L. N. Litoshenko

METHODS OF CONSTRUCTING A NATIONAL

ECONOMIC BALANCE

I

The concept of a national economic balance is closely linked with that of the national economy as a unified economic process. The balance must give a diagram of this economic process.

In general, a national economic balance must be conceived of as a statistical summary of the economic activity of the millions of economic units and the combinations of these units which form the national economic body.

As is apparent from this definition, the conception of a national economic balance sheet is not the same as the conception of a balance sheet for an individual enterprise.

A balance sheet is usually the final account of an enterprise which presents the balances of various accounts for various branches of the enterprise. Each of these branches gives something to or receives something from other branches or other enterprises. As a result of the comparison of all the credit and debit items for each branch, we can obtain the excess of one over the other. The final balancing of all the individual accounts shows whether an enterprise operates at a profit or a loss. It must be noted that the enterprise as a whole does not figure in any of these accounts either as creditor or debtor. Only under this condition is it possible to construct a balance sheet of an enterprise without risking double counting of individual items.

These elementary propositions of accounting do not apply to a national economic balance sheet. Of course, the national economy too could be subjected to accounting analysis by breaking it down into a huge number of individual accounts and introducing into the account all the nonmaterial values which play an important role in the relations of each sector of the economy to all the other sectors. Such an accounting balance would, however, necessitate the conventional construction of many individual accounts. In the account for the workers, for instance, we should have to decide whether man-hours and wages are of equal value, and, therefore, whether for this account credit and debit must be considered to be balanced or whether one of them exceeds the other. Then, all the assumptions made in constructing individual accounts would pass into the general national economic account. Moreover, the national economic balance sheet would be like the balance sheet of an enterprise and would purport to give the net profits of the national economy.

This, however, would be pushing the concept of unity in the national economic process too far. A private enterprise exists for the sake of profit; the accounts of its various branches must show how profitable they are individually while the general balance sheet must show whether the whole enterprise is operating at a profit or a loss. National economic profitability cannot be measured by adding the imaginary balance of artificially broken down sectors and forms of economic activity. In the accounts of each group of the population, the volume of the satisfied needs would be concealed by the balancing parts of credit and debit whereas the general national economic balance would include only a more or less imaginary, unreal value—the balance of credit and debit.

The desire to adhere to reality leads us to give up “profitability” of any sort as a criterion of the national economy. This unreasonable concept is replaced by a realistic presentation of the production process, which is the production and distribution of physical items in one single national economic process. This limits considerably our conception of a national economic account. Now it will not aim at determining the “profitability” of the national economy. Its problem is much more limited: it does not pretend to provide anything more than a conscientious picture, as complete as possible, of the process of production and distribution of physical commodities.

II

The balance sheet covers the national economy as a whole, taking into account the objective results of the economic activity of the individual economic atoms insofar as they are expressed in the production of a determined volume of physical goods and in the simultaneous distribution of these goods among various categories of consumers. Here, the balance is conceived of as the equality of credit and debit items. The reserves on hand at the beginning of the year are considered as credit, while the funds remaining at the end of the year are entered into the debit column. The turnover record¹ of the physical items produced and distributed in the national economy during the fiscal year represents the basic part of the national economic balance for 1923/24 constructed by the Central Statistical Administration. To this are added balance sheets for the fixed-capital assets of the national economy and the fuel and power balance for the economic year.

The fixed capital balance sheets give the composition and the costs of all the basic means of production at the country’s disposal at the beginning and at the end of the economic period under study. This includes the buildings and equipment of industrial enterprises, machinery, livestock and the machinery and equipment of agriculture, all sorts of housing, national buildings, municipal services, transportation, installations and equipment, and finally the cost of the land in general including the cost of the land used for economic pursuits.

As can be seen from this enumeration, in the composition of the country’s capital we have included types of assets that are not used directly in the production process. But housing, civic buildings, and municipal services indirectly contribute to the economic life and are a prerequisite for the successful economic activity of the population. Their cost must be added to the cost of the assets that are more obviously a part of the production process. The capital balance sheets in the national economic account must show not only the sum of producer goods used directly in producing the stream of physical items during the fiscal year, but also the volume of the durables which were previously created and accumulated through the prior efforts of the population and which exist at the given moment. Here the conception of capital comes close to the conception of goods, excluding only household goods because these cannot be taken into account and are destined exclusively for private use.

The capital balance sheets try not only to determine the state of the capital at a given moment but also to show the changes undergone in a given interval of time. These changes may be due, on the one hand, to the wear and tear or the amortization of the assets or of the capital and, on the other, to the addition of new assets or capital created during that period. The first of these capital turnover items has a minus sign, the second a plus sign. Balancing these items and comparing them with the capital assets at the beginning of the year, we can see whether in the course of the year there has been an accumulation of assets and of capital or whether, on the contrary, more products have been consumed and exported than newly created within that period. Thus the capital balance sheets can be used, on the one hand, to determine the absolute amount and composition of the assets and capital with which the society works and, on the other, to show whether further accumulation has taken place that year or whether the national income and consumption have been balanced at the expense of the old capital reserves.

It must be noted that these balance sheets do not serve any other purpose in the system of national economic accounting. When constructing the balance sheet of an enterprise, the accounting of capital is organically inseparable from the rest of the accounting of the enterprise. Without an account of the movements of capital, it is impossible to determine whether an enterprise has operated that particular year at a loss or at a profit. But the national economic process in the social-organic concept cannot show either a profit or a loss. The capital balance sheets are of interest in themselves and precede the turnover record only because the existence of a reserve of producer goods is a logical prerequisite for the production process. In the sequel, however, in the main tables on the production and distribution of physical commodities, the data on capital are not repeated.

III

The data on the fuel and power balance have a similarly independent place in the system of national economic accounting. Here we want to present as complete as possible an account of the motive power which is at the disposal of the Soviet national economy and which, to some degree or other, has been used in the production process during the fiscal year. In motive power, we must include first of all the reserve of manpower in the section of the population that supplies physical labor for economic processes. Another source of motive power is the draft animals, which are the main source of motive power in agriculture. Finally, the fuel and power balance must include the potential power of all the steam, water, electric, and other prime movers which are counted as part of the country’s fixed capital.

As in the case of capital, we determine for each type of power not only the reserves at the beginning of the fiscal year, but also the expenditure in the course of the year on production and the state of the sources of power at the end of the year.

In a private-enterprise balance sheet, of all these calculations, the most important would be the amount of power expended, which, expressed in money terms, would be a major debit item in the production expenditure.

The conception of the national economic process, as we have explained, has no category of profits nor does it have a complete record of expenditures, these categories applying only to private enterprise.

Therefore, elements of the fuel and power balance cannot enter into the turnover record of the national economic balance sheet. The fuel and power balance, like capital balance sheets, remains an independent section in the national economic balance sheet, a section showing what reserves of motive power are at the disposal of the national economy and to what extent it has been able to utilize these reserves for production purposes in the course of the fiscal year.

IV

The turnover record, as has been pointed out above, forms the basic part of the national economic balance sheet. It is here that, by balancing the credits and the debits, we obtain the turnover of the physical items reaching the national economy and expended one way or another in the course of the fiscal year.

The turnover record is presented in the form of a table where the stub contains the various sectors of the national economy and the columns show all the debit and credit items.

For the stub, the question arises as to how the individual sectors of the national economy should be subdivided. To take the total output as a whole would limit excessively the practical significance of the balance sheet, which would then show only the total volume of the national economic process and turnover of goods without imparting any information on the share of even the large individual sectors. The opposite extreme would be to represent the process of division of labor in all its actual complexity. However desirable it may seem to follow through on each commodity, this is impossible in practice because of the lack of adequate statistical data both for production and for distribution. A solution has been found in the division of the national economy into major sectors covering the production of more or less homogeneous products and goods. The balances for certain consumer goods of major importance are presented separately on special lines.

Finally, the stub of the turnover record has been given the following form:

Publishing Industry

Construction

As can be seen from the above listing, the national economy is taken in sufficiently fractioned subdivisions to make it feasible for the balances of individual lines to serve practical as well as scientific purposes. It must, however, be kept in mind that the national economy has been broken down into separate branches on logical rather than formal grounds. Obviously, the independent production of grain or of milk in agriculture does not exist. Similarly in industry, on the one hand, the processing of wood, for instance, encompasses a whole series of industries which are united in various noninterconnected industrial and trading organizations; while, on the other hand, there are frequent instances when one single combination turns out products which belong to various groups of logically classified industries. For practical purposes, especially where the study of markets for state industry is concerned, it is important in grouping the industries to keep in mind the division that exists in practice in the system of the state trusts and syndicates. However, if we adhered to this classification in the horizontal line we should not always be able to follow the destiny of the product of the group of trusts under study in the stub, where, in production and distribution, the products of national and small-scale private industry are inseparably fused. Insurmountable difficulties would also arise regarding the distribution of the product of individual organizations in cases where this product is of a mixed nature and where some of its component parts have to be supplemented by manufacturing or by foreign imports corresponding to other groups of industrial combines.

In drawing up a physical credit-debit balance, it is necessary to adhere strictly to the homogeneity and the uniqueness of the product entered into that column of the balance. Only in this way can we guarantee that we have not counted a product twice or failed to count it at all. The construction of the turnover record has been subjected to this principle, and this is why the grouping of the national economic industries is based on logical rather than formal premises.

For the same reason, in the main balance tables, the national economy is not divided according to the nature of the enterprises. However important it may be to differentiate between the economic activities of state, cooperative, and private enterprises, their products still melt together and become inseparable during the distribution process and it remains impossible to follow through on each of the products in all the sections of the turnover record. Therefore, within the limits of the turnover record all the forms of production are viewed as fused and are classified only according to logic. In special tables devoted to a more detailed description of a manufacturing process, this process is broken down according to the nature of the enterprises and light is shed upon the proportions in which the individual and communal economies have participated in the process.

A special explanation is needed on the manner in which construction is included in the turnover record.

Construction in this case is logically conceived of as a component part of the national economic labor-division process, like any other branch of manufacturing, be it of producer or consumer goods. Construction must include all forms of housing and industrial buildings regardless of who is carrying out the construction-the state, the cooperatives, a private organization, or individual citizens. The value of the projects completed in the course of the year is considered as the product of construction. In the expenditure column of the turnover record will be entered the categories of users to which the construction projects have been allotted.

It is somewhat different with transportation. Transportation could be viewed as an independent branch of the national economy and, on an independent horizontal line, followed through as “gross value of output,” considering as such the gross cost of all the transportation services, as well as the distribution of this “output” among the various categories of users. However, giving transportation a separate line causes insurmountable obstacles. First, one would need to have the cost of all services, not only of mechanical but also of the total land transportation; second, one should seek the nonexistent distribution coefficients of the gross value of transportation services throughout the entire list of expenditure items of the turnover record; and third and finally, by introducing a horizontal line for transportation, one would be forced, artificially, to take the cost of transportation out of the consumer price for all the physical goods whose turnover appears in all the other horizontal lines of the turnover record. In order to avoid artificial constructions of this sort, transportation has not been given a special line in the list of sectors of the national economy in the turnover record. Instead, when the expenditure items were determined, real market prices were taken for each group of physical goods. These prices paid by each category of consumers included, by this very fact, the costs of transportation to the place of consumption of the product. The total cost of the transportation services, its “total value of product,” has thus been included in the column on the difference between the entries evaluated in costs of production and the prices paid by the consumers. From the total sum of this column for all the branches of production, by using actual data on the value of the services of mechanical transportation and by an approximate estimate of the value of other means of land transport, it is possible to calculate the total cost of the transportation services for all branches of the national economy.

Another important branch of the national economy which, it would seem, should be handled in the same way is trade. Most of those who worked on constructing the balance thought that the trade addition to the production costs is in principle of a different nature from the cost of transportation services. While transportation, in moving the products, creates a new value, trade merely derives its profits from the cost of the goods at the place of their consumption. Therefore trade cannot be considered as one of the productive branches of the national economy, and it has a place only in a vertical column of the turnover record. This does not prevent us from including the trade income together with the value of the transportation services and the net value of output of other branches in the total sum of the national income. But the calculation of the latter is already a derivative accounting operation to which are subjected the individual items entered in the horizontal lines and in the vertical columns of the turnover record. In a balance sheet of physical items trade has no horizontal line, since the balance is based on a logical classification of the economic branches which represent the productive activities of the population.

In order to make a complete examination of the turnover record, we must give some further explanation of the way in which the total product of the national economy has been broken down into groups of goods according to their destination, at the same time as the products have been classified according to the branches of production. All the actual variety of products of agriculture can be reduced to four groups according to the purpose they serve. Some products (a), both durable and nondurable, are produced for direct consumption by the people. Others are producer goods for the production of direct consumer goods. This vast group of goods can be subdivided into three subgroups: (b) raw materials, (c) fuel, and (d) tools of production, according to their function in the production process. In classifying all goods in the above-mentioned four categories, we come across some natural difficulties which are due to the fact that the same item can, according to circumstances, be used as a producer or as a consumer good. Bread can be consumed by humans or be used as raw material for feeding pigs; a pail can be a household utensil or it can be a tool of production on a dairy farm; crude petroleum can be used either as fuel or as a raw material in the refining industries. Many products change their function according to whether they are used for production or for consumption. In practice, a part of the bulk of these products goes to one destination, another part to the other. It is impossible to reflect this process in the turnover record completely. The destination of the goods that can be used either way is determined in the process of the market turnover. At the moment the good is being produced, its destination is not known. A yard of calico can go directly to the peasant or to the factory for ready-made clothing. If we had tried to break down all the products according to their actual destination in the fiscal year into categories a, b, c, and d, we should be reversing the problem of balance. In that case, instead of starting from the production and then seeking the distribution channels of the goods produced, we should have to do the reverse and start from the distribution, and, having described it in detail, determine the proportion in which the production branch is broken down into the product categories a, b, c, and d. Without even mentioning the fact that we should thus find exactly the same products in different groups, we should stumble upon insurmountable difficulties in trying to divide the whole of exports into categories. And then, when the proportions between a, b, c, and d were finally found, they would, within the limits of each branch as well as for the whole national economy, refer only to the year under study and be true only for the given economic situation.

For this reason, another basis has been used for the classification of goods according to their destination as consumer or producer goods. The categories a, b, c, and d must show the general type of production of a country. The ultimate aim of each country, as we have said earlier, is the satisfaction of the needs of the population by the means of commodities suitable for personal consumption. But in actual fact the total quantity of commodities consumed can be obtained in different ways. All of it can be produced by the national economy by expending in the course of the production process a corresponding quantity of values—raw materials, fuel, means of production; or it can be imported from abroad; both ways can be used. What must be revealed by the division of all the commodities circulating in the national economy into categories a, b, c, and d, in combination with the corresponding credit-debit items in the vertical columns of the turnover record, is the way the national economy is constructed in this respect: what quantity of direct consumer goods it produces; how much raw materials, fuel, tools of production; what use it makes of each of these groups of products, whether its production is a self-regulating one in which the quantity of consumer goods determines the quantity or production of other commodities; whether, on the contrary, it specializes in the production of one of the consumer goods; and what, in this case, it does with that goods’ surplus.

All these questions assume that the products have some sort of permanent classification rather than being scattered haphazardly through various groups according to the conditions prevailing in a particular year. This is why a fixed nomenclature for the products has been laid down as a foundation for the breakdown of the products into categories a, b, c, and d.

The category (consumer goods, raw materials, fuel, or tools of production) to which each product belongs is determined beforehand, regardless of the actual destination of the product in the current year. Products that can be used in one category or another are put into the most important one. Thus, finished fabrics belong entirely to the category of consumer goods, grain is considered a raw material, oil is classified as fuel, etc. Then, throughout all the credit-debit items, each product figures only on the line (a, b, c, or d) to which it belongs. It may happen that consumer goods will be spent partly in production processes and, on the other hand, that fuel will figure in personal consumption. These occurrences are not as peculiar as they may seem at first glance. The main purpose of the classification of products into the categories a, b, c, and d, as we pointed out before, is to show the structure of the national product and follow through on what happens to each one of its parts. England mostly produces tools of production, which she exports. We specialize in consumer goods and raw materials. A portion of the raw material is exported abroad while the tools of production we produce serve the internal demands of our national economy exclusively. The classification under study is an effort to detect such characteristic features of the Soviet national economy. It is clear that to achieve this aim it must follow the principle that we have described above.

However, the classification of the products into categories a, b, c, and d on the basis of their actual destination is not completely eliminated from the questions studied in this paper. The independent interest of this type of classification lies in the fact that it shows in what relations were, in the accounting year, on the one hand the mass of products expended in the process of production under the form of raw materials, fuel, and capital goods, and on the other hand the mass of consumers’ goods produced, with the help of these expenditures. Besides answering the extremely important question of the level of material expenditures, this breakdown of the annual production, when examined jointly with the capital balance sheets, will show precisely in which industries the accumulation of capital takes place.

It goes without saying that the breakdown of products into goods for personal consumption (it would be more correct to speak of finished products), raw materials, fuel, and capital goods on the basis of actual destination can be done only in tables of production and of industrial consumption. It is impossible to make such a breakdown for all the credit-debit items throughout the turnover record, since it has been made from the viewpoint of the role of the products in the production process. If a product is also expended, say, by being exported, for satisfying the needs of the population, for trade, etc., we cannot say whether it is expended at its destination as a raw material, a fuel, or a tool of production, because the classification of destination cannot be fully applied to the enumerated debit items.

V

Turning now to an examination of the vertical columns of the turnover record, we shall first dwell on its credit items. In each group of products entered in the individual lines of the stub, these items comprise all the sources from which a given quantity of a product could pass into the national economic circulation.

In the first place, the source of most of these products is the domestic production of the current year. This credit item in the balance receives the closest attention and much effort has been spent in determining the amount of production in the individual branches of the national economy.

The turnover record requires information on the size of the gross product of each economic sector because it is the gross product of each sector that enters into the course of the distribution process, whether this is haphazard or planned, and it is the gross product which is distributed among the individual debit items of the turnover record.

We should not be taken aback by the fact that in the summing up of the lines in the stub we have to add cotton, cotton yarn, and then fabrics made of cotton yarn; iron ore, metal, metal products, as well as the products of the machine-building industry manufactured from the semifinished products of the same metal. In reality, this is the way it happens. The production process is uninterrupted: there is a stream of raw materials coming from the entrails of the earth, from forests and bodies of water and arriving at the places where they are processed; then the semifinished product is moved from one industrial establishment to another, the finished product being placed at the disposal of the consumer. Each quantity of raw material passes successively through all the phases of production and is never in two places simultaneously. But as soon as it moves on, it is replaced by exactly the same amount of the same material in the preceding phase of its processing.

If we could imagine an instantaneous photograph of the national economy, we should find all the compartments of this labor division process filled by absolutely real quantities of material in various stages of processing. If, instead of an instantaneous photograph, we take a section of time and add up the total amount of raw material mined in that period, then the total amount of semifinished products produced by the industries, and, finally, the total quantity of finished products put at the disposal of the consumers during this same time, we are not distorting the real picture. We simply find by this method the sum of the heterogeneous values which in actual fact have turned over within the year in the national economy and which form the real basis for economic activity and economic interdependence of all the economic units of which the national economy is composed. And, since the turnover record of the balance sheet must show the circulation in the national economy of physical goods within a given period, the gross product of each branch of the national economy must figure in the income section of the turnover record.

It must be noted here that the combined analysis of production that was adopted in the balance sheet for industrial products is abandoned and separate account is taken of the amount of production in each group—the large-scale industry and the small-scale artisan and handicraft industries. The reason for this division of industrial production is, above all, the fact that different methods have been used in giving a statistical account of “census industry” (using more than 16 workers) and of non-census industry, with different degrees of reliability. Whereas for large-scale industry there is direct data from a comprehensive and uninterrupted follow-up, for small-scale industry we must base ourselves on pre-1914 norms of labor productivity and on later data for the number of artisans and handicraftsmen of various specialties. Besides these technical considerations, the division of the product into that of large- and small-scale industry is also useful because it immediately brings out one of the most essential features of the Soviet economy, the shares of the state and private enterprises in various branches of industrial production.

In other branches of the national economy, the statistical method does not require that the production of individual categories of economic units be brought out, and information on the scope of production is given by one common figure for all types of economic units.

The attempt to grasp the production process fully in all its actual variety of forms leads us to another, perhaps quite unusual, broadening of the concept of gross industrial production.

In the USSR, where the rural economy still to a considerable extent retains the features of a barter economy, it is only from a technological viewpoint that it can be said that a considerable share of agricultural raw materials is processed in industrial enterprises—usually small ones—that have detached themselves from agriculture. From the economic viewpoint, the raw material does not leave the hands of the peasant who has produced it; it remains his property. The extent of this type of relation between agriculture and industry is considerable. It comprises, for instance, all milling (except for the trade chain), a considerable part of vegetable oil production from oil-bearing seeds, blacksmithing, tailoring, carpentry, and the handicraft industries. In all these cases, in taking the grain and the oil seeds to the mills, in sending material to the tailor shop, hiring a carpenter, or taking a horse to the blacksmith, the peasant pays for these economic operations and has his raw material technically processed. In accounting the production of the industrial enterprises, the question arises: should the cost of the wages to the labor incurred in processing the raw material and the cost of the raw material (belonging to the customer) be counted in the production of these enterprises or not? With respect to labor, the answer is yes. It is somewhat more difficult to answer the question of the customer’s raw material. Adding it to the gross value of output would inflate the latter by introducing into it values that have never been paid by the owners of these industrial establishments and have never entered into the turnover of these enterprises as real values. If, on the other hand, this raw material is excluded from the gross value of output, considerable difficulties are encountered in compiling the expenditure part of the turnover record. In this case, it becomes necessary to break down the cost of the finished product and write off separately as consumed the cost of the raw material and the cost of its processing. For instance, the cost of the flour obtained from the peasant’s grain would have to be written off as consumed partly on the line reserved for grain, in proportion to the cost of the latter; partly on the line for the milling industry, in proportion to the cost of the milling. Along with this, on the line for the milling industry, not only in the cost of milling but also in the cost of grain, the cost of distribution would have to be taken into account since it is purchased by commercial mills and is included in their output. To avoid inconveniences of this sort, which distort the picture of distribution, the convention is adopted of including the cost of the customers’ (peasants’) raw materials in the gross value of output of those branches of production which, if only partly, use their own raw materials. For the trades and handicrafts engaged exclusively in processing other people’s raw materials, the problem is solved differently. In this case, only the gross earnings of the processors are entered as the product of these branches while the turnover of the processed materials is entered in the horizontal lines reserved for the materials in question.

The method of determining the gross value of output, which we have described above, changes somewhat the usual conception of the interrelation between various branches of production. This fact must be kept in mind when we examine the lines giving the totals of the balance sheet. The largest shift takes place in the ratio of agriculture to industry. Of the huge mass of grain and oil-bearing seeds, hardly any goes through the market, since it is brought to the flour and oil mills for processing by the owners, is entered as part of the gross value of output of these industrial branches, and is thus repeated both in the section for agriculture and in the section for industry. This does not change the absolute volume of agricultural production but it increases, relative to the usual conception, the output of industry, especially of the food industry. As a consequence, in the total sum of the gross national product, industrial production increases while agricultural production remains more or less unchanged. Even greater shifts take place in the debit section of the turnover record, where the expenditure of all raw material foodstuffs other than homemade ones is entered in processed form and, because of this, the share of industrial products in the rural economy appears unexpectedly high.

In general, it is hard to draw a precise line between agriculture and industry. Butter can just as readily be regarded as an agricultural product or as an industrial product obtained from the processing of agricultural raw material. The same can be said of the small mill’s output of vegetable oil, flour, etc. Doubts may arise even concerning the first handling of grain—threshing, etc. If the national economic balance is considered as one single production process with division of labor, then the differentiation between agriculture and industry must be based on technological considerations. The public does not consume grain or oilseeds in their raw-material form. Therefore agriculture, just like the mining industry, is concerned with producing raw materials. All this raw material must then be subjected to processing in order to be made suitable for consumption, and so it must all go through the processing industry regardless of who the owner of the raw material is and of whether it has passed through the market or not. From this technical viewpoint, it is essential to include the raw material of the customer in the value of output of the industry. Although the industry does not pay for the raw material (which, therefore, from the economic viewpoint does not enter into its turnover), when we give as its production figure the total amount of raw material processed, whether it is its own or somebody else’s, we thereby indicate the total amount of work of the industry and the total amount of material value that has passed through its technological apparatus.

Such an expanded interpretation of the concept “industrial product” does not, however, include the processing of agricultural raw materials at home.

The boundary between processing by small-scale artisan industry and home-processing is fixed by the fact that the former is linked to the market while the latter is for household needs. The artisan or the handicraftsman, even when he is processing someone else’s raw material and working for a customer, is dependent on the market, and, from the organizational viewpoint, his functions are separated from the household. Conventionally, we could add to his earnings the cost of the processed raw material, thus measuring the volume of the technological productive functions actually accomplished. There is no logical reason, however, to add to his production the work he performs strictly to satisfy the needs of his family. All agricultural raw materials which are home-processed must be counted off as consumed in their natural state by the rural population and may not be included in the sum of gross value of output of the industrial branches performing definite technological functions of processing. Thus the cost of the product of home bread-baking is not included in the total cost of the product of the bread-baking industry because it does not join that product on the market.

The gross value of output of various industries is therefore conventionally increased only by the sum of the costs of the raw materials that they process. Moreover, in order to facilitate the economic analysis, this sum is isolated from the total cost of the industrial product and given for each industry in a separate column or in a footnote. This makes it possible to determine the gross value of output of the respective industries in both variants: in the economic variant, which comes close to the actual sum of gross turnover, and in the technological variant, showing the sum of values which have gone through the stage of technological processing performed by the given industrial process.

For the basic divisions of the national economy, i.e., the lines giving the totals for industry and agriculture, the turnover record is also given in the tables in the form of the economic variant. This table is unlike the basic and detailed technological variant in that the cost of grain processed in mills on the order of the rural population is excluded from the gross product of industry and entered in the debit-credit line of agriculture.

The gross product for a given year is the main but not the only source of physical goods entering into the national economic circulation. This circulation can also be increased by imports from abroad and by reserves that have accumulated during preceding years.

These two credit items in the turnover record do not require detailed explanation, as did the gross product.

With respect to imports it must be kept in mind that the total quantity of each commodity coming across the borders of the USSR is entered as a credit item. And it makes no difference whether the commodity is used entirely for home consumption or whether a part of it, in the same or in a processed form, is re-exported abroad. The balance sheet aims at fully accounting the national circulation of goods and considers the exporting agency simply as a transporter of goods.

As to reserves from preceding years, which also go to increase the turnover of a given year, theoretically, we should count here all forms of stocked goods from the storage room of the consumer to the factory depots and the sheds for agricultural products. Each type of reserve, whether consumer, factory, or trade, can be used as an additional source to be offered, one which can increase the circulation of goods and consumption in the country without any increase in production being made that year. Unfortunately the state of statistical data does not enable us to determine fully the volume of the reserves. Information about reserves in the trade system is fragmentary and we do not have much more about the consumers’ funds. For this reason, in the 1923/24 balance sheet we had to content ourselves with counting the stocks in the stores of the industrial trusts and syndicates and the visible grain supplies at the main bread factories and others.

The failure to fully account for reserves cannot seriously affect the reliability of the national balance sheet. If we do not know in what direction the reserves have moved at the end of the year—whether they have increased, decreased, or remained unchanged—then when balancing the individual branches of production, we shall have no criterion for deciding whether or not the ratio of production to distribution is correct. Thus an excess of consumption over production and imports could be explained either by the actual satisfaction of the demand out of unaccounted-for reserves or simply by an incorrect estimate of production or consumption. But the general idea which we obtain of the 1923/24 economic year, the rapid increase in the turnover of goods, and information about the development of the trade network convince us that the reserves in the trade system and elsewhere could only have increased in the course of the year. Knowing this general tendency toward an increase in reserves, we must expect that, as a rule, when comparing the sum of credit items with that of debit items in the turnover record, we shall find a certain undistributed remainder which, with more or less certitude, can be ascribed to an increase in the unaccounted-for reserves that has developed during the year in the channels of trade turnover. This general precept should cause us to take a calmer view of all instances when, in balancing the circulation of goods by individual branches of production, we find some underconsumption, and to pay more attention to the instances where consumption is found to exceed output and imports.

The accounted-for reserves, the gross product, and imports are the only possible sources from which physical commodities can reach the internal market. Adding these three items, we must obtain for each group of products the amount which, in a given year, has actually entered or could have entered the country’s economic circulation. This sum completes the content of the income item of the national balance sheet’s turnover record.

VI

The debit items of the turnover record must describe the distribution of various destinations in society of the total amount of products of each group put into national circulation. We use the word “distribution” here in the broad sense, extending it to any expenditure of products in their natural state, independently of whether the product goes first through the market or is taken from the reserves resulting from the whole economic process.

A complete enumeration of the debit items mentioned in the balance sheet includes material expenditures for agricultural and industrial production, construction, transportation, the personal consumption of the rural and urban population, the satisfaction of collective needs, exports, and reserves at the end of the year.

One of the most important items of expenditure of material resources is their use in the production process: a considerable share of the gross output of coal is used for heating plants and factories and is therefore used in the production process of the goods produced in those enterprises; the gross output of cotton goes to the cotton mills and then to the textile industry; most grain goes to the mills, etc. All this expenditure of products on production is entered in each horizontal line of gross output. One single figure is used for the total for the whole of agriculture; for industry, two figures are used: the large-scale factory and the small-scale artisan industries are entered separately. For each national economic sector and for each group of products of which it is composed, the figure for industrial consumption thus shows what amount of these products has been expended in the process of agricultural or industrial production. The machines and the tools produced or imported that year are also conventionally entered as consumed in production, although in actual fact only a fraction of them is amortized in the course of the production process of that year.

The sum of all the products consumed in the production process gives, over all the horizontal lines, the figures for the physical expenditure in the whole national economy. Contrasting this figure with the sum of the gross value of output computed in the income section of the turnover record, we obtain the net national product. This net product makes up the material part of the public income, used to satisfy the communal needs of the public, to supply transportation, the trade system, and exports, and to accumulate reserves. It must be noted here that by comparing the total sum of industrial consumption with the total sum of gross output one can find the net product only for the national economy taken as a whole. In order to find the net product for each individual economic sector, we do not need to take into account consumption by other branches of the gross product created in this branch. We rather need to know what amount of what products had to be spent in order to produce the gross product of the branch in question. We do not need to find out which branches the gross output of coal is expended in, but rather what quantity of commodities, and from what branches of industry, are consumed in the process of mining the given quantity of coal. In one instance we are finding out the distribution of the gross product while in the other we are determining the material expenditure required to produce it. The gross product minus the industrial consumption shows only what share of the product is consumed on the internal market and what amount goes to other categories of consumers. Only for the national economy as a whole does the sum of the shares of the gross product used in industrial consumption equal the sum of the material expenditures. This is so because whatever share of the gross product of whatever branch of production is written off as productive consumption in the line of that branch, it appears in the material expenditures of production in the branch into which it was entered.

The turnover record, as was pointed out earlier, aims at giving the physical balance for each branch of production. In each case, only the gross product can be the object of balancing and distribution since, in every branch of the national economy, the product is considered as a physical entity suitable for a special purpose and not as an abstract increase in value produced at the given step of the processing. If, for instance, we wish to follow the balance of finished fabrics, then there must figure in the income and debit items only the textile raw material or its value, including the raw material and the semifinished product, but not the value gained in the last phase of processing when the yarn is turned into material. The net product of individual branches of industry presents an independent interest and its calculation for all branches of the national economy is given in section III of the Tables [i.e., the Balance for 1923/24, not reproduced here—Ed.]....

The next expenditure items, closest to industrial consumption, are the consumption of physical commodities for construction, transportation, and trade. In general, under these three expenditure items, we enter all the quantities of the products that were needed in the course of the year for the functioning of these three economic sectors. For construction these products are lumber, bricks, iron, glass, cement, and other building materials expended in the course of the year on the building of factories, national, private, and other houses, and for all types of building repairs.

Transportation of all types is a consumer of various products for ties, rails, locomotives, railroad cars, fuel, and other manufactured goods and materials indispensable for the fulfillment of its functions.

Finally, for trade, physical consumption takes the form of all sorts of equipment for trading premises, containers, fuel, lighting fixtures, etc.

Almost every national economic sector finds a consumer in construction, in transportation, and in trade and, vice versa, each of these three counts among its suppliers of material products a greater or smaller number of economic branches. In examining the vertical columns referring to construction, to transportation, and to trade, it must be remembered, however, that the sum of the physical values shown in them is not equal to the total cost of expenditures on the functioning of these branches of the national economy. The cost of construction and repair work consists mostly of expenditure on wages; the cost of transportation includes the salaries of transportation workers and employees. Similar items exist in the expenditures of trade. Besides wages, the functioning of construction, of transportation, and of trade also involves several other expenditures such as rentals, taxes, etc. None of these debit items are included in the vertical columns for construction, transportation, and trade.

The balance sheet aims at showing the movement of physical items in the national economy, and from this viewpoint, the economic sectors under study, just like industrial consumption, interest us only insofar as they are direct consumers of one form or another of the gross product. The wages paid out in industry, construction, transportation, or trade must figure in the turnover record only in the form of material commodities into which, in fact, they are finally turned. But this happens in the households of the persons receiving the wages. Thus the corresponding expenditure of physical commodities will figure in the debit section of the turnover record in the special items covering the personal consumption of the total population. In exactly the same way, the rental, taxes, and other nonmaterial elements of expenditure are entered on the balance sheet in the form of material products into which they do finally turn in the hands of their ultimate holders. To understand correctly the turnover record it must be firmly kept in mind that the national economy is viewed in it as one single process of production and distribution of physical values. The formal and the real boundaries between the individual sectors of the national economy are viewed as functional limbs of one single productive organism. From this viewpoint the share of the total mass of consumption taken in the course of production by construction, transportation, or trade is measured by the sum of the commodities directly consumed by the branch in question in the process of fulfilling its specific functions within the national division of labor.

The next group of expenditure items of physical values is their consumption in the process of satisfying the needs of the entire population of the country.

Each member of society, whether he is a worker, a peasant, a shopkeeper, or a beggar, receives in the course of the year a certain income which he spends in consuming some physical commodities. Every time a horizontal line cuts the personal consumption column, the quantity of the group of products which is expended in the national economy in precisely this fashion is entered. From the viewpoint of the national economy, a product is expended on personal use the moment it passes into a private household. Personal consumption is thus taken in a broad sense. Bread eaten during the year, a length of material purchased, a house constructed, all these are considered as expended despite the fact that bread is almost immediately destroyed in the process of consumption, whereas the material and the house will serve the household for a much longer time.

The personal consumption of various products will differ considerably according to the level of welfare and the social position of each group of the population. There are not and cannot be any precise data as to the absolute amounts of consumption of the millions of people in the population. The determination of this debit item for each line of production must, therefore, be done on the basis of complex calculations which will be explained in special papers devoted to methodology and analysis. For the purposes of the turnover record of the balance sheet, we use only the final results which refer to the total population. It was necessary to introduce this division into the turnover record since it describes one of the most important subdivisions of the gross output market. Urban and rural consumption differ considerably in the structure of consumption and in total volume of demand. Definite knowledge of these proportions is indispensable in order to arrive at many conclusions on the basis of the turnover record of the balance sheet.

A horizontal examination of the debit items referring to personal consumption shows, as we already know, what share of the total gross product of an economic branch goes to private consumption. The summing up of the vertical columns of personal consumption gives the total cost of the physical values consumed by the public.

It must be noted that the conception of an agricultural and a nonagricultural population does not coincide with the usual division into rural and urban population. It has been impossible to use the latter, since, from the viewpoint of the difference in consumption level, we must allow for the fact that among the urban population there is a great number of people who have a rural way of life and, conversely, many people in the countryside live on an urban budget. Since in determining total consumption the budget is of prime importance, we have transferred from the rural to the urban category those persons exercising urban-type professions and leading an urban type of life in the country and, vice versa, we have transferred from the urban to the rural category those city inhabitants whose sources of income come from agriculture and who probably lead a corresponding life. A detailed description of the method of dividing the population into agricultural and nonagricultural is given in a special article.

The satisfaction of communal needs also causes a certain expenditure of material commodities. Collecting various types of taxes and income, the state and the public agencies construct their budgets and out of them satisfy a whole series of public requirements such as running the schools, the post office, and the telegraph, organizing medical help, maintaining the armed forces, laying water pipes and sewerage, etc. The performance of these public functions is ensured by the maintenance of workers and employees and by the expenditure of certain material products. The expenditure on the wages or upkeep of the workers, employees, and their dependents cannot be taken into account here because it is all in the form of consumer goods, entered in the section dealing with personal consumption. However, the maintenance of water supplies requires, for instance, fuel, piping, and mechanical devices, medical help needs medicaments, schools need teaching aids and textbooks, etc. All these material resources are needed to enable the public utility establishments to perform their functions. These functional expenditures of material commodities make up the items of the turnover record which deal with what is called communal consumption. This includes all nationalized and communal establishments, inasmuch as they use their income not only to pay for the upkeep of the workers and employees but also to purchase certain other material products.

Public consumption closes the list of expenditure items over which the gross product (including imports and reserves) of each branch of production within the national economy is distributed. Besides these items, the gross product can be expended by being exported abroad. Here, as for imports, the entire sum of exports across all the national borders is taken into account whatever the final destination of the products abroad may be. It must be understood that material expenditures on the organization of foreign trade are entered together with the corresponding expenditures on internal trade. In the export column only information on exported goods is entered, independently of all other conditions of foreign trade.

What is left at the end of the year forms the last item of the turnover record. It is accounted in the same way as the reserves at hand at the beginning of the year. The remarks we have made concerning the reserves at the beginning of the year also apply to this remnant. For individual branches of production in which the figures of the gross product exceed the sum of various items of distribution, the reserves at the end of the year must be augmented by the difference, which may be considered as an increment within the trade system in the course of the year or as a certain underestimation of consumption.

VII

We now know all the items on the debit side of the turnover record. Adding them, we obtain for every economic sector mentioned in the stub the sum of the products distributed by means of barter to various destinations. This final result of the distribution can be compared to the sum total of the entries on the production or credit side, which is composed, for each sector, of the reserves of the preceding year, the current gross output, and imports from abroad.

In its main features, for the most important articles and for the common consumer goods, the turnover record is composed of physical units.

The comparison of the sum total of the credit items with the sum total of the debit items must produce an equation in physical units: pounds, yards, pieces, etc. These physical balance sheets are composed for almost all the agricultural products, but are joined together in larger, comparatively homogeneous groups. For industrial products, the composition of physical balances is limited to a brief enumeration of the major products of personal consumption, among which figure kerosene, salt, sugar, matches, galoshes, and cotton, woolen, and linen fabrics.

Further additions to the list of products on which the physical balance sheets were based proved impossible, since, for most of the products, there were no data available in physical units for several debit-credit items of the balance sheet.

The advantage of the physical balance sheets lies in the fact that they supply a correct idea of the quantitative proportions of various credit-debit items undistorted by different evaluations of the very same product by various categories of consumers or by the fluctuation of prices over time. In determining the structure of the market for various products, the physical balance sheets play a major role. The selling prices of the producers’ cooperatives are more or less equal for everybody, and the share of every category of consumers can be evaluated by the amount of the merchandise purchased by it. As to the sums which are actually paid by each group of consumers, they depend on how the goods can be moved and are not strictly proportional to the quantity of products acquired.

However, despite all the advantages of the physical balances, we cannot be content with them even when there is an actual possibility of finding a common measure for all the infinite variety of commodities produced and consumed.

The physical balance sheet does not enable us, in the first place, to compare the branches of production to one another. We cannot add coal and calico, grape wine and grain products. Each sector of the national economy remains locked inside its physical balance sheet and the total national balance sheet breaks down into an infinite number of unconnected horizontal lines. The turnover record expressed in value is thus indispensable, if only to make it possible to compare the individual items of the balance sheet, to pass from the balance sheets of an infinite number of products to a balance sheet of larger branches of production, and finally to a national balance sheet.

The commensurability of different products is not the only argument for a balance sheet expressed in values. The computation of the difference in the prices of production and consumption and also of the differentiated prices which are actually paid by different categories of consumers is of special and vital interest. In constructing the physical balance sheet, we are interested only in the quantity of the units of the product absorbed by various groups of consumers. In constructing the value balance sheet we have additional information as to how much each of these groups had to pay for the commodities it consumed. These monetary valuations show what sums are in actual fact spent by various groups of consumers to acquire certain products and, accordingly, what share in the total national balance is taken up by the satisfaction of a particular demand. Knowing the sums the public spends on purchasing individual products, it is possible to study the question of the extent to which the sales of these products can be increased if the price is changed for the general public or for certain categories of consumers. Of course, theoretically, each change of price for one product produces a redistribution of the expenditure budget and a change of prices of other products. In practice, however, the knowledge of sums spent by the public on the satisfaction of certain demands, with prices at their present level, enables us to understand better the prospects of the market than would simple information about the quantities of products acquired. Then, too, in substituting for the physical values the actual pricings in the process of turnover of goods and in comparing the cost of the products with the prices paid by the consumers, we determine the funds out of which are paid the trade addenda, the transportation expenses, the customs duties, and other additions to the cost of the product that are made on its way to the consumer. All of these items, which are important in the national turnover, disappear if the physical measures are used and reappear only with pricing according to differentiated actual prices of the credit-debit articles in the record.

Because of these considerations, the expression of the national balance in monetary terms becomes absolutely indispensable. The entire turnover of physical goods cannot be expressed in physical units, and the general national balance can be constructed only in value terms, taking the different prices into consideration so that the over-all picture reflects the real proportions as closely as possible.

The evaluation which will enable us to obtain such a picture must be based on the use, for all the credit items, of prices which approach the cost of production of the goods, and for the debit items of the prices paid for them by the various categories of consumers in the balance sheet. All the time, the national economy is viewed as a single enterprise which produces, at a determined cost, products purchased by the consumers at a different, higher price. The total difference in the valuation of the goods in the credit and debit sections of the balance is used for the payment of all sorts of additional expenses which go to swell the cost of production as the goods move from the producer to the consumer.

Simple though it may be, this basis of evaluation involves many theoretical and practical difficulties. What these difficulties are and how they should be handled is described in papers devoted to various aspects of the balance. Here we must content ourselves with the enumeration of the most important problems connected with the evaluation.

When the gross value of output is determined only for largescale industry, the matter is simple and straightforward. In this case, the bulk of the output goes through the market or through trade accounts between individual enterprises; each product has a determined price at the place of its production, and even the production accounting in industrial statistics is done in the prices required by the balance. In calculating the value of output of small-scale industry, we must have recourse to much more artificial devices, partly because of the complexity of the conception of the gross value of artisan output, which, as we know, consists not only of the finished product but also of the raw material of the customers and of the gross profits, and partly because of the peculiarities of the statistical materials, which require the use of index tables for the conversion of former prices into contemporary ones.

Even more complex is the expression in monetary terms of agricultural products. Most of them do not go through the market at all and are used directly in the peasant household. To evaluate these nonmarketed products at the market prices of agricultural products would be to inflate their volume, since the market prices include additional expenditures for transportation and for the trading system which are not incurred when a producer consumes his own products. The cost of production of agricultural products is also an indeterminate and almost indeterminable entity. A way out is to evaluate the gross agricultural product according to the lowest seasonal market prices. Each product has its own season in the course of which, as a rule, the bulk of it sent to the market is sold. The very fact that it is thus disposed of shows that, on the average, the market price obtained is no lower than the cost of production. And, although it incorporates some additional expenditures, it is the closest to the prime cost of the agricultural product. It is quite obvious too that because of the sharp territorial differences in the prices of agricultural products, one is forced to make the evaluation district by district to avoid the errors possible if one total figure for the nation were given.

Evaluation of the credit items outside the gross output does not present any special difficulties. Inventories of industrial products stored in the trusts and syndicates are evaluated at the same selling prices as the current output. The stocks of agricultural products are estimated at the above-mentioned seasonal prices. Imports of products of all categories are calculated in prices excluding the customs duties paid at the USSR borders. Adding all the credit items evaluated by the above-mentioned methods, we obtain the cost of all the products that have entered into the national turnover on the basis of production-cost prices or seasonal prices and procurement prices close to them.

Each debit item is given in terms of the prices that were actually paid by the category of consumers concerned. For industrial consumption, for instance, this is the prices paid by the enterprises playing the part of consumers; for construction, transportation, and trade these are the prices these industries paid for the supplies of the materials, tools, and fuel indispensable for the performance of their functions; personal consumption is based on the market prices of the towns and rural districts adjusted by special regional and seasonal coefficients; public consumption is based on the sums assigned for it by the national or local budgets; exports are based on the prices paid by foreign buyers; and finally, the surpluses at the end of the year are, as a general rule, estimated at the same prices as the reserves at the beginning of the year in order to avoid creating fictitious differences one way or the other between the credit and the debit items of the balance. Because of the special circumstances in the evaluation of agricultural products, which are also among the debit items when they are distributed, the industrial and personal consumption of the products of one’s farm are evaluated on the basis of the same seasonal prices that are used in the evaluation of the output. The shares of the industrial and personal consumption that go through the market are based on market prices.

The sum of all the debits gives the cost of all the distributed products evaluated in consumption prices. Juxtaposing for each economic sector the sum of credits and the sum of debits, we find a certain difference in favor of the debits, since both sides of the balance are based on the same quantity of physical units of the product and the consumer prices in the debit figure are always higher than the production costs underlying the credit figure.

This difference between the consumer’s and producer’s prices covers, as we pointed out earlier, all the extra expenditure incurred in the course of the turnover of goods, namely, transportation expenditures, customs, excise tax, and the gross profit of trade. These extra expenditures in the goods turnover make up the additional item of the turnover record that makes it possible to balance, for each horizontal line and for the record as a whole, the sum of the credit items with the sum of the debit items. Physical balance sheets do not require any additional line and the sum of the credits is directly balanced by the sum of debits. When the material commodities are expressed in value terms, the balance between the credits and the debits is disrupted by the additional expenditures incurred in the process of the goods turnover. These expenditures must be added to the sum of the credits evaluated on the basis of production prices in order to obtain the sum of the debits evaluated in consumers’ prices.

If each type of the additional expenditures in the turnover could be determined on the basis of direct statistical data, and, moreover, with just as minute a division into economic sectors as is used for the construction of the whole balance, then, for the expression of the latter in value terms, it would be sufficient to add to the sum of the credits the sum of all the additional expenditures incurred in the process of the circulation of goods. Then the correctness of the balance would be confirmed by a more or less exact equality between the sum of the credits with the total additional expenditures added, on the one hand, and the sum of the debits, on the other.

Unfortunately the form of the additional turnover expenditures, namely, the trade expenditures, cannot be estimated with any precision. The statistics for retail and market prices cover too small a number of goods and thus one of the most important elements causing the difference between the producer’s and the consumer’s prices remains undetermined. The only solution would seem to be the following: The sum total of the additional turnover expenditures is determined as the difference between the sum of the credits and the sum of the debits for each sector of the national economy represented by a separate line in the turnover record. From this general balance we then isolate the expenditures that can be evaluated by direct statistics. These include excise duties and transportation costs calculated for each group of goods separately according to the special tariffs and to the distance over which they are transported. The remnant that is not accounted for by the excise duties and transportation costs is considered to be trade expenditures.

The absolute values of trade expenditures obtained in this way for each type of product are then subjected to close scrutiny and analysis, because it is on the basis of these remnants that the balance is constructed and that the correctness or error of its items is tested by the credibility or incredibility of the obtained value for trade expenditures.

The magnitude of the trade expenditures is checked, in the first place, against the fragmentary statistics of retail and selling prices. The ratio of the factory price to the retail price of calico can, with some degree of approximation, determine the value of the trade expenditure on cotton goods. But of course a perfect coincidence of the additional expenditures on calico and the percentage found in adding the sum total of trade expenditures to the sum of the income items cannot possibly be expected.

In estimating the accuracy or the credibility of the figure obtained for trade expenditures, many other considerations must be taken into account. Thus, in computing the average percentage of trade expenditures on the basis of the balance, we must, first of all, isolate from the total sum of the credits that share of the product which actually passed through the market and was affected by expenditures additional to the cost of production.

The following do not pass through the market: the remnant left at the end of the year in the storerooms of the syndicates and trusts and the huge bulk of agricultural products directly consumed in the course of agricultural production.

On the other hand, even the mass of the products which actually goes through the turnover process reaches the buyers at a variety of prices. Industrial consumption, for instance in large-scale industry, incurs very low prices, which often coincide with wholesale prices. Many industries supply other industries and the free market at the same time. Depending on the share of the industrial demand, the sum total of the trade expenditures and its percentage share in the sum of the credit items for the industry in question can be considerably lower than the difference between the wholesale and retail prices of the products of the same industry on the free market.

Special difficulties arise in estimating the trade charges for various branches of agricultural output. Among the debit items are the productive consumption of agriculture itself and the physical share of consumption by the rural population, which are evaluated at the lowest seasonal prices, just like the gross product and the reserves in the credit items. Within these limits, there is no trade charge in the production and consumption of the marketable share of agricultural products. However, the evaluation of the consumption of the marketable share of agricultural products is done on the basis of the average yearly prices district by district. In comparing the estimates of this marketable share in consumer and in producer prices, we shall find a considerable difference, which is due not only to trade charges in the strict sense of the word and the railroad or waterway transportation charges, but also to the road charges of transportation to the local markets and to the seasonal increases in prices of agricultural products. A considerable part of this seasonal increase and of the local road charges is paid for by the rural population in the process of the local rural market turnover. Thus our trade charges include not only the commercial profit of professional grain merchants, but also the accountable income of the grain farmer who sells his grain at higher prices in the spring than he would be able to get in the fall. This increases considerably the absolute size of the charges incurred in the course of the turnover of agricultural products and raises their percentage share in the sum of credit items evaluated at the lowest seasonal prices.

As can be seen from the above explanations, the concept of trade expenditures is broadly interpreted in the balance. This makes it even more difficult to judge the correctness or incorrectness of the balance of the expenditures and incomes obtained in each horizontal line of the turnover record. In each individual instance, those who compiled the balance, before accepting a figure for trade expenditures, had to examine all sorts of materials and sources, including even expert testimony. Only then could they be satisfied that the figure obtained was not unrealistic either in its absolute size or in its relation to costs.

The determination of the size of trade expenditures is, together with the assumptions on the increase of reserves in the circulation channels at the end of the year, one of the most important and debatable items in the balancing of accounts.

If we had direct statistical information on the subject, the method of balancing and of mutual verification of various items on the debit-credit sheet could be fully expressed. The advantage of the balance method of studying the national economy lies precisely in the way in which the various sources of statistical information complete one another and can be used for mutual checking.

This is the basic method used to construct the 1923/24 balance sheet. The individual credit-debit items in the turnover record have been based on independent statistical data. A detailed description of the use of the sources is available in papers devoted to various parts of the balance. Here it will be enough to note that in order to fill the account balance sheets, statistical data of almost all sectors were used. The filling of the various parts of the account sheet was assigned to various groups of officials. Each group used all the material at its disposal, compared the data based on various sources referring to the same matter, and tried to give the most accurate picture possible of the movement and state of physical goods within the limits of the economic sector that had been assigned to it. Each of these studies, of the gross product, of industrial consumption, of personal expenditures, transportation charges, etc., is of interest in itself because it describes more or less accurately a certain facet of the national economic life and adds some additional information to the general picture of the country’s economic process. This general picture is prepared in the turnover record of the national economic balance sheet, which contains all the individual results obtained by each independent statistical study, and in which these individual results are finally verified and mutually checked against each other. Verification and control take place as soon as the individual horizontal lines and vertical columns of the balance sheet are examined simultaneously. The value of the finished product must exceed the cost of the semifinished product; the expenditure on producer goods must be less than the total cost of the product; the consumption standards of the nonagricultural population must be higher than those of the agricultural one, etc. These incontrovertible truths are used as a first verification of the balance sheet after it has been filled by the data forthcoming from various independent sources. A more or less exact equality in the total debits and total credits is a much stronger proof of the correctness of the computed figures and of the adequacy of the methods used to obtain them. Of course one cannot expect a perfect coincidence of figures and an absolute equality in the debit and credit items of the balance. Whatever the perfection of the statistics, the picture drawn in figures for a national economy of many millions of units will always remain an approximation resting on many arbitrary assumptions and on conventional coefficients. And the Soviet national economy with its 22 million peasant households presents in this respect special difficulties. A small error allowed in determining the individual norms when multiplied by an eight-digit figure can be the source of very large errors in the general conclusions on national economic processes. Another source of errors is the enormous size of our country. It is impossible to follow through all the diversity in the levels and fluctuations of prices over an area of 21.2 million square kilometers. But it must be realized that each fluctuation in prices affects, if only a little, the scales of the national balance. Mistakes are thus inevitable and it is impossible to obtain a mathematically exact balance between the debits and the credits, especially in constructing the first balance sheet. In some instances, where the sources disagreed, two sets of figures have been given for the same items instead of insisting that one of them was the correct one. To some extent, the failure of the results to balance can be considered as evidence of the conscientiousness with which the figures were compiled and of the honesty of those who processed them. A too perfect precision gives rise to familiar doubts.

Of course, one must not abuse these considerations. Not all the discrepancies can be accounted for by the difficulties involved in dealing with tens of millions of households. The balancing method makes it possible to uncover many actual shortcomings in statistics which should be eradicated through patient, determined efforts. We have already noted that in constructing the balance for 1923/24 we had to determine two whole items of the turnover record by subtraction and to check them by various indirect indicators: the increase of reserves in the circulation channels, and the trade charges. In the same way, even for the items for which there is a direct source of statistical data, in some of them we had to limit ourselves to incomplete data, in others to use conventional coefficients, in a third group to base ourselves on prewar figures, and in the fourth to content ourselves with expert testimony. All these shortcomings, however, do not detract from the usefulness of the balance.

“Metodika sostavleniia narodno—khoziaistvennogo balansa,” in P. I. Popov, ed., Balans narodnogo khoziaistva Soiuza SSR 1923/24 goda (Moscow, 1926), pp. 56-70, Part I.

1. “Turnover record,” translation used throughout for oborotnaya vedomost’. -Ed.