REVIEW OF THE NEW SOVIET TEXTBOOKS ON POLITICAL ECONOMY (RR IM-407)

Created: 2/25/1955

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MEMORANDUM

REVIEW OF THE NEW SOVIET TEXTBOOK ON POLITICAL ECONOMY

CIA/RR55

TIOS MATKRIAL COJffArasTlffCfiMM^IOi;IATIOKAL DEFENSE OF THE VRTTgiEX&tafiirWTTHIH THE MEANHC OF THE EZPJ^&FTJM^ TITLeSLjjSC,R REVEIJVTT^OFKAI'KER TO AN UNAUTHORIZED PERSONTS^ PROHIBITED BY IjW.

CENTRAL INTELLIGENCE AGENCY Office of Research and Reports

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Summary and

I.

II. Nature of Economic Laws under Social

III. Content of the Economic Laws of Socialism

aw of Planned (Proportional) Development Law of the Constant Growth of the Productivity

Of

C. Direct Cost, Price, and

IV. Political Ecocomy of Soviet

V. Transition from Socialism to Communism

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review cf the mew sovlet 'nocraoo-:

OLU'XCAL ECONOMY

pmoaary and Conclusion;

The new Soviet textbook on political economy, entitled Politicalextbook (Akadcmiya Nauk SSSR, Institut Ekomomiki, Politi-cnesknyu ekonctaiya, uchebnik, Gbsudarstvenaoye Izdntel'iitvo,hesky Literatury,, presents the Soviet economy and Soviet economic thought from tvo markedly different points' of view. Itynthesis of the orthodox economic theory of Maralsm-Ierdrdsm-Stollnlsm for all the Marxian stages of economic history. It is also anof the policies, principles, and methodology of economic and social activity In the USSR. The textbook maintains Stalin's orthodox position on the "objective nature" of economic laws, extends the approval of the current leadership to Stalin's formulation of the "basic" law of socialism, and designates (in effect) Stalin's policies aa economic laws of socialism. Reaffirmation of the "objective nature" oflaws was begun by Stalin His pronouncementsostwar trend among Soviet authors, who had tended increasingly to treat economic laws as subject to, and even created by, the will of man.

In maintaining. Stalin's position that economic laws are "objective laws" independent of tbc will of man (analogous to the laws of the physicalhe textbookontradiction in Marxian thoughtthat ie, Marxism-Leninism-Stalinism claims to bescience" of social developmentuide to revolutionary action. Often the two positions are logically incompatible because thelaws which the Soviet Marxist claims to observe when he iseconomic activity and implementing social change are rcully the results of his own actions based upon general Marxian principles. he is greatly tempted to treat social law as the product of man rather than as an objective law independent of man's will. This contradiction will almost certainly appear again under the cloak of another argument.

On the level of thc principles und the methodology which obtain in current activities in the USSR, the textbook has ouch of interest to say. Tn keeping withriticism of certain economic terms and categories concerning profits and gross rsaviiiga available to

rom the consumer goods lndus-*red, however-

atter of policy exceeds theource ofge- differentials

ollectivexists in the state zation.of the state

farms are ownedhare ve farms, tial rent ln rection of ^which-dOtcr-

the state, the textbookarked aversion to these terns, judging them to be too similar to the terms and categories of capitalism and not descriptive of the actual relationships-which exist in the USSR. Similarly, thc textbookhit the policy of maintaining low, fixed prices for producer goods inflates the savings accruing to the

state (in the form ofries- Ho solution to this

he textbook considers itthe growth, inrease" ihW. tot invert are p

iarm,,sc ifarmr

of the'farm's net income as is the caseMoreover, the textbook, in. no wayhe collective farm sector determines thenvestc^^

Current problems are taken up in sane detail in the discussionreflecting,the fact tltat^Mstgrlcally agriculturethe problem sector of

leadership has every intention of'impiementing the current consuocr goods program. Since 'the textbook specifically' states that lagging growth in the agricultural sector has violated the "law" of planned proportional development; it may be concluded that tbe Sovietconsiders this disproportionate growth torake upon the growth of the economyhole- Furthermore, there can be no doubt that the collective farms will be transformed (perhaps by degrees) into state farms and that the private plots of thc households will be eliminated as soon as thc regime possesses .the necessary resources.

The discussion of the transition froa socialism to Communism emphasises two points: the abolition of the differer.ces between mental and physical labor and the elimination of differences between town and country. Thc means of accomplishing these objectives are

*" broadly speaking, differentlul rent is the differencereturn over and above the cost of labor and capital between the leuest cosl

producer and the highest cost producer.

SONfliiraTTAT.-

given us 'automation" (introduction of automatic machinery andelectrification, and tbe use of atomic energy.

The "following conclusions concerning current Soviet economic problems and policies may be drawn:

1. Thc present Soviet leaders have discarded thc cult of Stalin's personality, but they remain, ln substance, very orthodox adherents of Marxism-leninism-Stalinism.

lthough they are quite serious about achieving the increased consumption goals under the, new program, the Soviet leaders, implicitly still consider, individual consumptionost' of production and nop the object of economic activity. To be sure, in the long run (in 'Which, as Keynes put it, we will all be dead) individual consumption ls still, as always, the explicit goal of economic activity in the USSR.

3. Current concessions to the peasantry probably arc short-term In nature. Together with thesethe USSR is simultaneously carrying out policies (for example, making the tractor drivers permanentof tbe Machine Tractor Stations) which will facilitate the abolition of the private household plots and .the transformation of tbc collective farms to state farms when sufficient resources are available. In view of past experience, thc pursuit of tbis objective should lead to major stresses and strains in Soviet society.

U. in the eyes of the Soviet leadership the lagging growth in the agricultural sectorerious obstacle to the long-run growth of the economyhole. will continue, therefore, to require substantial allocations of resources.

5- Carrying out the "transition from socialism zo Communism" by the means proposed in the textbook willigh priority for expanding thc output of electrical energy, automatic machinery, and associated electronic equipment and in thc utilization of atomic energy for industrial purposes. If current policies

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are followed in Introducing automatic machinery, thc result willreater-degree of capital intensity than le currently considered economically Justifiable ln the'West.

I eduction.

group of nine authorsTfltan^Rffiaaeo^byctOT rf th- Division of Economicalthe' Academy ofTS^ienecs of the USSR,. Ostrovltltyanbv,efinitive statement of the Marxian theory of In this textbook the authors set out to BummarizeHhc ;pes6J'to delineate the present, and tothe future growth and iieyclopment of the1 "productive forces

nomic dynamics lh^eu'c to latter-day'Sovi&fc'f the development '

'characteristics of the eco-lopncut frcmt"primltive communism It'follows that this analysis of -orcen is to* serve aa the dogmatic frameworkistorical phenomena. In short, the textbook'Is'designed'a synthesis of the doctrine ofmaterialism as expounded by Marx, Kngcls, Lenin, and Stalin, tbe first such official, synthenie attempted. Consequently, lt not only deals with thc development of economic historyhole but also treats the present stages of development in terms of thc past, present, and future. In these terms, it treats of capitalism In the West, of socialism (Communlcm) in the USSR, and of the development of socialism in Communist China und the European Satellites. Politicalextbook Is designed to provide Communists throughout the world not only with an education In fundamental dogma but alsoeneral,guide to action.

Writing of the textbook wuo Initiatedelayed by the war years, anil hampered by ideological difficulties after the war-

Footnote referencerable numerals are to sources Hated In the Appendix.

WW M,

Apparently tlie draft hnd reached an advanced stage byince Stalin's Economic Problt-ms of Socialise in the USSR wasdevotedritique of various drafts and to theof the "correct" theories. ense, Stalin's Economic Problems constituted hie report toh Party Congress, but it reflected Stalin's pre-eminent position in that his pamphlet was published before the Congress actually convened. 2/ Lesser men ouch as Khrushchev, Malenkov, and Beriya delivered their reports directly to thc Congress in thc usual manner. Only Stalin could speak ex cathedra, and Stalin's pamphlet set the Ideological tone of the Congress. If Stalin had lived, lt is doubtful whether thc textbook would have been published by this time. Moreover, If published during Stalin's life, It probably would have beenas part of Stalin's collected works. Bearing by virtue of its authors and publishers tbe official imprimatur of thc Communist Party of the USSR, thc textbook is one of the most Importantdocuments published by the Soviet regime.

The nev Soviet textbook on political economy is divided into three parts: Part I, which surveys thc entire prccapitallstic period inages, contains one chapter each on primitive communism, slaveholding, and feudalism; Part II, which surveys the capitalistic periodages, containshapters on the various laws and categories characterizing the capitalistic stage of development, with slightly less than half the space devoted to thertage of capitalism;Part HI, which surveys the

development.of socialism (Communism)ages,evoted to social ism ln the USSRhapters on the remainder

of the Soviet Bloc: ach on Communist China, the European Satellites,

and Intra-Bloc relationships.

The objectives of this reviewo examine the method and consistency ofo analyze the content of the more important parte with particular reference to thc historicalof thc content and to note divergence from previous theoretical treatment with respect to Stalin's treatment of the same problems;o analyze the significance of the content for forecasting future Soviet action which bears upon the national interest of the US. Owing to limitations of time this review will be limited to Part III: "Soci&Uot Means of Production."

II.' Mature of Economic Lavs under Socialism.

differ" ar'as'f

in-

ment'of- these problems *isV in substance, identical to Stalin' ment in bis Economic

There ore three themes which dominate thc part of Stalin'swhich deals with' the Soviet economy: (l) the objective nature of economiche basis for thc existence and thc characteristics of the !law*"ofocialism; and 'jjrthe problem of the market

-activeh'tTie' economy astalin's'ot'utementn'ihat many Sovietrunder socialism, men acting through institutions creitc/or'at. least significantly modify, economic laws.

;hie attitude toward the lawofvalue ls the following

etier -

In Chapter XXVIII thc authors cost to grips with thc fundamental problem of Part IIIthe nature and content of economic lows in the socialist phase of development (which in considered to bc the first phase Of Conmrunlsm). Before dealing with the'economic laws of socialism, however, the authors find it necessary to off Inn tbenature of economic lawshat 1b, to establish economic laws as' analogous to'lavs*bf nature which have objective existence beyond the conscicwsheSs and will ofMoreover, thc authors find it neC'cs'sary to"devote some space'to'distinguishing those(such as'ccoocolc laws) which do not change significantly in cither "form or content'in one stage of development from thoseXaucti' as*mohey)*which' remain identical in form but vhlch may

s treat-

froa one stage to another. The treat-

An bxample of this _

eading Soviet economist, L. Kayzenberg (who hasreformed'

In implementing the planned direction of the national economy the Soviet State consciously utilizes the law of value ln the Interests of strengthening and of developing the socialist law of value which operates in the Soviet economyeformed form.

The word low as used In this review will always be used InM. In no case will It be used in reference to legislation or to some operating principle. This concept of objective law as here used stems from Marx and his intimate association with thc nineteenth century, when every social "scientist" was looking for Immutable laws of society to match the lnoutable laws ofhemistry, and blology.

VIA!.

Determining the price of commodities on the basis of the socially necessary expenditure expended in theirthe monetary form of wage payments, theof the planned direction of the enterprises on the-princinles of economic accounting represent thoseforms by which the Soviet State consciously utilizes the law of value in the interests of stimulating the growth Oi tne productivity of labor and increasing production.

theO the authors of the textbook,tatement of the operation of thc law of value denied this law on objective existence independent of the will of man, reduced the law to thc level of ordinary economic legislation, and incorrectly extended

taUU OPeDed^ with afC0DQalccould be "reformed" and with a

r 0b'Jectlve The denunciation of Reformism" and the affirmation of the objectivity of economic law in the textbook deserve to be quoted at length fj%

The economic laws of socialisa, like the economic laws of any form of production, arise and operate independently of the will of man, that is, poesess an objective character, ihey cannot be created, molded, reformed, or abolished by the will of man.

Denying (otrltsanlye) the objective character of economic laws of socialism would mean the liquidation of the political economy of socialisacience, would deprive the socialist society of the possibility of foreseeing the course of events in the economic law of the country and would prevent even the most elementary economic direction. Such negation is afrom Marxtsm-Lcninism to the position of subjective idealism which would inevitably lead to adventurism in policy, to arbitrariness in the practice of economic leadership.

The objective character of economic laws under sociali sm by no means signifies that they operatepontaneous force, dominating man, that man is helpless before the face of these economic laws. etishism of economic laws inevitably leada to the positions of drift and spontaneity* ln socialist

-The Russian word stikhiynosf has been rendered as "spontaneity" but in this context has the connotationombination ofcuprlciousness, and unpredictability.

construction. It is the mortal cneqy of Marxism-Leninism. Under tbe conditions of socialism where social ownership of the means of production isfor private ownership, the possibilities for the cognition and the utilization of the social laws of economic-development are vastly extended.

And '

Thus the objective character of economic laws of socialism means that these laws exist independently of the will and consciousness of manj they cannot be abolished or reformed according to the will of man;ail to fulfill the imperatives (trebovaniye) of these laws inevitably leads to disorder In the economic life of the country. But the socialist society may become cognizant of these laws, master their Operation, and utilize them in their own interest.

^firmingosition that the law of value continues to

UIL" .

83production (in the Marxi sense) istlEL.exists In'the"agricultural sector, the textbook goes on toifferent stages of historical development. This problem arises, among'other reasons,Marxian assumption of the determinant nature of the productivend .the' dependent, ephemeral naturehe productive relationshipsthe "superstructw Economic laws do not change significantly in form or content, but what about such things as money? Is money, for instance, an Inseparable part of the superstructure of presoclallst stages of development andto be abolished along with private property and the otherrelations of capitalism? Again the textbook is worth quoting ln detail JJ :

Inasmuch as commodity production continues (sokhranyayetsya) under socialism, the law of value operates in the socialist economy, and the categories connected with it also exist. However, only the form of the old categories remains; the content changes fundamentally. The old /categories/ are not cleanly abolished but change their nature" to approximate thc new, preserving Only the form; the new /categories/ do not simply obliterate thc old but penetrate into the old, changing their nature and functions, thus using the old forms for the

growth and consolidation Ol' tbe new. The new economic conditions createdesult ofvictory of soclallasi have changed the character of ccanodity production and commodity circulation and limited the sphere of their operation. Under sociollssi ccemtodity production andcirculation exist without capitalists and serve the socialist economy. The sphere of action of tbe lav of value has strictly Halted boundaries. Honey, trade, and banks arc utilized (in essence) as instruments of socialist construction.

In substance this corresponds to Stalin's position. Thc lav of value continues to exist because market relationships continue to exist in the collective farm sector. Money, trade, and banks continue to exist because they arc "instruments" of economic lavs and thus may serve different economic lavs ln different stages of development. Since approximatelyercent of retail trade includingercent of marketed foodstuffs passes through the state network, at prices fixed by the state and indirectly Influencing the prices of tbearket, the state ls able to limit the sphere of Influence of the lav of value. The law of value vill cease to operate vhen all vestiges of the capitalistic market mechanism ore obliterated. In the mcunt-time, however, the lav of value cannot beor can it be-"utilised" in the sense that "instruments" such as money and credit can bc consciously utilized, because the lav of value is an objective lav. Han, acting through institutions, can limit and utilize the lav of value only by setting other laws In opposition to it, such as the law of planned, proportional development of the economy. This seems to be the essence of the position taken by Stalin and the textbook as contradistlnct to those, apparently headed by Voznesenskly butto write and to express their opinions long after his fall from grace, wIid spoke of the "reformed" law of value under socialism, of "molding" thc law of value for certain purposes, and of thc "utilization" of the law of value by the Soviet state in the sense of manipulation to achieve desired ends.

Having reasserted that economic Iswr, like laws of nature, have objective existence independent of the will of man, and having asserted that In some Instances new wine could be put into old bottles, tbe textbook proceeds to list and to discuss the economic laws of socialism. Aside from the continued existence of the lav of value, whicharryover from the lower (capitalistic) stage of development, thelists ono "basic law" and three "luws" of the economy of socialism.

The basic luv of socialism is defined us "insuring the maximum andsatisfaction of the constantly growing material and cultural demands of the entire society by means of the uninterrupted growth and modernization of socialist production on the basis of the highest8/

The three other economic laws of socialise! are "the planneddevelopment of the nationalj/ "distributiontond "the constant growth of the productivity of/

Of the fournly the first ls designated as tbe "basic economic law of socialinn* (osnovnoy ckonomichesKlythe other three arc listed1 simply an laws (zakon) of the socialist economy. The basic economic law of socialismirect quote of Stalin's tentative formulation ln his Economic Problems. Previously, Soviet theoreticians had often listed similar formulations as being "one of the basic economic laws" of socialism but always ao one among several "basic laws.-" In the pact, Soviet writers have often listed theroportional development of the economy" as one ofbasic economic lawr.." It is not known ot this time whether tbe other lows listed by thehave been-previously oo designated by Soviethe:cxpllclt hierarchy, however,ewIn accordance vith-Stslln's formulation'-

To tbe outside observer tbe entire discussion of the objective nature of economic lavs may appear to beationalization of policy. .To those vho do not share the Marxian premises and values of the Soviet leadership, this discussion appears to be primarily an attempt to Justify the harsh realityontinued low level*of eon-sumption and state controls vith the abstract necessity of objective economic lav which man must obey. As Lenin put it, "Man is free only when he consciously acts in accordance vith necessity." This position follows from the fact that Marxian claims tocience whichand treats laws of society which are as immutable to the will of man as are the laws of the physical sciences. Consequently, if the Soviet Marxist admits that economic lavs are not objective, and then carries this premise to Its logical conclusion, his whole ideological edifice is likely to come tumbling down. If the law of value were

f the theory

permitted to lose its "objectivender socialism, the way would be opened Tor denying the existence of any objective laws under which in turn probably would leadery basic revision ry ofiniom-Stalinisc. Stalin's role in the

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AE

discussion that evoked nis pamphlet on economic problems, as well as the role or the textbook, is to restore and preserve rigid orthodoxy la the philosophyhole and to apply this orthodoxy to the present and future.

Aside from the motivations that produced them, each of the four economic lavs of socialism deserves detailed comment, vith reference to content, aignirIcance, and mechanism of implementation.

IH- Content of the Economic Laws of Socialism.

Tho primacy of the basic economic law over the other luwa lofrom thc interpretation that it alone contains both the goals of economic activity under socialism and the means of arriving at the goals. Tho basic economic lav of socialism, therefore, gives meaning to the other laws. The law of proportional development does not answer tbe question: development for what? As stated by Stalin and the textbook, the "bafitc law" defines the goal of economic activity as the satisfaction of the constantly growing material and cultural demands of the entire society." According to the officialthe baalc law means the systematic and uninterrupted growth of consumption by means of priority production of producer goods, heavy Industry ln general, and machine construction in particular. This proposition is not exactly new, but it is good, orthodoxm-Leninism-Stalinism. It reiterates past doctrine and practice thatigh rate of investment is maintained long enough, Comouniam will arrive some day.

Immediately folloving this treatment of tbe basic economic law of socialismection on the growth of real wages in the USSR. The statistics arc chosen carefully toubstantialuch greater increase than has actually occurred, since comparison of total consumer goods available to the population Indicatas that eventandard of income was not regained until approximately

The next seetion deals with the function of the Soviet state in the Soviet socialist economy. The all-encompasBing economic functions and system of controls of the Soviet state arc set forth in considerable detail. After this somewhat verbose treatment of the role of the state the primacy of the Party is stated more;

The guiding and organizing force of the Sovietthe Communist Party, which directs the activitiesState organs and the social organization of The Party gives the directions for theof thc national economic plan and works out themeasuresational economic ordersignificance for tbo entire country. Theits ties with the toilers, mobilizespeas ante, and intelligentsia for theof national economic tasks, educates thetheir communist consciousness- The policy ofJfarty and the Socialist State, directedsatisfaction of the new demands of the economicof the society, play the greatestyr.

The primacy of .the Party is tine-hallowed practice, but this explicit statement of{}the Party's role Is.yery much in line with thetalin emphasis on Party leadership, .control, and initiative. It ight also.be;reawfflibered that the^ifth Five Year' Plan has not yet beenincetecfinical.Tsense^the Planody or economlcjlegislation to be passed by the. Supreme Soviet. The^Fif^h; Five Xear Plan remains nothing more than the Partyto the ntate which were announced before the XIX Party Congress in2 and slightly revised by the Congress itself in

1

A- Law of Planned (Proportional) Development.

In essence this law seems to mean that each sectorindustry, and transportwill, growate sufficient to permit the planned rate of growth of the other sectors andector each subsectors for example, steel Industry will growate sufficient to Insure the planned rate of growth of all other industries consuming its product and of the sectorhole. The most Interesting parts of the discussion of this law in the textbook are the discussion of the mechanism for implementing tbe law and the admission that the law has been violated recently by lagging,growth in the agricultural sector.

The basic mechanism for implementing the law of planneddevelopment is the system of material and monetary balances. The development of the material balances is one of the cost interesting

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l. . 1 r -balancer, of monetary flows) as tho mechanism for implementingof proportional development marks the culmination of abegan6 and picked up momentum ln the postwarafter the formation of the State Committee ofSupply (Gossnab). Roughly analogousystembookkeeping in which all supplies (production andof ruw materials, sealfinished goods, and capitalentered on one side, and all demands (requirements forto the plan) are entered on the other side, thebalances are constructed forwhich are centrally allocated by the Council ofthe basis of these balances the planning authorities constructfor the distribution of the funded ccaflmodities to theunits. The textbook confirms previous treatment ofbalances ln Soviet Journals in that they are constructednot in value, quantities. In the earlier period theconstructed for Cewer commodities and apparently were used onlyinternal consistencyeriod of eeveral years.owever, and particularly since the formation of Gossnab* in

the material-technical balances hove become the operationalfor resource allocations by the central authorities. ystem of monetary balances is used to attempt to check the economy of these allocations and to achieve the current, proportions between monetary flows. Resource allocation by central authoritiesistribution plan based upon the material-technical, balances is one of the means for limiting the operation of the law of value in that producer goods and raw materials are allocated according to the national plan. Allocations are not determined by thc profitability of the particular industry, and goods are transferred at prices reflecting cost of production to thc producertable rate of profit fixed by thc state. Thc bulk of the profit la then taxed back by the state for investment and defense-

It also should be noted that the textbook stresses theof the so-called "average progressive norms" which are input-output ratios for raw materials and semifinished goods, for labor, aid for the productivity of capital equipment, fixed by the central authorities on the basis of the most efficient producers. are then determined by these noras rather than by the old system of "average experiences norms" for each producer or ministry.

with tlic State Planning Commission (GOSUdarstvennaya Planovaya Kommisstyaosplan) in3 reorganisation.

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Tlie development of the new "average progressive-norms" also isa postwar development.

It may be concluded, therefore, that the law of planneddevelopment provided the conceptual framework forresources in accordance with the objectives of the state plan, which presumably is derived from the basic economic, law of socialism. Both Stalin ond the textbook make it clear that this law replaces the law of value in the allocation-of capital equipment, fuel, power, and semifinished goods, which do not enter into individual consumption. According to Stalin, in the distribution of the existing, etock of consumer goods, "the law of value preserves for itself, to be sure, the role of regulator within certain knownut it hasegligible "regulating- significance" for production of consumer goodsby tbe state sector. Since the operation of the law .of-valuelimited to commodity production, which by definition excludes activity connected with'the production of producer goods, the area of theoperation of the law of value ie strictly The textbook takes the same position- The operation of the law of value is limited to those areas in which commodity production exists, which means that 'the sphere of operation of the law of value has strictly limited boundaries.*' Beyond these boundaries, in the production and distribution of producer goods (which are not considered to be:the lawlanned, proportional development operates.

There is one Important qualification that Is in order- herenamely, in regard to the influence of the rate of return-to capital in making investment decisions. The rate of return to capital is not the sole determinant of the decision to invest ln light or heavy industry or the decision to invest in the petroleum industry rather than in the engineering industries. Certain basic investmentare made largely independent of yield oi" thc investmentwhereas other decisions are almost wholly dependent on yield. However,ecision to invest ln the coal industry, for example, the rate of return between different mines, or different combinations Of inputs, influences the decision between the available alternatives.

* The Soviet theorists define the law of value tr. terms of Karx'sh century formulation, which was inadequate at the time and which ls inapplicable to contemporary capitalistic economies. To the extent that Uie Russians take real costs into account, their actions in the long run probably are core in accord with the law of value ao the terra is uwed in market economics today than they would consciously admit.

So far the soviet planners have not been able to settle upon anmethodology, und there is no standard rate of "capitalprescribed by thc central planning authorities for use iii such decisions- Thc current status of this problem in Soviet economic theory and practice is believed to be summed up in the followingfrom the recent report on extended discussions of capitalwhich have taken place during the past year Ihfi

Thusesult of the discussions it wasthat under socialism the law of value and the profitability of tho various enterprises cannot beas the criterion of the economic effectiveness of capital investment. The economic effectiveness of capital investment consists in the correspondence of the investment to the demands of the basic law of socialism and of the law of planned' proportional development of the national economy. It is expreooed in receiving, as far as isarger national incomeesser expenditure per unit of production, and in correspondence to the structure of socialist production, which will assure the maximum satisfaction of national needs, the further uninterrupted growth of production on. the basis of the highest technology and the strengthening of the defense capabilities of the country. In project planning the profitability of the. enterprises must be considered within the framework of this higher form, of profitability.

'esult of the discussion itrought out that in many instances the minimum direct- cost and the least capital cost of production cannot be considered the deciding factor in the economic effectiveness of project planning decisions. If reduction in direct cost Is connected with additional capital investment, it is expedient toomparison between the variants. This comparison ought to be considered as one of thein making project planning decisions-

Given the scale of output, which is determined by the central authorities in accordance with the hierarchy of priorities, transfer price changes occur primarilyesult of changes in the cost of production and have no necessary, automatic relationship to changes in demand. Price may be adjusted toupplementary control to the use pattern determined by tbe planning priorities or to insure

that price does not offer an inducement to deviate from the direct allocations, but price is not the sole determinant of the schedule of priorities.

.'. Soviet writers are quite explicit in their discussion of the function of price and its relation to the'law of value, as is indi-cated from the following; quotation frOm-one'bf the more prolific writers on the:

Thc regulating sctivi^'jof'the^law of value cannot but be considered' as" theno of the price relationsMps'between various ccmmodlties.* Into the:ceans' of production, which are directly distributed-be6ween;the various enterprises, consumer goods are acquired' by the consumers (the* collective'farm membersy the' populaftion)'InHhe'forra of the free sale of this or that article of cbosumpticm.

Inasmuch as the decisive pari ofj accumulation in the socialist economy is. concentrated in tbe;hands of the Soviet 'Dtotc'and distributed lm': ococn-dance with;- he demands of the society hole (exprensed'through the statehe scale and'tempo of: repro^iogin various enterprises'"'and0hd^try^oe^n^etermine the. level of. prices of the means of production.Hces'of the means of production,foreign trade, consists in its role "as antrument for economic calculation, for accounting, for determining the profit and loss position of thefor verification and control (of the activities) of the enterprise.

For consumer goods, priceirect distributive function; for producer goods, price is confinedosting functionthat is, to an internal control 1unction employed to minimize the inputs of goods and services for any specified output.

* The word cctaaodltles in this context is usedoviet Marxian sense. It refers Only to consumer goods, since thc law of value does not "regulate" the production and distribution of producer goods.

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B. Law of tbc Consent Growth of the Productivity of Labor.

Most of thia section ls devoted to reiterating the Marxian principles that constantly increasing labor productivity is necessary for constant growth and that "past" laborthat is, machinery, structure, and so onis to be continually substituted for "living" labor but always in an attempt to decrease total labor Inputs per unit of output. For the periodincreased labor productivity is said to have accounted forercent of the growth ofutput. In addition, there are two aspects of labor productivity which are discussed .elsewhere in the textbook but which are relevant to the problem of labor productivity.

First, the textbook quite frankly repeats Twhat other Soviet writers have said many times: wages In .the USSR increase along with labor productivity but alwaysuch slower rate. The Russians themselves consider thishe most important single source of investment funds. Maintenanceery high rate of savingand defense account foroercent of gross national product) means that consumption lags far behind the growth of labor productivity. Second, the introduction of "automation" (automatic machinery and factories) is expected to play an increasinglypart in future growth of labor productivity .and intlie differences between mental and physicala, process which is on essential condition for the transition,to Communism. As an example of automation the textbook cites thd tvoactories put-into productionor producing truck engine pistons. These plants are remarkable for their degree oftheir designers nave gone to great lengths to design expensive and complicated machineryew semiskilled workers vould he sufficient. Consequently,ngineers and maintenance men vere required to operate each plant.

The degree of mechanization found in these plants reflects on earlier discussion of machine-tool designing which took place in The occasion was the publicationook on automation by an outstanding Soviet authority on automatic-tool and tool-line design.. Shaumyan. onference of the top toolin the USSR severely criticized Shaumyan for stating that automatic tools should be designed with the highest possible rate of output technologically possible and that one of the objectives, and advantages, of automation was the substitution of semiskilled for highly skilled workers- Thc conference went on to assert that

automatic machinery in the USSR oust be designed to minimizein the productive process and to substitute highlyand engineers' for less skilled individuals. Thiswas followed to the hilt in designing the pistonabove-end'results, of course, in lavish use ofwhich is 'a'scarce*hether'Soviet theoryor not. Recently rah article in the'-Jburnalof the machinesuggested somewhat The authorthat more attention be devoted to making stehdard tools serai-and to using/Outcaaatic transfer-equipment withmodels, rather than designingiensive andtools which can produce only'-'one itemi is still in itB infancy in the USSR as in the Vest.point is' that implementation of tne^poLicies forwhich are'aniplied by thete^bod"Je may' well-(relativearket economy) andack ofin prcdwjtive'"'

irect-Cosc:,'^

the earlier postwar years, Soviet-economlBts used'd most interesting concepthe:xtlfferehee-between the -cost of production and the', yhb^saleiprice""' ost of production waa;aeri!neVlMgosehe' cost, inasmuch as it includes thr' and scmifinlBhed goodsy fne^snd'i and administrative'he

wholesale price' (net operating incomeerminology) wa^icalled "surplus product" and was declared to be different' from Marx's surplus value because of social ownership of thc means of production'. The striking similarity betweenproduct'1 and "surplus value" seems to have bothered Soviet theoreticians, and the former term is being discarded. In the textbook this formulation Is replaced with the category of "net income" (chlstyy dokhod) to describe thebetween sebestolmost' and the wholesale price, the difference being identical with the "profits" of thc enterprise. Thus theof profits, most or which accrue to the state through the profits tax, become part of the "net income" of the societyhole. The other major part of net income (for the societyhole) is the turnover tax, which was formerly described as part of the "surplus product" formed in agriculture plus the "surplusver and above profits of the enterprises, in the light and food

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industries. Indeed, the authors of the textbook are dissatisfied with the tern "turnover tax." It Is notax (theyecause it does not enter into thc calculation of thc wage fund and of kolkhoz incoae. Likewise the authors of thc textbook do not like the word "profit" (prlbyl') and apparently would prefer "profitability"hichore limited connotation connected with the Govict concept of economic accountability: thc income of the enterprise should equal its costs of production including profit. In his Economic Problems, Stalin indicated that such terms asproduct" were outmoded and should be replaced.

Much of the treatment of these problems in thc textbook was foreshadowed in an article by A.ho suggested that profits and turnover tax be called something like "netacburin went on to say that thc large volume of the turnover taxillion rubles per year) was Inesult of the low prices for producer goods furnished to light and food' industries. Bachurin'suggested that the prices of producer goods be increased ln order to transfer part of the turnover revenue to the net income (profits) of the producer goods industries. Having made this proposal, be immediately went on to say that it would complicate certain administrative-accounting problems and, more seriously, would contradict the policy of continually reducing prices of producer goods as direct costs were lowered. There the argument was left hanging. The textbook notes that part of the large volume of the turnover tax originates from the low prices of producer goods but goes no further. Indeed the textbook reaffirms tbe policy of reducing prices of producer goods in accordance with tbein direct costs (sebestolmont').

It is believed that the above discussion covers most of the highlights in the textbook concerning general theory, accounting practice, and general policies for the Internal economyhole and for industry. The problem of agriculture in the Soviet economy requires separate treatment.

IV. Political Economy of Soviet Agriculture.

There are four aspects of the treatment of the agricultural sector in tbe textbook which seem most deserving of comment: he treatment of differentialhe transfer of thc Machine Tractor Stations (MTS's)hozraschct (economic accountability)he insistence on thc observance of the fixed norms for deliveries to the

state; and (li) thc problem oi" transition to Gccmiunisra in thesector.

Treatment of the problem of differential rent in agriculturerare in Soviet economic literature; only fourthe subject are known to the writer (for'the postwar period). these articles arc rather vague, suggesting that tbeaware that they were on ideologically treacherous ground,all agreed that differential rent existed and that some partaccrued to theurthermore, they' more or less agreedexistence of differential rent was bound up with the naturefarm property (as contrasted with the state farm system)that'lts origin'Vas In the productive relationshipsin the productivei -

to the textbook there are two categories of differential rentjlh'tho collective farm sector. Differential rent of tbe first category, is defined, oa-the/'supplementary net-'lncome" arising free differences in quality of. land .and froou-location to markets, given the same level of-mechanization .and the same crop, pattern. rent of tbe second-category:.lBrdef inedsos the "supplementary netrising from differences-in^^llBtenBlty" of cultivationariations,in.liuwts: of.jcapital'iandVlabor, According to the textbookj'mout of. the differential'ne*lccdlectlvefarms istatement^which'Shouldibe .taken. with'IB large grain of salt for the Stalinist era at least. Tbe .textbook doesart:of the differential rent accrues to tbe state through payaentfl ln kind to the MTS's, obligatory" deliveriesyand the tax on.collective farm income. Ko mention is made of differential rent on the state forms; presumably the authors of the textbook do not admit Its existence on the state farms, because of the completely socialist productive relations which obtain there. Differential rent is not accorded an allocatlonal function.

Heretofore the operating expenses of the MTS'sthe cost of fuel and lubricants, spare parts, wuges, and administrativehave been financed by direct budget grants. Payments in kind for HI6 services apparently were accounted for through thechannels- It Is of great Interest to note, therefore, the statement ln the textbook indicating that In the near future the MTS's will be putost accounting basisheir income will be expected to equal their expenses,lat percentage profit, as

-

ip (run? lit state furmn and ln Industry. This development shuuld be placed In the context ol* another aspect of tin? newamely, making thc tractor drivers permanent employees of the MTS's instead of collective farm members who were part-time tractor drivers. Indeed, we might adopt one of Lenin's slogans and cull the present program "one step forward, two steps back." The backward steps are tbe concessions granted to the peasantryart of the new program, essentially short-run tactics to attempt to Increase production as quickly as possible. More significant for thc long run Is tbcof factory, urban relationships to thc countryside ln the form of MTS's to be placedost accounting basic and with permanent, wage labor. This will set the stageuture consolidation of the collective farms, perhaps turning them into state farms, and the constriction and/or abolition of the private plot-

The textbookair amount of space to asserting that hereafter the obligatory deliverywill not increase when the production of the collective farm increases. Theoretically tbc norms for obligatory delivery were previously setlat rate per unit of landiven region with relatively uniform soil and During the postwar period, however, it apparently had become common practice for procurement and Party organs to ruliic thc norms well above the established regional, rate for the more productive collective form?.. It in possible that fitelln himself wan personally responsible for the continuation and spread of this practice, since It apparently was eo common that thc central authorities musteen aware of it. From the tone of the textbook it would seem that the authors expect that the enforcement of the established rates for all collective forms will increase incentives.

In the treatment of the transition of tbe agricultural sector from socialism to Communism, there is no mention of Stalin's "product exchange." On the other hand, it is possible that thc authors do not expect commodity production and exchange to disappear until the end of the transltloral period.

The following formula is:

As long as two basic productive sectorshf ntai.< and collective farmcommodity production and commodity exenange, which the state uti.liv.es for the- construction of Ccxnauni am, inevitably continues. Commodity production and the categories eonnectwd with

-

It vlll disappear only on tbc basisingle/Jyotcm off property /relations/.

In substance this Is.Identical vith Stalin's position. Stalin's timing, hovcver, may have beene may have wanted to see the process begin before he died.

Inhe*'textbookeaffirmation ofMarxirt-Icninist-Stalinist' oToiJecfeives of eventualof' tho^oduetive'- relotlonfi "in agriculture andof'differencescountry. Here Itquote 'at-length the-treatment of the eventualthe collbctlve' farms given'in the chapter "on thc transitiontoti'-l'.-

The grovth ln the: productive Strength of theevokes the necessity for change in theo>the highest phase ofproductive" relations^ vlll be bar>ed upon unified,ownership of the" means oftranoitlotf tod^&nrmsTistrTjwnerBhlstrengthening and'mosti advanced development' ofbyiall^dillable means,-and

itoevel:sTne. existingbetween- town' and village" will (disappear onofnnuo! ct ownership fat the'mean* of

In the stage of socialism the existing differences between town and village, between workers and collective farm peasants are that industry Is composed of statewnership, while agriculture is composed of group, collective farm ownership. Electrification, mechanization, automation, and chemicalization existignificantly greater degree in industry. Despite thc extension of the cultural revolution ln the villages the rural population still has not reached thc level of thc urban population.

The Russianbstvrnnost', which is translated as "ownership" throughput these passages, meanstrictly speaking. "Ownership" iu used here because it is more likely to impress the reader that It ls the relationships of things and not the things which ore Important in this context.

The eJImination of the existing differences between town and village is proceeding in tbe process ofCommunism. Socialist industry Is the decisive force in obliterating the existing differences between town and village, between Industry and agriculture. Only the most advanced development of heavy industry by allmeans will provide the possibility for carrying out the full mechanization of all branches of agriculture.-

Socialist industry plays its reforming role in relation to agriculture primarily through thc Machine.Tractor Stations, which play the lending role In the development of collective farm production. As the most Important Industrial centers of socialist agriculture, and as initiators of advanced culture of cultivation, the Machine Tractor Stations are constantly widening and completing their service to- all branches of agriculture by providing the latest technology and permanent cadres of engineer-technicians, agronomists, and zootechno-logletE. Through the .Machine Tractor Stations the socialist state carries out its guiding role in the development of the collective farms along the road of the gradual transition from socialism to Communism. The significance of the state farms aa modelsarger and more highly mechanizedis becoming greater. Thus the role of all-national Ownership In the most complete development of socialistgrows more and more.

aragraph devoted to the importance of increasedthe textbook proceeds:

Thc agricultural, artel' Is the basic form of the collective farm during the course of the gradualfrom socialism to Communism. The agricultural artel'.ocialized economy* /productive forces/ aa the chief strength of the collective farms with the private economy /productive forces/ of the individual collective farm members, satisfies in thc highest degree the interests of the state, thefarms, and the collective farm members. The

* Phrases Ln bvackets have been inserted by the writer. The Russian word is khozyaystvo, which unless qualified (as it usually is here by an adjective) includes what the Marxists call "productive forces" as well as what they rail "productive relations."

- Si -

agricultural artel' contains enormous, still not fully utilized potential for;increasing the productivity of

technology through the actor Stations, the col-'* developing their socia-for the creation of tau^l* products.

of cultural, and dwelling construction in Lyefarms ^are being decided by developing

jalixed economy /productive

socialized economy of the col-re* completely the numerousollective form members aregricultural products is cmy of the collective farms 'of the- state, the demands of -find the personal demands of the

it willo have cows* and" young

es-frcm the'havingof - '-

Tbe chapters- on agriculture devote considerable space to current prbjb^Lems and policies. In dealing with other topics the treatment temdV'to'be more general. Itorebver, the textbook frankly admits that the growth in output of the agricultural sector has lagged so badly that the law of the "planned /proportional/ development of thehas been violated. It isthe opinion of the writer that, in effect, the authors of the textbook, arc admitting that the lag in the agricultural sector is inhibiting the growth of the economyhole.

There are several measures of this lag which can be briefly noted. Thus official Soviet indexes of value of output for agriculturalshow an increase of lk percent0 compared with lQ^O,2 was onlyercentO. Similarly, Sovietindicate that the marketed share of grainhat ls, that part of thc grain harvest available for urban consumptioncurrently does not exceedO level by more thanercent. Considerable increases have taken place only in fibers and sugar, and even these

haye shown almost negligible rates of Increase While the marketed share of meat and dairy products may have barely kept pace with the growth in urban population ln the postwar period, the decline in the livestock herds clearly would not permit this to continue for long, particularlyteady growth In the papulation.

The textbook clearly considers the "net Income" of the societythat, is, that part available for investment, defense, and other non-consumption expendituresto consist primarily of the turnover tax and Industrial profits. Gross receipts from the turnover tax have remained relatively constant at approximatelybillion rubles per year sine* loJib, while profits have risen sharply fromear6 toillion, rubles ihe bulk of the turnover taxis derived from, consumer goods which are ogrlcultwal .in origin, agriculture's share in the formation of the turitovex tax, however, probably has declined0 because the aaarketed Bhare of agricultural products and the prices paid for them have remained about the.same in the face of substantialthe aggregate state outlays for agriculturalperating coatc have been rising in the postwar perioda-alight decline1. it seems clear,.that the *netf the society from, the agricultural sector remained; stabler even declined in .the-periodla-lprtf indu^try.and transport, on the other, handy continued to expand fairly raoidly (that is, profits have risenfeanwhile.the economy as, a, whole has grown rapidly, it would seem that under these conditions the lag inoutputerious long-<rsnge growth problem and isiolation of the law of planned, proportional development.

V. Transition from Socialism to Communism..

There is one general characteristic of the chapter on thefrom socialism to Communism which may be somewhat different from the Stalinist eranamely, there is little emphasis on the present tense. For some years before Stalin's death, Soviet writers generally referred to the present ac being already in the transition period. To the writers who spoke of transition previously, Stalin'selection speech was the staple diet. In that speech, Stalin defined the "material basis" for the transition asillion tons ofillion tons of coal,illion tons of steel,illion tons of pig iron. The textbook does not refer to this speech, confining itselfew general statements to the effect that the

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USSR has the necessary resource -base eventually to make the transition Occasionally tbc "presents noted In passing.

' It is possible that Stalin's statement "we are now ln theto Crnramloa" presents the'desire of the aging dictatorlong enough toit of Ccinsunlsa. Thus, if Stalin5 yearsheight wll: nave achieved the ratesvhlch he wrrinaged In :oi6'ahi:vhlch he at that timenot be achieved;0 ear Given theseoutput Ln heovjr ^ustry, Stalin eight veil Lr/e'decreedby Gs^lnltl.oo* Ih thc same way" he' decreed socialism6 defepjLte the fact that'conditions ln the USSRrcronal^ to tlxr1 conditions reflected inreportsh century Kngland vhlch Marxcapltfillstic- exploitation than to the

view "of

Thus the textbook'a. abstract treatment

* Cemmunlsmuch more realistic cillialtes for'Something* that might reasonably be

heirs, still speaks

ong-

ftiich an iirterpretation

psii^enteecent issuef thc jereb'ent tradition-freer socialism to Catmoini' the ab^evanfti^.pji^tbei^Ur tcntatlrioeXiiaily"li'rf eft^ce'f of the- proolemlcf 'the' transition cbuld?ref Xcct

Soviet'capobilitiet^thanfi

. The^te^lwokood deal of emphasia to autcttatitm/and atomic power as the basis for eventually Achieving the transition from socialism to Communism. These are tbe things vhlch are to make possible thc ^abundancen of goods and services, the elimination of the differences between mental and physical labor, and between town and village. It probably can be oofely predicted that the Industries involved, particularly the. electronics industry, will receive increased attention in the future.

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APPBHDTX

SCUKCES

Oslrovltiyanov etolitlcheskaya ekonomiyu, uchebnlk,

Gosudarctvennoye Izdatcl'ctvo, Pollticbeskoy Literatury,'t (hereafter referred to as Ostrovltityanov). U.

Stalin, "Ekonomicheskiyc problemySSR,"

magazine supplement to Hovoye vremyaj Ko- UU,nd 9- - Ibid.

h. L- Mayzenberg, "Slctematlcheskoye snizheniye izderzbeklanovoye khozyaystvo, Ko.. U-

.

.

13- Stalin, op.nd 9- '

"Itogi dlckussii ob oprcdclcuil ekonosilcheskoy cf fektivnosti kapital'nykhromyshlennost'oprosy ekonomiki, HO-

15- L- Mayzenberg,arodnoo khozyaystve SSSR,

rabotakh naucbnyfch uetirezbdenii ministcrstvo stankostroenlya

nstrument, Ho. U-

Bachucin,SSR,"

Voprosy ekonomiki, Ho.,UO- G- Ostrovitityaiiov,

19. .

20- Pqrtiynuya zliUn,k- U.

Original document.

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