Re: [OPE-L] A startling quotation from Engels.

From: Paul Cockshott (wpc@DCS.GLA.AC.UK)
Date: Wed Aug 29 2007 - 11:30:30 EDT

There is a fascinating if over coloured web site I have just found

Covering debates in Eastern Europe in the 60s on the role of prices in socialist economy. It contains the following contributions:


Sir Roy Harrod said that he had been greatly stimulated by both papers but found the multiplicity of proposals bewildering. Although it might be paradoxical for a capitalist economist, he had to declare some unease at the claims for greater freedom and flexibility in the price mechanism. He wanted to stress that he greatly valued the function of price, in a market mechanism, of equating supply to demand. Queues of consumers waiting, when supply fell short of demand at given price, or the inability of producers to procure needed components or materials without delay, entailed a shocking waste. It would be a great gain to remedy those evils. Moreover, if an enterprise produced variants of a certain type of article, it might be expedient for it to be able to test out consumer preferences by some freedom of price maneuver. Subject to that, he had two points to make.

 He was convinced that in a socialist system an official, or 'normative', price was necessary. Adam Smith distinguished the market price from the 'natural' price, the first being that which actually obtained, the second that to which the market price tended under competitive capitalism. The 'natural' price could not be identified and might never be realized, owing to a change of intervening circumstances, but it epitomized the action of capitalists striving to maximize private profit. No such force operated under socialism, and it was for this reason that it was necessary for a 'natural' or 'normative' price to be calculated and promulgated. Without it there would be no guideline for that allocation of productive resources which best satisfied consumer needs. Adam Smith's 'natural' price did not differ substantially from the price based on cost in Marx's Kapital, vol. III. Professor Mateev's paper was a development of Marx and he concluded that price Type II was that which correctly embodied the principle of socially-necessary cost; of the two variants that with capital at replacement cost (p. 78) was the better.  If enterprises were allowed to deviate from Marxian prices, in order to prevent market short­ages (or surplus stocks), they should be instructed to restore normal prices as quickly as possible by changing their level of output. Information that this had been done, and why, would be conveyed to the planning agencies. 

Sir Roy Harrod was also disquieted by the idea that too much laxity in the matter of prices might lead to inflation, specifically to spiraling inflation. It might be that socialist economies had a perfectly firm grip on the wage situation, but feared for the efficacy of such control if prices broke loose. Spiraling inflation had often little to do with the type of inflation that resulted from a lack of balance (or excess of demand) in the economy, e.g. that due to an excess of capital accumulation in relation to the provision of funds for that purpose. The United Kingdom had experi­enced the excess-demand type of inflation during and after the War; more recently there had been little excess demand, but spiraling inflation persisted. The British Government had set up an agency to review prices, and many hoped that its function was not to be mere window-dressing: its task would be made far easier if there was already in existence a set of official prices, such as the socialist countries had. Sir Roy Harrod's fears of a serious wage-price spiral led him to enjoin caution upon socialist countries in decontrolling prices: the prevention of inflation was more difficult than its cure.



Academician Ostrovityanov observed that some Western economists attributed the present discussion of price-formation in all the socialist countries to a crisis in methods of centralized planning; they perceived a movement towards capitalist methods of the free market and the pursuit of profits. There were even some socialist economists inclined to view as mistaken the entire history of socialist price-formation.  Professor Robinson and others had characterized the pricing techniques of socialist countries as purely administrative. It was alleged that fixed prices, con­straint of market relations, and the two-level price system were inherently wrong. Professor Fauvel had pointed out that capitalist economies had recourse to rationing in war-time. Historically, price control and con­sumer rationing during the Civil War and the Second World War were two of the most important economic conditions for victory. The same was true of the two levels of prices, which had been essential to implement the policy of the development of heavy industry in preference to agri­culture and those branches of industry producing consumers' goods: prices ruling for producers' goods were lower than those for consumers' goods. This dichotomy could be relaxed now that the Soviet Union and the other socialist countries had entered a new stage permitting as rapid development for consumers goods as for heavy industry. This was not to say that there had not been mistakes in the past: excessive centraliza­tion, the incorrect substitution of administrative decisions for economic methods, and the inadequate utilization of commodity-money instruments. Such defects were still far from eliminated; the answer was not the re­jection of central planning, but its optimal combination with the wide initiative of local organs, firms, enterprises, and workers' collectives, This meant the restriction of central planning to a determination of the basic lines of development and the granting of much greater managerial and operating independence to the enterprises. A fundamental improve­ment in the system of price formation would play an important role in this transformation. 

Dr. Kyn had frequently reiterated a belief in the value of an automatic market mechanism, but had failed to describe his ideal. Did he reject the planning of prices and of the equilibrium between personal income and expenditure? Would he abandon the guarantee of income by commodities to the spontaneous forces of a free market ? Should not reliance rather be placed on an awareness and utilization of economic laws, and the elevation of planning to a higher level by taking advantage of modern mathematical methods and computer techniques? The second choice was the correct one, making the best use of the mechanism of commodity production and distribution - which had centuries of practice behind it  but eliminating those negative features of spontaneity which wasted productive resources and induced cyclic fluctuation.  The Scientific Council on Price Formation in the U.S.S.R. was working on the assump­tion that prices had to be based on the Marxist theory of labour value and, in particular, on the category of socially-necessary labour outlays. The determination of value by socially-necessary labour expenditure stimu­lated technical progress, because those enterprises introducing advanced technology reduced their labour outlay below that socially necessary, and, selling their commodities at industry-wide prices, received supplementary profits. Those enterprises where costs were higher than socially necessary gained less than average profits or even made a loss at industry-wide prices, and were forced to improve their technology and organization of production. On the other hand, prices set in accordance with relative utility slowed technical progress, because they assured a normal profit to backward industries and increased profits to all other enterprises by artificially inflating the industry-wide price above the value of the socially-necessary expenditure of labour. The cost of production and the average rate of profit had also played important roles in the history of commodity economies:  intra-industrial competition had induced a systematic deviation of prices from value and created an incentive for a transfer of capital to those branches of industry where there was a high concentration of living labour and a higher rate of profit.




From: OPE-L [mailto:OPE-L@SUS.CSUCHICO.EDU] On Behalf Of Alejandro Agafonow
Sent: 09 August 2007 12:16
Subject: [OPE-L] A startling quotation from Engels.


Dear Friends:


I would like your advice concerning a startling -for a non-Marxist socialist like me- quotation from Frederick Engels, The Poverty of Philosophy, Preface to the First German Edition. []


He seems to reject what has come to be the standard account of Marxism, including Engels himself.


Alejandro Agafonow



«[...] continual deviations of the prices of commodities from their values are the necessary condition in and through which the value of the commodities as such can come into existence. Only through the fluctuations of competition, and consequently of commodity prices, does the law of value of commodity production assert itself and the determination of the value of the commodity by the socially necessary labour time become a reality. [...] To desire, in a society of producers who exchange their commodities, to establish the determination of value by labour time, by forbidding competition to establish this determination of value through pressure on prices in the only way it can be established, is therefore merely to prove that, at least in this sphere, one has adopted the usual utopian disdain of economic laws. [...] competition, by bringing into operation the law of value of commodity production in a society of producers who exchange their commodities, precisely thereby brings about the only organisation and arrangement of social production which is possible in the circumstances. Only through the undervaluation or overvaluation of products is it forcibly brought home to the individual commodity producers what society requires or does not require and in what amounts. But it is precisely this sole regulator that the utopia advocated by Rodbertus among others wishes to abolish. And if we then ask what guarantee we have that necessary quantity and not more of each product will be produced, that we shall not go hungry in regard to corn and meat while we are choked in beet sugar and drowned in potato spirit, that we shall not lack trousers to cover our nakedness while trouser buttons flood us by the million -Rodbertus triumphantly shows us his splendid calculation, according to which the correct certificate has been handed out for every superfluous pound of sugar, for every unsold barrel of spirit, for every unusable trouser button, a calculation which "works out" exactly, and according to which "all claims will be satisfied and the liquidation correctly brought about".»


«If he had investigated by what means and how labour creates value and therefore also determines and measures it, he would have arrived at socially necessary labour, necessary for the individual product, both in relation to other products of the same kind and also in relation to society's total demand. He would thereby have been confronted with the question as to how the adjustment of the production of separate commodity producers to the total social demand takes place, and his whole utopia would thereby have been made impossible. This time he preferred in fact to "make an abstraction", namely of precisely that which mattered.»



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