P. I. Popov

INTRODUCTION TO THE BALANCE OF

THE NATIONAL ECONOMY

THE AIM OF THE BALANCE AS A STATISTICAL OPERATION

The word balance means equilibrium, from the Latin bilanx—two scales, that is, equal weight-the French bilan, and the Italian bilancia, scales. When bookkeepers prepare a balance sheet, they equilibrate debit and credit. Applied to a study of the national economy, the balance signifies a statistical operation intended to show how the social economy is reproduced in specific conditions.

The unity of production and distribution represents the system of the national economy, which is the system of equilibrium of social economy: equilibrium of production and distribution in the national economy at large, equilibrium of its branches, of the elements and relations within each branch, and finally, equilibrium of classes and social groups which is established in the spheres of production and distribution. Portraying the relations of equilibrium in statistical magnitudes, the balance classifies the relations of the national economy by production and distribution from the standpoint of equilibrium, and finds a niche for every phenomenon and every fact of the national economy in the system of equilibrium. But insofar as the balance studies the system of production and distribution in the concrete forms of the historic moment, it studies at the same time disturbances in the balance of the production and distribution system, since in money-commodity relations the conditions for imbalance are comprised in the very system of the national economy. The balance, therefore, as a statistical operation, seeks to show how and in what form the equilibrium of the national economy is achieved or disturbed in any given year in the process of production and distribution, and how the economic relations of various types of economic enterprises and classes of society are established when a given system of production and distribution obtains.

From “Vvedenie k izucheniiu balansa narodnogo khoziaistva,” in P. I. Popov, ed., Balans narodnogo khoziaistva Soiuza SSR 1923/24 goda (Balance of the national economy of the USSR 1923/24), Trudy Tsentral’nogo Statisticheskogo Upravleniia (Works of the Central Statistical Administration). Vol. XXIX (Moscow, 1926), pp. 1-37.

Consequently, the balance offers an approach to the disclosure of the laws of production and realization of a specific enterprise’s products and, therefore, to an understanding of the mutual relations which are established, through production and distribution, among individual branches of the national economy and among classes. At the same time it furnishes the key to the class policy which the proletariat should pursue and an insight into the class policy which the other classes follow and are bound to follow.

The balance of the national economy as a statistical operation, then, is a scheme for studying society at a given historical moment—a system in which all market relations are jettisoned and production-and-distribution relations emerge in their pristine form, and one which reveals the social functions performed in the national economy by individual enterprises which prima facie are in no way interconnected.

The balance of the national economy is not yet a theory, that is, not a total conceptual system which exhaustively explains the processes of a concrete national economy, nor does it disclose all the laws of the given society’s movement. The balance provides the material for a theory, for in analyzing statistical evidence it shows how the annual output of the Soviet economy, plus imports, plus reserves, is actually realized and distributed among the branches of the national economy and the classes of society in any given year, through a system of exchange and planned regulation.

Since the balance resolves problems which are associated with the system of production and distribution, the purposes of the balance as a statistical exercise are interrelated with problems of theoretical political economy.

THEORETICAL FOUNDATIONS OF THE BALANCE: QUESNAY AND MARX

The search for the theoretical premises of the national economic balance as a statistical operation brings us to political economy, which investigates the relations of production and, therefore, the relations which are established on the basis of distribution.

“Whatever the social form of the process of production may be, this process must be continuous, or must periodically traverse all the same stages anew. Just as society cannot cease to consume, so it cannot cease to produce. Regarded, therefore, in terms of its incessancy and the perennial flow of its renewal, every social process of production is at the same time a process of reproduction.” (K. Marx, Capital, Vol. I, Popov Publishing House, p. 470.)

The continuity of the process of reproduction presumes a definite relationship, a determinate balance, of the production and distribution of the social national product.

In the second volume of Capital Marx proved with telling cogency that in the capitalist society taken in the abstract the system for distributing the yearly national product is so organized as to encompass both simple reproduction, i.e., reproduction on the same scale as in the preceding year, and expanded reproduction, i.e., production on a larger scale. His arguments are founded on the assumption that the components of and the system of distribution itself and the classes of society are conditioned by and stem from the system of production and its social relations.

In his analysis of the system of reproduction, simple and expanded alike, Marx proceeds from a breakdown of the total social product into two major subdivisions—producer goods (I) and consumer goods (II)-and from the assumption that society at large comprises two classes—capitalists and workers.

In the process of production and distribution, categories I and II enter into definite relations and the results of production—the yearly product—are so distributed that the productive process takes place smoothly and without halt or interruption, to the extent that capitalist relations allow of this.

In his analysis of the way in which the annual social product is reproduced and distributed, Marx provided all the basic prerequisites for computing the balance of a specific national economy.

As he presents it, Marx’s scheme for the distribution of the two main categories of the yearly national product—(a) producer goods and (b) means of subsistence—among the classes of society and branches of production, in effect contains the methodological premises for preparing the balance of a specific national economy. Actually, what Marx did was to uncover the theoretical laws by which capitalist society in the abstract functions and show the mechanism by which products move from one branch and class to another. However, in throwing light on the laws by which capitalist society operates, Marx at the same time disclosed the laws by which the social economy of the nation functions, since whatever the “social form of the process of production may be,” the process must be continuous, that is, must take place without interruption, and this continuity of production presumes rigorously defined correlations between the output of producer goods and the output of means of subsistence, the two main categories of national economic production; that is, it presupposes a definite system of distribution. The methodological leads which Marx provides in his analysis of capitalist society in a pure form can also be put to maximal use in solving theoretically the problems of reproduction in socialist society in a pure form and, to an even greater extent, the problems of the reproduction of the national economy in the epoch of transition.

But if Marx clearly and exhaustively demonstrated the reproductive mechanism of capitalist society in the abstract, it was Quesnay, at the dawn of bourgeois economics, who, Marx writes, was first to show in his “Tableau économique” “in a few bold strokes, how the annual production of the national output, of specific value, is distributed through the processes of exchange in such fashion that its simple reproduction is possible, i.e., reproduction on the same scale—all other things being equal.”...

Quesnay’s scheme, however, immediately derived from the fundamentally erroneous proposition of the physiocrats, to wit, that surplus value is created solely in agriculture. Inasmuch as the physiocratic doctrine made way for other economic systems of study, focused on a capitalist society in which industry was the foundation, this “brilliant essay,” as Marx termed it, remained no more than a first, brilliant try. Marx was the first to show the full significance of Quesnay’s endeavors and to present the elaborated system of reproduction and distribution in capitalist society.

Quesnay’s scheme was an attempt “to present the entire process of capitalist production as a process of reproduction, distribution being merely a form of this process of reproduction, and monetary circulation an aspect of the distribution of capital. This was also an attempt to consider from the standpoint of the process of reproduction the origin of income, the transformation of capital and income, and the relation between productive and final consumption; and, from the standpoint of the process of distribution, the interchange between consumers and producers (in reality between capital and income). Finally, it was an attempt to present, given these aspects of the process of reproduction, the interchanges between the two major spheres of productive labor—extractive and processing industry” (K. Marx, Theory of Surplus Value, Vol. I, Part I, pp. 72-73.)

Quesnay’s mistakes in political economy were exposed by Marx both in his Theory of Surplus Value, pp. 68-99, and in the second volume of Capital, p. 268 ff., to which we refer those who are interested. We, I reiterate, are interested here in the methodological side only, and this side was manifested vividly in Quesnay’s diagrams as well as in Marx’s comments.

Marx did not confine himself to criticizing Quesnay’s scheme but, in Volume II, unfolded a fully developed system of both simple and expanded reproduction of the economy. With stunning clarity his system bares the laws which guide the processes of reproduction in capitalist society. As we have stated above, Marx’s system provides the methodological foundations on which a balance sheet maybe drawn for the national economy. For this reason we feel it necessary to expatiate in detail on his system for reproduction. ...

Marx investigates simple reproduction, i.e., production which is reproduced in the identical magnitude and identical dimensions, and expanded reproduction, i.e., production on a scale greater than when the process was initiated.

Simple reproduction can take place only given specific conditions of proportionality among the branches of the national economy. Marx depicts this proportionality as follows.

The country’s aggregate output breaks down into two major categories:

I. Production of producers’ goods (machines, raw materials, etc.).

II. Production of consumers’ goods (food, clothing, housing, etc.)....

In his theoretical study Imperialism and the Accumulation of Capital N. Bukharin gives Marx’s schemes for simple and expanded reproduction an algebraic expression.

If constant capital is designated as C, circulating capital as V, and surplus value as M, the value of the annual product equals C + V + M (on the supposition that C wears out completely in the course of a single full production cycle or assuming that C equals only the consumable part of constant capital).

The total social product, and social production as a whole, broken down into the two categories, is expressed by the following formulas:

In the case of simple reproduction, assuming, that is, that M is consumed by the capitalists in its entirety and that reproduction proceeds properly, that is, the mutual exchange of products between I and II, we shall have the equations:

If we deduct C₁ from both parts of the first equation and the sum of (V₂ + M₂) from the second equation, we obtain the third equation C₂ = V_l + M_l.

“This,” says N. Bukharin, “is what constitutes the prerequisite for the smooth course of simple reproduction: the sum of income in the first category must be equal to constant capital in the second category.”

In expanded reproduction the process is more complicated and proceeds, says N. Bukharin, using Marx’s characterization, “not in a circle but in a spiral.”

The following formulas will obtain in expanded reproduction. Assuming that M₁ = A₁ (the part going for the capitalists’ personal consumption) + B₁ (the part of surplus value which is turned into capital), M₂ may be equated to A₂ + B₂. Assuming that B₁ = B₁c (the part subject to accumulation as part of constant capital) + B₁V (the part subject to accumulation as part of variable capital) B₂ may be equated to B₂c + B₂v. The general formula for the product of both categories will then look as follows:

The quadrangle ropes off the problem of simple reproduction, and the exchange of products between I and II consequently takes place according to the formula which was given for simple reproduction. As for those parts of the product which stand outside the quadrangle, it must be kept in mind that “since we are confronting the problem of expanded reproduction, besides the factors of equilibrium requisite from the standpoint of simple reproduction, the breakdown of the surplus value subject to accumulation in categories I and II must occur in such a proportion that the additional variable capital of category I equals the additional constant capital of category II.” (N. Bukharin, Imperialism and the Accumulation of Capital, p. 8.)

The formulas for expanded reproduction may be reduced to three equations, which, in turn, may be reduced to one.

(1) The total product of category I must equal the sum of constant capital in both categories. We have, therefore:

The magnitudes included in quadrangles—the first the prerequisite for simple reproduction, the second the prerequisite for expanded reproduction—are equal. The equations reduce to the following expression:

V₁ + Ai + B_tv = C₂ + B₂c

(2) The product of category II, that is, the product going for personal consumption, should equal the sum of all income, including additional capital as well as variable capital which is transformed into income from additional work.

The aforementioned equation contained in the quadrangle comes down to the following: C₂ + B₂c = V₁ + A₁ + B₁v, which may be expressed in this fashion: (V₁ + B₁v + A₁) = (C₂ + B₂c), that is, says Bukharin, “All the new variable capital of category I and the portion of that same category’s surplus value which is subject to nonproductive consumption should equal the new constant capital of the second category.”

Bukharin observes that the result of expanded reproduction is that “society’s constant capital grows; the workers’ consumption grows; the consumption of the capitalists grows.... Coupled with the growth of production is the growth of the market for that production: the market for producer goods is augmented and there is also larger consumer demand (since, in absolute figures, the consumption of both capitalists and workers rises). In other words, the possibility is here offered of equilibrium among the various parts of the aggregate social production on the one hand, and between production and consumption on the other. Moreover, equilibrium between production and consumption is itself conditioned by productive equilibrium, that is, equilibrium between the various parts of functioning capital and its various branches.” (N. Bukharin, Imperialism and the Accumulation of Capital, p. 11.)

In arriving at an algebraic solution of the problem of simple and expanded reproduction N. Bukharin, like Marx, proceeded from a number of simplifying premises: a capitalism characterized by two classes, by the absence of foreign markets, by the equality of value and price, etc.

N. Bukharin emphasizes—and this is of extreme importance—that expanded reproduction culminates not only in the growth of producers’ goods, but of means of subsistence as well—that is, the consumption of the workers likewise rises. The reason why this point is significant is that economists like Tugan-Baranovsky, forgetting that capitalist production is social production as well, advanced the thesis that capitalist production could expand exclusively through the expansion of means of production, that “given proportional distribution of national output the supply of and demand for commodities will always balance, however total national income may change and however popular consumption may be trimmed.” (Cited from A. Finn-Yenotayevsky’s book Capitalism in Russia, Vol. I, Moscow, 1925, p. 23.)

Production can itself expand only through the satisfaction of social wants, and not independently of them. This is Tugan-Baranovsky’s mistake.

In their solutions of the problem of reproduction Quesnay and Marx in effect posed the question of what conditions are required for the process of reproduction, and therefore of the process of distribution, to take place. At the same time, however, both of them attempted a purely theoretical solution of the problem as an abstraction from the concrete conditions in which the process of production occurs. ...

To the extent that the historically given concrete form of production and distribution in capitalist society conceals the forms of social economy, to that extent the laws by which capitalist society effects reproduction are, to a certain extent, also the laws governing the reproduction of social economy in general. Marx’s schemes for reproduction are doubtless applicable in some measure to an understanding of the reproduction mechanism of a social economy constructed on socialist foundations, but there is no question at all that his schemes do apply to an analysis of the productive relations of Soviet society, which is a transitional form as society moves from a capitalist to a socialist economy. In analyzing Soviet economy, therefore, we can without fear of error and with absolute confidence make use of Marx’s theoretical analysis of the social economy, the historical form of which is capitalist production. And we can be absolutely confident in basing our efforts on the methodological principles to be found in the schemes of Quesnay and, especially, of Marx, who obviated all of Quesnay’s theoretical faults and brought to light the laws of reproduction in their pure form and in rigorously scientific terms.

In Quesnay’s interpretation, as we have seen, distribution is not economically isolated from production; on the contrary, the very reason why the particular acts of distribution occur is that they correspond to acts of production, that is, the distribution system derives from productive relations. Each share of the monetary funds shifting from one class to another can be realized to the extent to which it is convertible into tools and means of production or means of subsistence. The system of distribution arises out of the social relations of production. To the extent to which social production develops, consequently, social consumption is achieved through a specific form of distribution. ...

In putting together his scheme Quesnay started from a definite division of social labor, as a result of which there existed a separate agriculture and a separate industry with the corresponding property relations and with social classes. The entire economic table is constructed on the idea that through exchange dealings individual economies perform the social functions of a national economy, functions deriving from the fact that there is a division of labor, and that the individual economies make up a social economy rather than the sum of uncoordinated, socially unconnected economies. In the national economy production and distribution are two facets of one and the same social system; before products can be consumed they must first pass through a number of exchange transactions, the proportions of product distribution between classes being determined by productive relations and not stemming from the relations of exchange.

Marx, developing Quesnay’s idea but discarding its basic error, viz., that surplus value is created solely in agriculture, offered a rigorously scientific and theoretically validated system of simple and expanded reproduction and hence a system of distribution in capitalist society. At the same time, since capitalist production is merely an historic form of social production, he identified the cardinal premises for the system of reproduction of social economy in general.

In Marx’s scheme the system of reproduction is constructed on exchange between the two major categories—production of producers’ goods and production of means of subsistence. Thanks to its schematism his system conveyed a vivid and penetrating disclosure of the laws governing the process of reproduction. Production can repeat itself to the extent to which exchange between means of production and means of subsistence is effected continuously and, most important, in explicit proportions, the extent to which the restoration of consumed means of production is continuously effected by the individual branches of the national economy. Equilibrium between production and consumption constitutes the key prerequisite for the reproduction of the social economy. But under capitalism this equilibrium, essential for the social economy, is sharply impaired. The problem of equilibrium is therefore the most important problem of economics. N. I. Bukharin is right when he affirms: “It is the discovery of the law of this equilibrium which is the chief problem of theoretical economics.” (N. Bukharin, Economics of the Transition Period, p. 128.) Referring to Marx’s approach to this question, Bukharin observes: “Marx always formulates the problem this way: equilibrium exists—how this is possible. Equilibrium is disturbed—how it is restored.” (N. Bukharin, Economics of the Transition Period, p. 129.)

When, guided by Marx’s scheme, we take stock of the statistical materials of the balance, we must first of all find out what are the relationships owing to which the reproduction of the Soviet economy takes place at the given moment in history. We must find out, that is, the form and system assumed by the distribution of the annual product among the separate branches of the national economy and classes of society; we must find out the proportions in which the means of production and means of subsistence were produced in the course of the operational year and thereby ascertain the proportionality of the individual branches of the national economy. We must then discover which branches of the economy and which classes of the population were the recipients and consumers of what was distributed in the national economy in the course of the year, thereby elucidating the relationships of equilibrium between production and consumption and, at the same time, the role which ties with the world economy, played in the establishment of equilibrium. These are the demands which we must make of the balance on the basis of an analysis of Quesnay’s, and especially Marx’s, schemes....

CONCLUSIONS

At any given moment the national economy in any one of its social forms (capitalist, socialist, or transitional to socialism) is a social economy which is ultimately based on a definite equilibrium (stable or otherwise depending on the form of the economy and the conjuncture of the moment) of branches producing capital goods (machines, buildings, structures, raw materials, fuel) and branches producing means of subsistence (bread, meat..., footwear, fabrics, etc.). This equilibrium, furthermore, comes about as a result of the exchange of the products of one branch for the products of another (distribution through exchange and market methods in capitalist society, through a distribution plan in socialist society, and through both of these in a society in transition). ...

Any social economy, regardless of the historical system of which it is a part, may be classified at any given moment, according to the way production and accumulation are organized, as belonging to one of three economic types—decadent, static, or developing. The first type exists when the national economy as a whole is not expanding but contracting or when production, though not contracting, functions only because the country’s basic capital stock is being consumed (there are no deductions for the depreciation fund, no capital repairs are carried out, forests are rapaciously exploited, the riches of the soil are plundered, etc.). The second type is the economy in which production is reproduced in the same dimensions, that is, neither expands nor contracts. The third type of economy, finally, is one in which production is expanding. In the first type not only is accumulation absent, and the conversion of that accumulation into capital, but capital is consumed in its constant form. In the second, although accumulation is absent, basic capital is not consumed, the depreciation fund is normally renewed, and repairs are made opportunely. Finally, in the third type there is accumulation, and the more intensive it is the more intensively is production expanded. ...

It is only in Marx’s theory, in his system of reproduction, that we find a general methodological basis for drawing up the balance of the national economy.

The conclusions which we draw from our analysis of the reproduction and distribution schemes of Quesnay and, principally, Marx, an analysis of the system of socialist economy proffered by Ballod and his followers, and the methodological premises by which we must be guided in compiling the balance of the national economy, are the following.

(1) The study of the process of reproduction requires that the branches of the national economy be systematized and broken down, for purposes of investigation, in such a way that the country’s production is divided into two major subdivisions: (a) output of producers’ goods and (b) output of consumers’ goods. Since, however, the balance of the national economy is being computed for a concrete economy, the Soviet, the scheme of the balance will differ from the one Marx gives. It differs mainly in that we are studying production as well as the system of distribution in the forms which these have assumed in reality. It is only theoretically that we can imagine the existence of producing units which supply only means of production and those which turn out solely means of subsistence; in fact, many products such as coal, grain, kerosene, sugar, etc., are not designated as being for production or consumption purposes until they reach the stage of use. It is impossible, therefore, to offer a grouping of producing units according to Marx’s scheme in its pure form.

Furthermore, at this stage in computing the first balance, we are unable to offer a grouping of consumers which would assign them to one social subdivision or another, that is, link them with the branches manufacturing means of production or with those producing means of subsistence. Instead, we trace the consumption of products not only by each branch and even group of producing units but, in the case of certain products, trace it in the form of productive consumption as well as personal consumption by the principal classes of consumers. The nature of the materials precludes our isolating the consumption of purely bourgeois classes. We also had no opportunity at this stage of study (of the first Balance) to isolate and define the dimensions of surplus value. When it was in process of construction the Balance did not and could not pose the problem on this plane. We were operating with gross output and its distribution among branches and classes. We arrived at net income by ascertaining national income but could not, of course, elaborately investigate the manner in which net income is used. This question and a number of others remain to be considered when future Balances are compiled.

(2) Since specific conditions of production for a given historical moment are under investigation (the historical moment being the Soviet economy), products and branches must be systematized and classified in maximum detail and, so far as possible, this systematization and classification must deal with the ultimate product or group of products of homogeneous significance for production or consumption. The role which each product plays in social production—whether it acts, that is, as a means or production or a means of subsistence—must be ascertained.

(3) In a theoretical analysis of reproduction in an abstract society it is practicable and even essential to proceed from generic and specific groups of economic phenomena and operate with the symbols of the social productive relations of the abstract economy; in elaborating and probing the statistical data pertaining to a concrete social economy (the Soviet), however, to the end of disclosing the relationships and laws of that economy’s structure, it is necessary that the synthesis be reached only through an analysis of phenomena and facts in their concrete forms, in the concrete conditions of time and space.

(4) Since production and distribution constitute an integral entity, are two facets of one and the same social whole, analysis of concrete and theoretical economy alike should proceed in two directions—first, to reveal the social relationships in the system of reproduction and, second, to do so in the system of distribution; in the third place, it must establish the interconnection between these two systems. It follows from this that in arriving at and clarifying the amount produced by any branch of the national economy we must at the same time bring up and study the problem of consumption of the product, that is, the system of its realization and distribution. Since it is a concrete economy which is undergoing analysis, all those groups and classes of the population which play the roles of producer and consumer of the social product are the object of the inquiry, both in the sphere of production and in that of distribution. Again, it is not the abstract product of social production which is involved, but the products of the given Soviet economy in their concrete forms—grain, meat, fabrics, metal ware, machines, tools, etc.

(5-6) Taking the principles of Marx’s theoretical analysis as our premise, when we take stock of the Soviet economy we must establish the fact that this economy is an historical form of social economy, the activity of which is ultimately aimed at gratifying the needs of the population living in it.

(7) In analyzing reproduction in an abstract capitalist society it was feasible and essential to study the consumption (distribution) relationship between the two groups of the social subdivision-means of production and means of consumption—without breaking them down into groups and subgroups depending on the nature of the products. When, on the other hand, a concrete economy (the Soviet) is analyzed, the exchange relationships must be ascertained in their detailed subdivision and the exchange of individual products must be established. In the balance every branch of the economy and every product must have its definite place in production and the manner of its realization must be indicated, that is, how and with whom it is associated, upon whom it depends, and which specific need it satisfies, economic or personal.

(8) Since, when a concrete economy (the Soviet) is explored it is the relationships of production and distribution which are studied, these relationships must be studied in their material representation, that is, as the sum of concrete products in their concrete movement from producer to consumer. In an analysis of the Soviet and a theoretical economy alike money must play the role of yardstick, a means of reducing the assorted fruits of social production to a common denominator; the role of payment media in circulation, of credit, is held in abeyance. The balance, therefore, studies the relationship of production and distribution of products in kind, lest a monetary evaluation of products obscure (which, to a certain extent, it does) the relationships which are established in the production and consumption of products as a material process.

(9) Since the balance studies the relationships of production and distribution in material terms, it must consider the social economy (the Soviet economy) as a kind of natural economy, measuring production as the sum of materials and things produced in the course of the year and exploring the distribution of products in their material expression.

By reason of the fact, however, that production consists of a quantity of objects of varying material form, it was altogether impossible to analyze production and distribution relationships by composite groups and aggregates, or to make comparisons. It was therefore essential that all products, diversified in their material form, be reduced to comparable units. With monetary -and-commodity relations prevailing, the way to reduce objects of diversified material substance to such comparable units was to place a money value on them....