W. Leontief

THE BALANCE OF THE ECONOMY OF THE USSR

A METHODOLOGICAL ANALYSIS OF THE WORK OF THE CENTRAL STATISTICAL ADMINISTRATION

Among various problems which must be solved by contemporary Russian statistics, that of representing in numbers the total turnover of economic life is perhaps the most interesting as well as the most complex. As a result of many years’ work by the Central Statistical Administration, the “Balance of the Economy of the USSR in 1923/24” has appeared.^1. The principal feature of this balance, in comparison with such economic-statistical investigations as the American and the English censuses is the attempt to represent in numbers not only the production but also the distribution of the social product, so as to obtain a general picture of the entire process of reproduction in the form of a “Tableau économique” (economic table).

On the income side of the Balance is presented the value of the total amount of goods at the disposal of the whole economy during the year under consideration.

All these goods are divided three ways into separate groups. First, the three large-scale branches of the economy-industry, agriculture, and construction-are separated from one another. Second, all the goods created are divided into four groups in accordance with, so to speak their functional relationships to the process of production: (1) goods intended for individual consumption (production factor: labor); (2) raw and other materials; (3) fuels; and (4) tools of production. Finally, all values are broken down, in accordance with the formation of prices, into their component parts, which jointly add up to consumer prices-namely, local production prices, transportation expenditures, and trade mark-ups.

On the expenditure side, the table shows how the values representing the national economy’s income are distributed and used. The distribution of expenditures follows in general the subdivisions of income. The values are divided, according to their origin, into three main groups: products of industry, products of agriculture, and products of construction. The relationship to the process of production is again denoted by subdivisions into (1) consumer goods; (2) raw and other materials; (3) fuels; and (4) tools of production. All goods, whether used in production namely, in its three main branches), in the process of distribution (transport and trade), or in consumption, are divided into three main groups according to their economic rather than their production and technical functions. They thus find their expression in the income data, which distinguish among expenditures for production, transportation, and trade.

Clearly, this balance scheme is based on the methodological principle of exclusively material accounting. Only material goods are accounted for. The income side of the economic turnover is considered only insofar as it consists of “objectivized” material goods. From this point of view it is fully consistent that the public administration, whose budget has reached almost 1.5 billion rubles, should be represented in the balance by only 475.7 million rubles. The state does not create any material goods; its income is “derived” and as such does not have any counterpart in the income of the economic balance. But neither do its expenditures, e.g., the payments without material counterpart to second parties such as officials; these are also treated as “secondary” (derived) income. Inasmuch as state establishments act as immediate consumers, the corresponding expenditures are reflected in the category of collective consumption. The same device is applied to transportation. Its services are taken into consideration only to the extent that they enter as costs in the prices of goods; consequently, passenger traffic has been omitted.

Although this methodological peculiarity limits the attempt to make the balance represent a complete picture of the turnover of the economy, it nevertheless leaves the internal organic structure of the balance scheme untouched. The same thing cannot be said with regard to the concept and the method of calculation of the total income of the economy. This problem has great importance for the methodology of the entire statistics of production, and in the case of generalizations about the balance, its role becomes decisive. For example, in the accounting of “value added”-whose purpose is to calculate the net income of the economy-if total product constitutes only an intermediate item, then the “dualistic” concept of the total product represents the model as well as the basic element of the entire balance system.

Let us, therefore, briefly touch upon the general formulation of this problem, since only in this way can we critically evaluate the method which has been used in this scheme.

The total product is the result of the process of production, which, in addition to newly created values, also contains the value of the goods expended and worn out in its creation.

This latter value is usually called costs. In statistical methodology, the definite distinction between these two value sums means that the first of these sums-the net product-can appear no more than once in the process of production. Cost expenditures, on the contrary, can endlessly pass from one stage of production to another and reappear at each stage in the same form. Thus the net product of several branches of production is always equal to the sum of the individual net products; costs, on the contrary, amount to less than the sum of the individual total products, since they constitute only a part of the total value of production and since the same values are accounted again and again in various technically related processes of production. This reasoning, which appears somewhat complicated in abstract form, will become clearer in a numerical example. Let us imagine a complex branch of industry with three production stages. On the first-the lowest stage-a value (net product) of one unit is added to the value of expended raw materials and other expenditures equaling 2 units.

In this way, total product consists in 2 + 1 = 3. Further processing occurs at the second stage. To the 3 units, which occur here as expenditures, 4 new ones are added. Consequently, total product comprises 3 + 4 = 7. In its turn, the second production stage is included in the third and last stage, where to these 7 units 5 more are added. The values of costs, of the net product, and of the total product of all three stages are summed up in the table on the following page.

But if we imagine the same process of production as a single phenomenon, then the corresponding formula will appear as 2 + 10 = 12, where the first figure represents costs; the second, the net product; and their total, the total product. A comparison with the first conclusion shows that the sum of the net product remains the same in both cases (10); the costs, on the contrary, which were expressed by 12 value units in the first method, are expressed by 2 units in the second method thanks to the exclusion of all double counting. In accordance with this, the sum of the total product amounts to 22 units in the first case and 12 in the second. Each of these two magnitudes of the total prod-uct-the real one, i.e., that found after excluding any double counting (equal to 12 in our example), as well as the second, designated by us as the “total turnover” (equal to 22 in our example)-has a scientific meaning. The total turnover is more suitable for balance accounting than the real sum, for the same reason that the real gross product is much more suitable than the net product: the more deeply and widely individual relationships are included, the more clearly the organic structure of the economic whole appears. On the other hand, however, it is much more difficult to obtain a total turnover which can be applied in a scientific way than to obtain a corresponding real magnitude.

Growth of Value in the Total Product

Every statistical sum should be constituted in such a way that the relationship among the values of its component parts fully corresponds to the actual relationships of individual data included in the subject of statistical investigation. Both component parts of the real sum of the gross product-the net product as well as the original costs, i.e., those computed without any double counting-are accurate and indisputable. For this reason the requirement mentioned above is automatically fulfilled to a certain degree.

The matter of the total turnover is completely different. We have seen above that double calculation consists in considering the same value of costs repeatedly in several parts of a connected process of production. The larger the number of these partial stages, the greater the extent of such double counting, and the greater the corresponding total turnover. If the total turnovers of several branches of industry are to be compared with one another, the dissection of all these processes of production, which is necessary for such a calculation, should be performed in a uniform manner. Such dissection can be undertaken from two points of view. The first is the technical point of view. In this case the various stages of production which are technically analogous are looked upon as separate subjects of calculation. If, for instance, the individual branches of production of the textile industry are to be compared with one another, the production of yarn and fabrics of each branch-cotton, silk, and wool-should be computed and totaled. We thus obtain several total turnovers, computed in an identical manner, whose comparison is methodologically possible; but such a method can lead us to our goal only in the case where a statistical investigation is limited to a narrow circle of related areas of production.

If branches of industry which do not have anything in common technically are included in the investigation, this method will be completely inapplicable; there can be, for instance, no question of analogous stages of production in machine construction and paper production. In an economic balance, however, not just some but all the areas of the economy are compared, and the above method is, as a result, inapplicable. But even in this case various objects of investigation can be reduced to a common denominator, if the necessary dissection is performed from an economic point of view. The calculation is based not on any technically separate stages of production, but on economic unity. The total turnover will be the sum of the values of goods which are sold on the free market by the individual enterprises active in the given process of production. It is thus equal to the sum of goods produced by the corresponding enterprises.

Such a method provides a possibility of comparing the economic weight of all the areas of production with one another, leaving aside their technical peculiarities. But even this method is not always applicable; its limitations are greater than those of the method mentioned earlier. Economic dissection of the process of production is possible only when the latter is organized as in a barter economy, while the total amount of goods can be computed only with reference to a commodity economy. Like the ideal socialist economy, a large number of isolated natural economies do not know any intermediate economic division of labor and, consequently, any double economic calculation of costs. Since, for a balanced statistical comparison, subdivisions performed from a technical point of view are insufficient, it follows that the total turnover should be renounced and the real gross product be considered instead. But if the economy is organized partly as a barter economy and partly as a natural economy, a coherent picture of the whole can be obtained only through the computation of the real total income, since this is applicable to all economic systems, whereas the method of the total turnover-as we have seen-is not applicable to the branches of production with a natural economy (at least not to the extent necessary for balance accounting). The following circumstance must also betaken into consideration: inasmuch as individual branches of production interpenetrate one another to a greater or lesser extent by means of exchange, a certain double counting will take place in totaling their real gross product. Thus the total national gross product will constitute the sum of the turnovers. But a methodological danger will appear only in the case where a comparison with another total national gross product is undertaken.

Let us now turn to the main published table of the balance of production and distribution. The size of the shares marketed by each branch shows that the economy of our Union is still organized, in the main, as a natural economy. Agriculture sells a comparatively small part of its products; the largest part is used by the farm households. Nevertheless, the method of total turnover was applied here. Furthermore, the subdivision of agricultural production shows that the calculation of the total turnover was based on technical dissection: cultivation of the soil and of meadows, animal husbandry, forestry, fishing, and hunting. This method should be recognized as wholly wrong. As we have seen, such a method inevitably leads to a series of discrepancies, since there is no principle on the basis of which an objective calculation can be made of the total amounts of the total product of individual branches of production. Hence it is completely meaningless to compare the shares of the total products obtained in the various branches of production “per worker engaged in production” or “per capita” of the population (as shown in the balance table).

The balance does not give any references to the sources which served as foundations of its construction. Four categories of data can be assumed: (1) current statistics; (2) censuses, namely, the general population and industrial census of 1920 and the urban census of 1923; (3) statistics of the budget; and (4) other sources as, for instance, the data of state and trade organizations, of the cooperatives, etc.

As the first attempt of our statistics, the balance needs further methodological discussion. And such discussion will acquire a firm foundation only with the publication of all materials and with the indication of the methods used for their processing.

“Balans narodnogo khoziaistva SSSR,” Planovoe khoziaistvo, No. 12, 1925, pp. 254-258.

1. Ekonomicheskaia zhizn’, No. 72 of the current year. Report by P. I. Popov in the Council for Labor and Defense (STO).