of decision-makers. It seems entirely justified therefore to use 'central determination' rather than 'planning' of prices. It may be noted that such determination was in line with the view, then common, that the utmost centralization was to be imposed on decision-making in subordinate units, as the only way to coordinate development towards ends most beneficial to society. It was also thought that an increase in any retail price would negate the aim of raising the level of living under socialism; retail prices were regarded solely in the framework of the cost of living.

Indeed, a systematic deflation was seen as essential, because the Marxist labour theory of value implied that, during economic growth, a rise in labour productivity reduced the value of commodities: obviously, the reduction of the labour value of a commodity is inconsistent neither with stable prices nor with inflation. The same sort of over-simplification - in this case on the role of ownership in economic relations - made the planners indifferent on whether surplus product be realized on intermediate or on final products. It accrued to the state at either level and ease of administration favored a levy on final goods. With all this went an unreasoning repudiation of anything evolved by bourgeois economic theories such as market equilibrium, the theory of consumer's behaviour and the concepts of marginal utility and of the elasticity of demand. The incomprehensible rejection of mathematical methods, which, as can be seen today, are eminently applicable to pricing, had the same unfortunate results.

 

 False theorizing was not the only factor in creating that price system: certain historical circumstances engendered other features of pricing, which were theoretically supported ex post and sometimes incompetently generalized and transferred to other countries.
The fact that in the U.S.S.R. and the other socialist countries the economic system had arisen in conditions of wartime disruption induced readier acceptance of rationing at centrally-fixed prices. But, as consumer-good shortages were overcome, the gap between the actual and the appropriate price relationships widened, and a sudden unfreezing of prices would have caused substantial movements of prices and shifts in demand and consequential planning difficulties. The gradual development of supplies thus induced specific features, which were originally unintended. The dual price level was established in similar fashion. Pressure on wages could not be successfully resisted and raised purchasing power above the value of consumer-good availabilities, and the planners' concern was hence concentrated on turnover-tax revenue to absorb the widening margin between wholesale and retail prices. This attention was given added stress by the necessity to centralize accumulation for industrialization, with agriculture participating through the system of state procurement prices. The policy was defined long before the war as 'primitive socialist accumulation'.

An excessive centralization rendered a flexible price policy impracticable, for frequent adjustments of prices would have required a vast increase in the quantity of information processed at the center. Had the data been available, it would necessarily have enlarged inordinately the administrative apparatus. But information on changes of demand was not available and, given the priority allotted to industrialization, adjustments of the production pattern would not have been feasible. In this way a long-term disequilibrium on the market arose, a justification of which was sought in the theory that consumption demand had necessarily to exceed production under socialism.Nationalization and administrative methods of management engendered or enhanced monopoly conditions in a number of branches, under which the market mechanism could never successfully operate; the directive to keep prices stable thus appeared to be the only instrument against monopolistic price increases.

 

 

 

 

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