1 Vosnesensky, N. A., The Economy of the USSR during World War II (Washington, D.C., 1948), p. 78 Google Scholar.

2 Obelensky-Ossinsky, V. V., “The Nature and Forms of Social Economic Planning,” in International Industrial Relations Institute, World Social Economic Planning (The Hague, 1932), p. 340 Google Scholar.

3 Ibid., pp. 316, 339.

4 Varga, Eugene, Two Systems (New York, 1939), p. 141 Google Scholar.

5 For a discussion of this reform, see Baran, Paul A., “Currency Reform in the USSR,“ Harvard Business Review, March, 1948 Google Scholar.

6 This is reflected in the existence of two kinds of accounts in Gosbank, a current (tekuščij) account, and a clearing (rasčëtnyj) account. The latter is held by all khozrasčëetnye organizations, whose operations are primarily within the state sector and whose transactions are part of the clearing system. The former is held by “budget“ (see note 11) organizations engaged mostly in financial operations, and also by kolkhozy, which are permitted a greater degree of freedom in their financial operations than stateowned organizations. Hubbard, Leonard E., Soviet Money and Finance,(London, 1936), p. 71 Google Scholar; also Atlas, Z. V. and others, Denežnoe obraščenie i kredi SSSR, ed. by Bregel', E. Ja., (Gosfinizdat, 1947), pp. 250–256, 281–282Google Scholar.

7 An illustration of the importance of the control motive in the clearing system is provided by the “valuta” checks which were issued in 1931 in order to reduce the congestion in Gosbank after the Monetary Reform of 1930. The checks were issued in various denominations by Gosbank, could be used in all intracity interenterprise transactions, and were transferable with endorsement. If not presented for deposit in Gosbank within 20 days they became invalid. These checks provided the only means whereby enterprises could transact business without going through Gosbank, and hence became very popular with managers. But since the use of these checks weakened Gosbank's control over transactions, their use was curtailed. Today the clearing (rasčëtnyj) check is of the same nature as the old valuta check, and is also rarely used. Arnold, Arthur Z., Banks, Credit and Money in Soviet Russia,(New York, 1937)Google Scholar; also, Hubbard, op. cit.,p. 71.

8 The desire to curtail the use of currency is related to the early revolutionary view that when the state's control was firmly established over the whole economy, “money“ would wither away and the economy would be operated as a bookkeeping system in which workers needed only receipts showing that they had performed their work in order to receive their needs from the common store. In the state sector the bookkeeping system is virtually achieved, and continued efforts are made to reduce the use of currency by the population. Wide use is made of reductions at the source of income, for example, taxes and subscriptions to bonds. Another device is the “giro” system of payments in which individuals instruct their savings banks to make recurring payments, such as rent and utilities, directly from their deposit accounts. Although the system is not widely used, a skeleton organization is maintained and one might guess that sometime in the future it may be greatly expanded. Arnold, op. cit., p. 419–2 1; V. D'jačenko, and others, Finansy i kredit SSSR, (Gosfinizdat, 1940), p. 349.

9 However, under certain conditions, monetary control by Gosbank will not detect dislocations of the material plan. See the discussion on page 252.

10 For the purpose of making change and other current operations, enterprises which deal directly with the population are allowed to keep on hand the following percentages of receipts: Urban retail stores 10% Rural retail stores 20% Railroad catering enterprises 50% Other catering enterprises 25% Atlas, Z. V., “O planirovanii resursov Gosbanka i denežnykh sredstv khozorganov i predprijatii,” (Planovoe Khozjaistvo, 1937), Nos. 9–10, p. 127 Google Scholar.

11 Enterprises are often divided into “khozrasčëtnyj” and “bjudžetnyj” (budget). The former are those which purchase factors of production and sell goods and services; they are required to follow a system of khoznsčët, or economic accounting, that is, using factors economically. In most cases this means that receipts must cover costs, although in a very few cases subsidies are still used. Budget organizations are those engaged in money transfer or administrative operations which are part of the state budget, such as social security, financial, medical, and other organizations.

12 Minor exceptions are the payment of wages out of receipts by organizations which sell directly to the public and a few large savings deposits held by wealthy individuals in Gosbank. The latter is the only case in which Gosbank deals directly with the population.

13 Černjavskij, U., “Denežnye dokhody naselenija i rozničnyj tovarooborot,” (Planovoe khozjaistvo, 1941), No. 5, p. 79 Google Scholar.

14 In the planning of retail trade distribution, the census categories of urban and rural populations must be further broken down into agricultural and non-agricultural employments. The non-agricultural rural population has a demand pattern more like that of the urban population than that of the rural agricultural population. Rural areas with relatively large non-agricultural elements must, for example, be provided with greater supplies of food products than purely agricultural areas. Ibid., pp. 83–84; also Margolin, N., “Nekotorye voprosy balansa denežnykh dokhodov i raskhodov naselenija,” (Planovoe ktwzjaistvo, 1949), No. 4 Google Scholar.

15 The kolkhoz market influences the character of the demand for state agricultural goods, because insofar as it satisfies part of the total demand for agricultural goods it increases the relative demand for state industrial goods compared with state agricultural goods.

16 The labor day (trudoden’) is a fiction designed to express the fact that labor of different kinds has different values. For example, a day's work of a field hand may be rated at 1.5 labor days, while a day's work of a tractor driver may be rated 2 labor days. The total product available for distribution to the members of the kolkhoz is divided in proportion to each person's labor days, not actual days.

17 The importance of this element is indicated by the fact that in 1934 and 1938 the outlays on retail goods alone accounted for 77.3% and 79.6% respectively of the total money outlay of the population. In the same years, wages and salaries accounted for 66.6% and 67.6% of the total money incomes of the population. By way of contrast, direct tax payments of the population were only 4.2% and 3.2% respectively of the total money outlays, and the money earnings of kolkhozniki for trudodni were only 2.0% and 4.4% of the total money incomes. See Margolin, N. C., op. cit., pp. 8, 9Google Scholar. In Margolin's usage, the classification total money incomes includes incomes earned from other individuals, and the classification total money outlays includes payments to individuals. These totals are therefore not precisely identical with the categories used by us, which exclude payments between individuals. Also, Margolin's figures for outlay on goods include public catering but not services such as transportation and entertainment. Nevertheless, the figures give an idea of the orders of magnitude involved, and the overwhelming importance of the wage bill and the volume of retail trade.

18 In the early thirties, as part of the drive to increase private savings, there was strong agitation for paying workers in savings bank deposits. Some trade unions succeeded in making compulsory the payment of part of wages in savings deposits. Arnold, op. cit., pp. 201, 211Google Scholar.

19 This is not to say that monetary disruptions are not possible in the socialized sector. But this leads to the large subject of credit provision and control, which cannot be dealt with here. Since the credit system does influence the money holdings of the population a complete treatment of the problem of a high rate of investment may not neglect it. But the following discussion is not materially changed by the omission.

20 The simplified description of the industrialization process presented here does not include discussion of the possibility of increasing the output of consumer goods simultaneously with a high rate of investment, by a bold program of economic and technological reorganization. Dobb and others have maintained that in the industrialization of backward areas there are numerous opportunities for technological improvements requiring relatively little capital which would raise the productivity of agriculture and release large quantities of agricultural labor at the same time for work in industry.The simplified description of the industrialization process presented here does not include discussion of the possibility of increasing the output of consumer goods simultaneously with a high rate of investment, by a bold program of economic and technological reorganization. Dobb and others have maintained that in the industrialization of backward areas there are numerous opportunities for technological improvements requiring relatively little capital which would raise the productivity of agriculture and release large quantities of agricultural labor at the same time for work in industry. This argument makes the dubious assumption that there is unemployed capital available in form and quantity sufficient to be used by the newly released labor. It is also likely rhat if the rate of industrialization is limited by the supply of unemployed labor and resources, it will not be a sufficiently rapid rate to result in the external economies described by Dobb. Dobb, op. cit., pp. 22–23 Google Scholar. Also Mandelbaum, K., The Industrialization of Backward Areas, (Oxford, 1947)Google Scholar, and Rosenstein-Rodan, P., “Problems of Industrialization of Eastern and South Eastern Europe,” in Economic Journal,June- September, 1943 Google Scholar.

21 The relation of income to money holdings is the relation of a flow to a stock. Income is measured between two points of time, money holdings at a point of time. In our case money holdings grow continuously whereas income is always the same. The two concepts are used interchangeably by Margolin, the principal Soviet writer on the subject. Margolin, op. cit.,p. 64 Google Scholar.

22 Insofar as the state has the choice of reducing wages or increasing prices, it is a monopsonist and a monopolist at the same time, with the further complication that its behavior as a monopsonist influences its behavior as a monopolist. That is, by exerting its monopsonistic power of setting the wage rate, the state affects the position of the demand curve which it faces as a monopolist. It must be remarked that a monopoly situation defines only a certain relationship between buyers and sellers, and one may be a monopolist and act monopolistically in this sense, without following a profit motive. This definition is in contradistinction to that employed by Dobb, M., Soviet Economic Development Since 1917 (London, 1948), p. 355 Google Scholar, where the author identifies “acting monopolistically” with restricting output. It should also be noted that with regard to the population as consumers the government can set price or amount purchased but not both. In the case of the state sector, however, the government can set both the price and the amount consumed. For this reason the monetary problems of a high rate of investment are more serious in the population sector than in the socialized sector.

23 It would be politically difficult for a workers and peasants state to introduce a wage cut or income tax large enough to absorb the excess. A further advantage of price manipulation over these methods is that it reduces the scope of consumer sovereignty, that is, it can be designed to impose any desired pattern of consumption on the population, whereas an income tax can only affect directly the volume of consumption.

24 The turnover tax is equal to the difference between retail price and the sum of all production and distribution costs. How this tax is accounted for, however, is not relevant to the immediate problem of the inflationary excess. Here the only concern is how the excess is to be siphoned off, not how it is to be disposed once it has been absorbed by the socialized sector.

25 Keynes, J. M., The General Theory of Employment, Interest, and Money,(New York, 1936), pp. 9–13 Google Scholar, passim. But see also Dunlop, N. T., “The Movement of Real and Money Rates,” Economic Journal, September, 1938 Google Scholar, which shows that money and real wages have fluctuated in the same direction. This, however, does not disprove the assumption that a wage cut has an instantaneous impact whereas a price rise is gradual and may take some time to be felt. This is the only assumption we need in order to prefer the price rise. Furthermore, the “money illusion” is not entirely irrational, for a wage cut for any group represents a disadvantage vis-a-vis any group whose wage has been cut. The less the quantity of information available, the less likely are workers to have a clear idea of how other workers’ wages are changing. In fact, most of the steady increase in money wages in the Soviet Union has been unplanned and spontaneous, so that workers never really knew how general the wage rise was. Finally, the qualitative relationship of rising wages to rising prices is much easier to perceive intuitively than the quantitative relationship. The workers may not know whether wages or prices have risen faster, but at least wages have not stayed the same or fallen.

26 On the other hand, free public discussion in capitalist countries makes workers more sophisticated in the relation of real and money wages, leading to sliding wage scales and cost of living adjustments. In the Soviet Union, limitations on public discussion guard workers against any but the most obvious implications of price rise. Furthermore, from a practical point of view, prices are more amenable to fixing than wages since workers preserve some degree of bargaining power in any circumstances, if only in their ability to vary the efficiency of their work.

27 In the dynamics of a continuous price rise, however, this advantage may backfire. I f expectations are such that people believe prices will continue to rise, and a fortiori if they actually continue to rise, there is a positive inducement to dishoard. Large scale dishoarding of cash seeking conversion into goods will considerably aggravate the inflationary pressure.

28 This may be one reason, although not the most important, for the government's continued tolerance of the expanding role of an institution of dubious political color. For since the stabilization of agricultural conditions, the volume of kolkhoz market trade has increased more rapidly than the volume of state and cooperative retail trade. The latter has grown from 80 billion rubles in 1935 to 175 billion rubles in 1940, or 2.2 times. Kolkhoz market trade has grown from 10 billion rubles in 1935 to 31.5 billiou rubles in 1940, or 3.2 times. 1940 figures are from Sovetskaja torgovlja za 30 let, (OGIZ, 1947), p. 14; 1935 retail trade is from TsUNKhU, Sotsialističskoe stroitel'stoo SSSR, 1936, pp. 606–7; ‘935 kolkhoz market trade is from Planovoe khozjaistvo, 1936, No. 5, P. 113Google Scholar.

29 Margolin, N. C., Voprosy balansa denežnykh dokhodov i raskhodov naselenija, 1939 edition, p. 63Google Scholar.

30 Kolkhozy sold 2,154 million rubles of crops in the kolkhoz market in 1938. The total volume of kolkhoz market trade in that year was 25,500 million rubles. According to these rough figures, 8.4% of the kolkhoz market trade is due to kolkhoz sales. The kolkhoz sales figure is from Naum Jasny, The Socialized Agriculture of the USSR, (Stanford, 1949), p. 686. The figure for kolkhoz market trade was obtained by subtracting the volume of state and cooperative trade and public catering, from the total of retail trade; these figures are from TsUNKhU, Sotsialističeskoe stroitel'stvo, 1939.

31 Vosnesensky, op. cit., p. 76, states that over the three years 1942—44 the money in circulation increased 2.4 timesGoogle Scholar.

32 When Soviet writers refer to the stability of prices during the war they mean only state fixed prices. Whenever prices are fixed in one sector of an economy in time of short supply, the full pressure of the shortage is exerted in those markets where prices are not fixed, in the black market and the kolkhoz market. Kronrod, Ja. A., “K ekonomičeskoj kharakteristike sovetskoj deneznoj reformy, 1947 goda,” Izv.estija Akademii Nauk SSSR, Otdelenie ekonomiki i prava, 1948, No. 4, p. 230 Google Scholar; also Margolin, N. C., op. cit., p. 54 Google Scholar.

33 The reduction in the value of bank deposits was considerably smaller. Since the savings deposits were held mostly by urban classes, while the currency was held mostly in the village, the monetary reform was more severe to the peasantry. Baran, op. cit., pp. 203–4 Google Scholar.

34 Černjavskij, op. cit., p. 80 Google Scholar.

35 Rigidities of this sort are also an advantage to planners, and perhaps indispensable. Imagine trying to plan the activities of a population whose motivations changed with every season. The undesirable rigidities are those which are incompatible with a desired form of action.

36 This is not meant to imply that no efforts are made to change people. Actually, powerful efforts are made in that direction by every means available to the state. Our point is that five-year planners must face the reality of people as they are, and develop economic institutions (and prognostications) on this basis. T h e success of such institutions should be measured not by how much they have transformed men's incentive patterns, but by how successfully they have harnessed these patterns to a given end.

37 Op. cit., pp. 75–76.