2 The Soviet Economy and Economic Laws

THE formulation of a well-grounded policy of economic development requires both properly systematized knowledge about factor endowments and their utilization (i.e., coordinated information about relations of inputs to outputs, sectoral interdependence, and uses of the final product) and some guiding principles as to the mechanisms by which that economy determines what, how, and for whom to produce. Paradoxically, the Soviet policy makers engaged in the mid-1920’s in the formulation of their long-range policy of economic development and of their strategy for concentrating investible resources before they had secured either fully satisfactory information about their economy or a clear-cut understanding of its working principles.

In order to understand both this paradox and the frame of reference in which this long-range policy was formulated, one must understand some of the basic assumptions of Marxian economic theory and the ways in which its application was viewed as relevant in the Soviet economy of the 1920’s. In Marxian theory, production relations and property relations are determined jointly by the level of development of the society’s material forces of production, that is, by the nature and development of its labor force and of its technology. Production relations and property relations correspond “to the stage of development of [society’s] material powers of production,”¹ as Marx puts it. The mode of production determines in fact not only the economic structure of the society, but also “the general character of the social, political, and spiritual processes of life.”² When dealing with broad historical economic changes, Marx always focuses on changes in the mode of production and not on any other changes in “economic factors,” as is usually and erroneously assumed. Further, Marx is always concerned with changing social relations, what he calls “relationships among classes,” and not with individual reactions to a given social environment. Finally, for Marx each economic problem is shaped by the given historic and social setting in which it appears. Each problem is tied to a given setting and the economic principles evolved from its study are assumed to have only a transient, historically limited application. Principles, or integrated theories—called in Marxian terminology “laws,” as in the natural sciences³—are deemed to hold sway only within given socio-historical limits. In other words, Marxism postulates (a) priority of production methods over all other economic or para-economic factors for determining the characteristics of any society; (b) priority of social phenomena over any individual actions, desires, or tastes; and (c) transience of all economic “laws” (principles).⁴

Within this general framework, two distinct schools of thought emerged in the 1920’s among Soviet policy makers, planners, and economists. This basic division, which has manifested itself under a variety of forms since then, has never in fact been bridged by arguments fully consistent with the rest of the Marxist theory and equally acceptable to both groups. The first of these schools stressed the importance of the conscious, voluntary element in the construction of socialism, namely, the importance of the role of the party and of the policies it freely determines. The second school stressed the existence of certain “laws” or of empirically observable “regularities,” objective constraints which limit the sphere of the party’s intervention and may often thwart its decisions. The “voluntarists” were split as to the specific policies or general strategy of development which the party should lay down and follow throughout the transition period from capitalism to socialism. The “determinists”—partisans of the necessity to recognize and conform to objective “laws”⁵—were for their part divided as to the exact impact of this or that general “law,” or this or that constraint on the policy of the party. The dichotomy voluntarism-determinism is clearly apparent in the Soviet approaches to the economics of socialism, to the Soviet strategy of economic development, and to Soviet planning theory and practice.⁶

In the field of economic theory, the camp of the “voluntarists” was led at the beginning of the 1920’s by N. I. Bukharin and E. A. Preobrazhenskii, two outstanding Soviet policy makers and economists who later clashed violently on the question of what specific policies the party should follow on the road to communism. Bukharin and Preobrazhenskii—coauthors of a famous party manual on economics⁷—contended that economics as developed by Marx studies only the operation of market-directed commodity-producing societies. Under communism, so the argument of this school runs, economics and its “categories”—money, prices, wages, interest, rent, profits—disappear, giving place to direct material accounting. Over-all planning, viewed as a system of organization directly opposed to the market process, would supplant the latter entirely. “Commodities” (goods sold and bought by different owners), which are typical of capitalism, would be replaced by products neither bought nor sold but “simply stored in communal warehouses and subsequently delivered to those who need them.” Socialism was defined as incomplete communism, during which, by degrees, “a moneyless system of account-keeping will come to prevail.”⁸ In the period of transition from capitalism to communism, “prices, wages, profits, etc., at the same time exist and do not exist.”⁹ Money, as a medium of exchange and as a unit of account, is “expelled” from the socialist state sector, where resources are allocated and goods are produced and interchanged according to a plan; in this sector there are neither market relations nor commodities.

Since the Marxists of this school affirmed that economics could be concerned only with the study of the forces regulating productive relationships in commodity-producing societies, economics and its principles were deemed to have little to offer to the socialist planner. The tools of the latter were to be material accounting and engineering rather than economics. On the other hand, so long as market relations subsisted in certain sectors, the “blind” forces typical of commodity-producing societies would continue to operate in them. In these sectors the “law of value”—the “internal” law subsuming the interaction of all the elemental forces which regulate allocation of resources, production, and trade in commodity-producing societies¹⁰—would hold sway. Socialism was envisaged as the combat ground of a new, conscious, economic regulator, the “planning principle,” and of the old “blind force,” the law of value, operating in the opposing state and commodity-producing sectors respectively.

A systematic presentation of the theoretical position of what may be called the second Marxist school was presented in the early 1920’s by 1.1. Stepanov-Skvortsov and A. A. Bogdanov. Relying notably on Engels’ Anti-Dühring, Stepanov affirmed that economics did in fact concern itself with “historically changing material,” but that it abstracted from it both “laws specific to each particular stage in the development of production and exchange” and a number of “general laws concerning production and exchange in general.”¹¹ Economics thus defined cannot be confined to the study of capitalism or to the “economic regularities of a capitalist-commodity society.”¹² Going a step further, A. A. Bogdanov pointed out that it was nonsense to claim that under socialism “commodities, prices, wages, etc., exist and do not exist.” Value categories, however determined, existed under socialism and would exist under communism. Planning, added Bogdanov, must be based on the “knowledge of the value of the product,” of accumulation (capital formation), and of consumption—otherwise no economic organization would be possible.¹³ Bogdanov thus asserted that planning without economic accounting was impossible and that the planner had necessarily to take into consideration the “law of value,” i.e., costs of production, uses of capital in alternative directions, objective limits of the pace of growth, and so on.

Rejecting Stepanov’s arguments, Bukharin, Preobrazhen-skii, Obolenskii-Ossinskii, and a number of other well-known Bolshevik leaders and economists—already sharply divided on specific matters of policy—stressed jointly that value (tsennost’) was “a category suitable only for a commodity-producing economy,” and that in the Soviet Union “the vestiges of commodity-producing economy were in process of disappearance.”¹⁴ Answering Bogdanov, Preobrazhenskii, who was himself formulating some basic principles of Soviet policy, noted—in the mid 1920’s!—that it may be feasible to formulate an economic theory of the period of transition but that such a theory will lose its significance under socialism, where “no political economy will be necessary.”¹⁵

These theoretical contentions dominated Soviet thinking until 1929. By that time, as Stalin’s fight against the Left Opposition (to which Preobrazhenskii belonged) and the Right Opposition (to which Bukharin belonged) reached its climax, the Bukharin-Preobrazhenskii positions in the economic field were also brought under serious scrutiny. Practice had in the meantime shown that the Soviet economy could hardly function in any other way than as a monetary economy. It became useful to the party to unearth Lenin’s critical marginal notes on Bukharin’s book, Economics of the Transition Period, to discard some of the earlier theories on economics in general and its application under socialism in particular, and to recognize the relevance of certain “general laws concerning production and exchange in general.” But the party did not either admit at the time that socialism was a mere “commodity-producing” system such as capitalism had been, or indicate which “general laws” were applicable, and how, to the socialist system.¹⁶ The formal recognition of the broad scope of economics—as suggested earlier by Stepanov—stressed the predominance within the state sphere of the “planning principle” (which for all practical purposes is the free will of the bureaucracy) and, in the sectors at the margin of the state complex, the predominance of the “law of value” (market relationships). The bureaucracy had thus agreed to broaden the sphere of “economics” but only so long as the latter did not interfere with its own ideas about ordering outputs, allocating resources, and dividing the national product.

By 1950, as the absurdities of bureaucratic improvisation —notably in the sphere of pricing—became more and more outrageous, Stalin himself had to challenge openly the smugness of the bureaucrats whom he had so long flattered. In his last writing, Economic Problems of Socialism in the USSR, Stalin repeated the nearly ritual phrase that under the Soviet system capital goods “can certainly not be classed in the category of commodities.” But then, looking at Soviet reality, he added: “Why in that case do we speak of the value of means of production, their cost of production, their price, etc.?” This situation, Stalin continued, arises notably because “consumers’ goods, which are needed to compensate . . . labor, are produced and realized in our country as commodities,”¹⁷ and further, because the whole system requires “calculation and settlement, for determining whether enterprises are paying or running at a loss, for checking and controlling the enterprises.”¹⁸ While the Taw of value” does not regulate production in the state sphere, value calculations do and must occur in that sphere. The trouble, concluded Stalin, “is not that the law operates in the socialist sphere” but that the Soviet managers do not “study it enough,” a fact which explains the confusion reigning in Soviet price-fixing policy.¹⁹ Thus, up to the early 1950’s, notwithstanding the acceptance of a broader definition of economics, many of the theoretical contentions advanced in the early 1920’s concerning the economic nature of socialism and its “laws” still remained unchallenged.²⁰

By 1957, breaking away from Stalin’s specious reasoning, the Polish economist Oskar Lange reasserted in full, but in a new form, the Skvortsov-Bogdanov positions. In a lecture, “On the Political Economy of Socialism,” delivered in Belgrade,²¹ Lange suggested that there were four types of economic “laws” operating under socialism: those which are general “in the sense that they operate in every socio-economic system;” those which are specific to the socialist mode of production; those which are of an intermediate nature, e.g., those which result from commodity production and monetary circulation; and finally, those which change as the administrative and managerial superstructure changes. Lange classified among his “general laws” the old “law of production and reproduction,” which indicates that one cannot have his cake and eat it too, or, as Professor Lange put it, “that one cannot accumulate if one consumes the whole net product.”²² Further, added Lange, socialist production remains commodity production, given the multiplicity of owners of products in the socialist society and the distribution of its goods. The ownership of the means of production allows to the state two crucial things but those only: to determine the purposes for which the means of production are to be used, and to put economic activity to use for “satisfaction of the needs of society.” But this ownership does not free the planner from cost-price considerations or from the “law of value,” which asserts itself because socialism remains a commodity-producing system. Thus Professor Lange reintroduced under socialism not only all the value categories but also the general or “intermediate” laws of “political economy” of all commodity-producing, monetary societies.

The passage of the whole bourgeois economics camel through the eye of the socialist needle was apparently done successfully, since shortly after Professor Lange’s lecture various Soviet economists “condemned” Stalin’s economic errors and asserted that socialism was indeed an authentic “commodity-producing society.” By the beginning of the 1960’s one could finally read in a new official textbook, Political Economy of Socialism, edited by Professor K. N. Shafiev, that commodity-monetary relations are an “objective necessity” under socialism because various types of enterprises exist in this system. Shafiev and his collaborators stressed the obvious when they noted that recognition of the economic “autonomy” of each state enterprise requires the establishment of commodity-monetary relations among them, even though this autonomy differs from private ownership. The question of the disappearance of commodity relations was finally relegated to the distant and blessed future, when “the forces of production will reach the highest level of their development.”²³ Shafiev adds that a number of economic laws may hold for various types of society. For instance, a so-called law of preferential increase of the output of capital goods is supposed to apply to a number of societies not otherwise specified. Finally, Shafiev adds that the basic laws of socialism and of communism are henceforth that “demand and wants increase jointly with the expansion of the possibility of fulfilling them, thus serving as inducement for further expansion of production.”²⁴

Until the appearance of Shafiev’s text, official Soviet theory was based on the postulate that communism will be the reign of abundance, when production exceeds wants; but now it seems that both production and wants grow at the same time, with at least the possibility that the latter may exceed the former. This brings Soviet economics close to the idea of scarcity on which Western economics rests.

The discussions of Soviet policy makers and economists may appear as a sort of theological disputation remotely relevant to the matter in hand. Actually, the discussions had important practical and theoretical consequences. The idea of the early twenties that money was being “expelled” from the state sector, and that it would be ultimately expelled from the economy as a whole, had crucial consequences in respect to the structural organization of the economy and to planning procedure. In banking it led to a sharp distinction between inter-industry transactions—to be carried exclusively under the form of deposits—and all other transactions, to be carried out in currency. The circular flow was neatly bisected and placed under different types of controls.²⁵ In planning, it led to emphasis on physical programming of production and distribution, insuring the automatic carrying out of the over-all investment target as well as of the specific key output targets set by the policy makers.

The idea that the “law of value” was also being “expelled” from the state sector had mostly unfavorable results. It freed the planner from all inhibitions in scheduling great projects of expansion, but it encouraged fantastic price distortions, blunted the use of prices for allocative purposes, and bred waste in innumerable forms. The Soviet policy makers and planners thus developed a workable, and from numerous points of view ingenious, system of accounting and economic controlling, while at the same time they continued to remain unaware of the deeper problem of rational allocation of resources.²⁶ The second main idea of the early twenties, that planning and market relations are complete opposites and that the former supersedes the latter—“crowds them out of the economy”—precluded the utilization of central planning in an imaginative way and rendered Soviet planning extremely inflexible for many years. The idea that economics, and particularly “economics of capitalism,” had little to offer to the planner led to the elimination of the economist from the preparation and organization of planning, and to his replacement by engineers and technicians who approached the matter of optimal allocation of resources only from a narrow technical point of view. This idea led to the rapid dessication of Soviet economic thinking and to its complete divorce from the main currents of Western economic thought.

Notwithstanding the differences between adherents of “voluntarism” and “determinism,” all Soviet Marxists shared the belief that the basic activities of any society—including a socialist one—are ultimately determined by that society’s mode of production. All were therefore convinced of the need to expand the country’s productive capacity, to increase its industrial labor force, and to raise its over-all technological level. To some leaders these tasks appeared as particularly urgent, since they viewed with apprehension the prospects of the so-called “alliance” between the small number of industrial workers and the vast mass of peasants, on which the regime depended. In order to understand the prevailing socio-economic relations in production and to map the path of the economy’s eventual expansion, a number of Soviet economists turned their attention to Marx’s famous macroeconomic model of “simple and enlarged reproduction,” in which Marx presents (in the second volume of Capital²⁷) the relation between sectors of production and between investment and growth in an abstractly defined capitalist economy. Taking Marx’s schema as a point of departure, some Soviet economists constructed a number of interesting macro-economic models adapted to the Soviet economy of the time. These models attempted to clarify: the impact on growth of various patterns of distribution of investments between the capital goods and the consumers’ goods industries (e.g., G. A. Fel’dman’s model); the interrelations between sectors with different systems of ownership and production methods (E. A. Preobrazhenskii’s model); the structural interdependence of the economy, i.e., its input-output relationships (P. I. Popov’s and L. Litoshenko’s model). The Soviet economists tackled and solved a number of problems which were to be dealt with later in the West on different analytical bases. The works of Fel’dman, Preobrazhenskii, and Popov-Litoshenko parallel some of the works of Western economists such as E. D. Domar or Wassily Leontief, though they fail to match the latter in sophistication and diverge from them in their underlying assumptions.

Let us look closely at the starting point of these Soviet economists and at the ways in which they modified the original Marxian model. The Marxist schemata provide a simple framework for analyzing relations between the demand and supply of physical goods and relations between product and income. The economy’s output is viewed as being produced by two sectors, sector I producing capital goods and raw materials, and sector II producing consumers’ goods. Gross value of output of each sector is equated to the sum of the gross sales of all its economic units, i.e., to each one’s depreciation plus materials used, labor costs, and profits, or, alternatively, to each unit’s expenditures on “means of production” (c), workers’ wages (v), and “surplus value” achieved (m). The latter is spent by property owners either for their consumption only or both for consumption and for additional capital goods and manpower. Net product is obtained by eliminating c (depreciation and interfirm transactions) from gross sales, thus yielding a total similar to the net national product used in Western economic accounting, with the difference that it does not include services. In Marxian economics service income is visualized only as a set of transfers from the primary producers engaged in production of material or physical goods to secondary receivers. The net product, or net material product, is divided into “accumulation” (investment and increases in stocks and reserves) and consumption. Income generated in material production matches expenditures on producers’ and consumers’ goods—or accumulation plus consumption—since the outlays on services of primary income receivers are offset by the outlays on consumption of the secondary (service) income receivers. The schema yields finally a set of equations between the components of its aggregates (c, v, m, of I and II) under conditions either of zero net investment or of positive net investment.²⁸

Thus Marx devised both an income accounting framework and a planning tool, effective, though in many respects crude, for ascertaining certain crucial macro-economic relationships and for scheduling certain economic balances in either repetitive or expanding economic conditions. In attempting to present in a simplified way the interrelations between income flows and balances between sectoral products, Marx followed a tradition going back to the beginning of economics, namely, to the celebrated work of the physiocrat Francois Quesnay and his famous Tableau économique.

Starting from Marx’s two-sector model, G. A. Fel’dman attempted to explore the necessary relations between investment, rate of growth of total capital, the capital coefficient (the ratio of output to capital), and rate of growth of each sector’s product.²⁹ Fel’dman ingeniously modified Marx’s model: he retained in a newly defined sector I (which he calls sector u) only the capacity-increasing activities of the economy, while he included in sector II (sector p) not only production of consumers’ goods but also compensation for the wear and tear on the existing equipment, so that the output of that sector is maintained at its given level. By completely separating the two sectors, Fel’dman could posit that under repetitive conditions (i.e., in simple reproduction) sector u is inactive while total national product is produced by sector p. Under expanding conditions, sector u becomes active and provides equipment to cover the depreciation of its own capital stock and to increase the capital stock of either sector. Within this framework, the total capital (K) and the capital coefficient (S) of sector u determine rigidly the rate of investment, while the total capital and the capital coefficient of sector p determine the output of consumers’ goods. In growth, the crucial variable in Fel’d-man’s model is the allocation of investment between the two sectors. If consumers’ goods output is growing at a given rate, what conditions would be required for raising this rate to a higher level? Assuming invariant capital coefficients in both sectors, if all investment were to be directed to sector p, the output of sector u would be constant and the increments in total capital of sector p would remain constant. With constant increments in the capital stock of p, the rate of growth of the latter’s output would be falling (always under the assumption of an unchanged ratio of output to capital). To keep the output p growing at a constant rate, a certain fraction of investments would have to be directed toward sector u and a certain relationship would have to be achieved between the increments in the total capital (ᐃK) of the two sectors. The rate of growth of sector u should neither fall below nor exceed the requirements of p. Fel’dman thus demonstrates that for this purpose, the marginal rate of growth of the total capital of u would necessarily have to equal the marginal rate of growth of the capital stock of p (ᐃK_u = ᐃK_p)

On the other hand, to raise the rate of growth of p’s output, ᐃK_u would have to exceed temporarily ᐃK_p The latter should catch up with the former after the expanded capital stock of u could provide adequate increments for expanding K_p. The rate of growth of p’s output could be expressed as a function of the ratio of the total capital of the two sectors, , a ratio which Fel’dman calls the “structural index” of the economy and the expression of the “intensity of its industrialization.” Beyond a certain value of , the rate of growth of p’s output may, however, hardly be increased. Always under the assumption of an invariant capital coefficient in u, the constant rate of growth of consumers’ goods could not exceed the limit which this capital coefficient sets to it and which it approaches as the ratio approaches infinity.

Fel’dman then explores the relations between rates of growth of consumers’ goods output, changes in the structural index of the economy, the capital coefficients, and the level of investment. After recalling that, by hypothesis, K_u and K_p cover both fixed assets and circulating capital, and that the raising of the capital coefficient S usually requires also an increase in working capital, Fel’dman removes the assumption of invariant coefficients and points out that: (1) with capital coefficients rising in both sectors apace, but in such a way that the structural index of the economy remains the same (that is, the “degree” of industrialization of the country is not changed), the rate of growth of p’s output is given by the ratio ; (2) with the capital coefficient rising faster in u s_p and in p, but in such a way that the economy’s industrial index is also changed (i.e., that also increases), industrialization is accelerated and p’s output grows more rapidly because of the given increase in p’s capital coefficient and of the establishment of a more adequate relation between K_p and K_u—the rational development of the economy in the interest of consumption requiring a definite relationship between K_p and K_u for any given rate of growth of p; (3) with the capital coefficient rising faster in p than in u, but with the ratio declining, the rate of growth of p’s output is depressed; Fel’dman shows then what investment rates would be required in order to achieve various growth rates in p’s output, given various values of the ratio and various capital coefficients in both sectors.

Fel’dman thus attempted to show how with good mathe matical logic the planners could, with the help of his two-sector model, formulate plan variants, and select the optimal one, once the policy makers had picked out a rate of growth for consumption (i.e., for p’s output) and the technicians and statisticians had prepared adequate data concerning total capital and capital coefficients. One may of course question the realism of his model, though its basic device, the complete separation between the “capacity-increasing” sector and the rest of the economy, is actually not much more arbitrary than the more conventional division of output into investment and consumption. But Fel’dman’s true merit consists in his novel exploration of the relations between allocation of investment, growth of capital stock, and growth of output—an exploration in which he anticipated some aspects of modem income growth analysis, for example, Professors Harrod and Domar’s “warranted” or equilibrium rate of growth,³⁰—and in his courage in pointing out, at the beginning of the Soviet industrialization euphoria, the existence of objective limits to growth rates no matter how huge the allocation of investment toward the capacity-increasing sector might be.

In the climate of the late 1920’s Fel’dman’s methodology, with its building blocks in value terms and its emphasis on final demand and capital coefficients, could find no grace in the eyes of the Soviet bureaucracy. The latter could not accept any objective standards for capital allocation. Fel’d-man’s model, as used for planning purposes by N. A. Kova-levskii, was therefore severely criticized, and Fel’dman’s work was never again referred to in the Soviet economic literature; his model remained buried in the pages of Plan-ovoe khoziaistvo until the late 1950’s, when Professor Evsey Domar dedicated to it a comprehensive and illuminating economic essay.³¹

Another interesting attempt to adapt Marx’s schema for examination of some problems posed by the Soviet accelerated industrialization effort was carried out by Evgenii Preobrazhenskii in the mid-1920’s. Preobrazhenskii set out to investigate the conditions of equilibrium which arise when the backward Soviet economy is geared by its policy makers and planners toward bridging both the wide technological gaps existing among its branches and the enormous gulf which separates it from the most advanced countries of the West.³²

Preobrazhenskii expanded Marx’s two-sector model into a six-sector model by splitting three ways Marx’s producers’ and consumers’ goods sectors. Stressing that Marx had investigated the problems of growth within the framework of a pure capitalist economy and that in the backward Soviet economy sectoral interconnections were much more complex, Preobrazhenskii indicated that his three-way division corresponded to the existence within the Soviet economy of three distinct production systems: state, capitalist, and small-scale producers, definable as a function of their technology, outputs, and form of ownership. He identified sector I of the state complex with the whole of heavy industry; sector II of the state economy with certain branches of the light and food processing industries of national significance, e.g., the textile, leather, sugar, and alcohol industries; sectors I and II of capitalist production with the privately run producers’ and consumers’ goods industries of municipal significance; sector I of the small-scale producers’ system with cottage industry and handicraft workshops; and sector II of this last system with, primarily, peasant agriculture. He then mapped the product flows between his three “production systems” and their six sectors. In the course of his demonstrations Preobrazhenskii treated the capitalist and small-scale producers as the unified private economy counterposed to the state complex, and thus reduced his own model to four sectors.

Defining the relations between the Marxian product and income categories (c,v,m) of each sector, Preobrazhenskii points out that in equilibrium: (a) the value of the capital goods purchased by sector II of the economy as a whole must equal the wage bill and the “nonproductive” consumption of state sector I; and (b) the value of the state-manufactured consumers’ goods purchased by the wage earners and the “nonproductive” consumers of the private sector must equal the value of the expenditure of the wage earners of the state sectors on peasant produce. Otherwise, he notes, in the first case a shortage of producers’ goods would appear, which would force an increase in imports, and in the second case a shortage of state-manufactured consumers’ goods would arise—a so-called goods famine—which could be redressed only through taxation or through imports. Passing from a given level of capital formation in the state complex to a new higher level posits, according to Preobrazhenskii, a decline in capital formation in the private economy, and the incapacity of the latter adequately to supply raw materials to state sector II. Finally, the passage to a high capital formation in the crucial state sector I requires that a tribute be extracted from the private economy as a whole and particularly from the small-scale producers’ sector II. Preobrazhenskii does not, however, define rigorously either the size of this tribute or its connection with changes in the rate of growth in the capital formation of state sector I.

Preobrazhenskii’s model suggests various lines of attack in the study of growth in newly developing economies. The coexistence of sharply contrasting production and distribution complexes within the same economy—e.g., large state and private complexes with regional differences, modem and indigenous complexes—with different factor proportions, different investment capabilities, and differential growth rates raises a number of significant problems in the study of development. Preobrazhenskii’s effort parallels some of the modem Western discussions on “technological dualism,” though the respective points of departure and goals of demonstration are far apart. Preobrazhenskii is interested in the conditions for, and consequences of, accelerated growth of the (state) capital-intensive sector, and in the ways in which the divergencies between this sector and the rest of the economy may be used in designing development strategy. Western authors of sectored models aim usually at clarifying some typical phenomena of underdevelopment, such as the logic of further capital intensification in the modem sector, the redundancy of resources and hence the existence of unemployment at equilibrium, the inflationary consequences of attempts to develop, etc.³³ Preobrazhenskii’s demonstrations unfortunately lack the depth of Fel’dman’s essays, and hence fail to match the tight reasoning of modem growth models.³⁴

A third interesting attempt to visualize the macro-economic relationships in the Soviet economy of the 1920’s was made by P. I. Popov and L. N. Litoshenko. Popov and Lito-shenko developed both from Marx’s two-sector model and from the Soviet practice of drawing “balances” of resources and allocation for specific products the idea of a detailed intersectoral input-output matrix of the economy as a whole. In explaining their method in a crucial study, “The balance of the national economy of the USSR for 1923/24,”³⁵ the authors noted that (a) any economy, whatever its social form, necessarily is based on an equilibrium system resulting from mutually interacting supply and demand relationships in production and distribution in each branch, among branches, and among “social classes;” and that (b) the task of the statistician is to show precisely how and in what forms this equilibrium was achieved or disturbed, and how economic relationships among enterprises and “classes” was concretely established. For this specific purpose Marx’s abstract model— with its bisector division of output according to its destination to producers or consumers and its over-all balancing of the supply and demand of all producers’ and consumers’ goods respectively—was far from appropriate. Equally inadequate was the usual type of social accounting tabulation dealing with value added in production. What was needed was first, to divide the economy intp branches—or industries—by product (or group of products) of homogeneous significance for production or consumption; and second, to trace each of these products throughout the spheres of production as well as of distribution. What was thus envisaged was a way of tabulating simultaneously both interindustry flows and final distribution of the net product.

In defining their approach to a new balance Popov, Lito-shenko, and their collaborators stressed the identity of their concepts with those of Quesnay and Marx. But they added that the Marxian two-sector model was too abstract and too limiting to portray a system of general equilibrium in all its concrete aspects at a given historical moment. They decided, therefore, to subdivide the economy into a large number of branches defined according to their type of product rather than according to whether their products were utilized by other industries or by ultimate consumers. They stressed that they viewed all activities of the national economy as a whole, as a unique process fusing all purchases and sales of each and every sector of “material production.” A basic flow matrix identified within agriculture and industry the following types of outputs (and imports): (a) consumer goods, (b) raw and other materials, (c) fuels, and (d) tools of production. It detailed their distribution in the spheres of “productive consumption” (interbranch transactions in agriculture, industry, construction, transportation, and trade), and of “nonproductive consumption” (individual consumption and government), and finally indicated the amount exported. Supporting tables identified a number of branches in each sector (eight in agriculture, three in mining, and eleven in industry), as well as a number of products, and detailed interbranch purchases and sales. The basic balance presented simultaneously, as Litoshenko put it, the “turnover record” of the economy as a whole and the “credit-debit” operation of each industry.

Popov and his collaborators thus grasped the advantages of a statistical framework that would lace together the entire economic system, and then adroitly tabulated for the purpose gross rather than net outputs. They recorded all users of output—the producing branch itself, other producing branches, and final consumers—and succeeded in revealing for the first time the concurrent input-output aspects of the operations of each branch and sector as they merged with the processes of production and consumption of the economy as a whole. They forged a new statistical tool, still crude but with large potentialities, as appeared subsequently when Professor Wassily Leontief used a similar type of analysis and generalized it in an appropriate algebraic form. Popov and Litoshenko failed to reach the level of sophistication and versatility which present-day input-output analysis has achieved through the use of matrix algebra; but this does not mean that they should be denied their rightful title of pioneers.

In the light of the pioneering character of their methodology it may be interesting to recall the reactions which the Balance provoked, both in Soviet official circles and abroad. Neither the Balance’s methodology nor its conclusions were considered of much use for Soviet planning. In 1925 S. G. Strumilin, the spokesman of Soviet officialdom, boasted that the Central Statistical Administration was compiling its Balance “through the initiative of the State Planning Committee, which had provided the outline and the main methodological instructions for its compilation,”³⁶ but by the time the Balance came out Strumilin disclaimed any connection with the results. The whole work was dismissed as simply “a game with figures” and the discussion on how to draw an appropriate balance was continued for a while with much intensity, since, as the Vestnik statistiki put it in 1927, “such a balance does not yet exist.”³⁷

In presenting his own suggestion for a balance, one of the most celebrated economists of the early twenties, V. G. Gro-man, criticized Popov for failing to encompass in a single table stocks as well as flows, outlays of manpower and of mechanical energy, and class divisions. After dismissing Popov’s work as having “little in common with Quesnay or Marx,” Groman added: “the most essential idea of a balance —the organic unity of all fundamental factors: production, distribution, exchange, and consumption—remains therefore unrealized.” Groman’s own proposals clearly reveal his lack of understanding of the novel implications of the Popov-Lito-shenko approach.³⁸

Strangely enough, Professor Wassily Leontief himself— then a young student abroad—also reviewed in a brief paper, published in 1925, the basic ideas of the Balance as presented by Popov, in a preliminary but fairly detailed report on his work.³⁹ While stressing that the Balance represented an important work, Leontief attacked Popov and Litoshenko’s procedures mainly on the following counts: for restricting the scope of the inquiry to material accounting (excluding services) and for using “total turnover” data (gross output figures), which, said Leontief, multiply double counting. He specifically rejected as “wholly wrong” the method of the “technical dissecting” of agriculture into branches, since, as he put it, this further multiplied the double counting. In conclusion, Leontief recommended the construction of net product tabulations instead, thus missing in his first contact with the Balance method the gist of its novelty and future importance.

While the policy makers were quarreling on the questions of how to change the Soviet society’s socio-economic parameters, what direction of development to impart to the state sector and to its industry, and how to increase the over-all level of capital formation, the economists could not reach any agreement on the nature of the working principles of the Soviet economy and its modus operandi. Both pragmatists and doctrinaires—the former interested in safeguarding the regime’s freedom of “economic maneuver,” the latter bogged down in Marx’s labor theory of value—violently attacked Popov’s, Preobrazhenskii’s, and Fel’dman’s models. The concept of general equilibrium between supply and demand in each and every branch, and between production and distribution as a whole, became anathema to Stalin’s leadership and to its central planners; the idea that objective restraints (“economic laws”) operating under capitalism could assert themselves under the Soviet regime and could limit its “maneuverability” was denounced as “bourgeois economics.” Popov, branded as “impractical,” was deposed as director of the Central Statistical Administration. Lito-shenko, a pioneer in social accounting, was attacked viciously for having dared to state that one could not say anything about the (socialist or capitalist) “mechanism which creates a mass of products” by simply looking at the national income accounts.⁴⁰ Preobrazhenskii, under fire for a number of reasons with which we shall deal later on, was also denounced for embracing the idea of “equilibrium” and for spelling out how equilibrium could be maintained if the economy were to grow rapidly. Finally, Fel’dman, along with those who attempted to use his ideas for planning purposes—N. A. Ko-valevskii, for instance—, came under attack for stressing that “laws of production are independent of any social system.” The idea that in any society the rate of investment and pattern of its distribution affect the growth of national income was branded as “Bogdanovism”—“bourgeois economics.”⁴¹

The hostility of the leaders in power toward economic analysis and model building, toward the application of mathematical methods, toward the idea of the universality of economic principles hampered for decades the development of economic thought, particularly under the long rule of Stalin. While input-output analysis grew vigorously in the West, it was discarded in its infancy in the USSR, where one might have expected it to be developed and used for planning purposes. An interesting effort of M. Barengol’ts to find out the ratios of inputs to output—the technical coefficients of production—in order to determine what he called the “dynamics of interindustry consumption of the products of agriculture and forestry” put an end, for a few decades, to Soviet attempts to further input-output analysis.⁴² It is therefore utterly ridiculous to claim now—as does the Soviet statistician Riabushkin, for instance—that “bourgeois statistics” are now “considerably behind Soviet statistics in solving the problems of balance sheets for the simple reason of the superiority of organization and methods used in the USSR.”⁴³ It is also gratuitous to claim that Soviet planning and accounting would have brought the pioneering schemes of Popov, Litoshenko, and Barengol’ts to maturity, that is, to the level of Western input-output analysis; the pretense than an “uninterrupted” line exists between this early work and the current Soviet uses of input-output analysis⁴⁴ is of course completely unacceptable. Even though, initially, the idea of input-output was sparked by Soviet statisticians some four decades ago, progress in this direction was prevented in the USSR. In fact, the Russians can now borrow a fully developed method, precisely because Western economists did not need to pay any attention to Soviet economic edicts.