The Economics of Soviet Planning
The Best Use of Economic Resources
These two books concern the “resource allocation problem.” Granted that there ought to be economic activity at all, where precisely should we set the nation’s land, labor, and capital to work? Should we make these exports or those import-substitutes? In what proportions do people want round and square buttons? Should we concentrate industry in the north or the south? Should this piece of fertile land become a city, should that semi-desert be cultivated at all? Should this hilly tract be ploughed by horses as usual, or should there be fewer tanks in the army in order that there may be tractors here too? Ought this moderately intelligent student to be a doctoral candidate, or shouldn’t he be out earning his living? To what price must this machine come down before we forget our traditional manual skill and use it instead? Should we save 19 per cent or 20 per cent of the national income next year? Every economy, whether run by the market or by central command, must and does answer literally billions of such questions. But they can be answered better or worse.
For all their extreme differences of tone and origin, Bergson (Harvard) and Kantorovich (Leningrad) are brothers under the skin. They both represent, above all, a major triumph of reason in human affairs—the same triumph. For a very long time Western economists, using the light that was in them, have criticized Soviet procedures for resource allocation as wasteful. Indeed such criticism began when the Soviet economy was but a twinkle in Engels’s eye: with Böhm-Bawerk’s Karl Marx and the Close of his System (1896). If Böhm’s choice of title was a shade premature, it can still be said that we are today witnessing the close of that part of Marx’s system he attacked.
This part was Marx’s theory of value and its usefulness for the day-to-day running of, a socialist economy. As it turned out, this theory was of little use to Lenin and Stalin. A theory that allows consumer demand no place, that recognizes only the cost of labor (neither capital cost nor land cost nor “opportunity” cost), that fails to differentiate this labor into grades, that assumes the average cost is constant when output changes, that does not recognize the bare existence of the resource allocation problem—such a theory might possibly explain human history across the centuries, but it does not tell the central planner what to do tomorrow. Marx never said what central planning should look like, but it could not possibly have grown the haphazard, irrational monster it is in USSR if Marx had been a “Western” economist. The exact extent of such irrationality is impossible to measure. Kantorovich thinks it very great: adherence to his principles, he claims, would increase the output of certain Soviet industries by 30 to 50 per cent. Bergson, again, will give scarcely any sector of the economy a clean bill of health.
Communists with practical responsibilities to discharge …
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Soviet Economics January 20, 1966