Abstract
All earlier chapters have rested on the assumption that prices are formed by the interplay of supply and demand in the world market. The distortions we have scrutinized so far modify the functioning of the market but do not eliminate the price system as such. There is another way of allocating resources in an economy, however: with the aid of administrative processes where planning plays a decisive role. The planning system may function in different ways in practice. Here we will concentrate on looking into the effects of the ‘purest’ variety, the type of planned economy applied in the Soviet Union and a number of Eastern and Central European countries until the early 1990s. In this system there was, in principle, no place for the market at all, even if reality never quite lived up to that ideal. (In several Eastern European countries fragments of a private sector survived. Moreover, illegal, black markets were a reality in all planned economies). Now we know, however, that the system functioned badly and finally it crumbled completely, so that today only North Korea and Cuba remain as orthodox planned economies. From what we know it seems highly unlikely that the planned economy could ever return as an economic system. In this chapter we will show how this type of economy functions and why the experiment of economic planning was unsuccessful.
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Literature
A concise survey on the economic history of the Soviet Union is given in:
Nove, Alec (1989), An Economic History of the USSR, (2nd edn). Penguin Books, Harmondsworth.
The discussion on Marx and the socialist controversy is based on, among others:
Fine, Ben (1975), Marx’s Capital Macmillan, London.
Kornai, János (1992), The Socialist System. The Political Economy of Communism. Clarendon Press, Oxford, ch. 21.
Nove, Alec (1983), The Economics of Feasible Socialism. George Allen & Unwin, London.
Oskar Lange’s ideas on market socialism can be found in:
Lange, Oskar and Taylor, Fred M. (1964), On the Economic Theory of Socialism. McGraw-Hill, New York.
The ideological foundations of the superiority of socialism are described in:
Kornai, The Socialist System, ch. 4.
The discussion on different pricing systems and the section on pricing reforms and planning routines in the Soviet Union are based on:
Turner, R. Kerry and Collis, Clive (1977), The Economics of Planning. Macmillan, London.
The principles of the planning system are also described in:
Kornai, The Socialist System, ch. 7.
A survey of Kantorovich’s contribution to developing the planning techniques is given by:
Johansen, Leif (1976), ‘L. V. Kantorovich’s Contribution to Economics’, Scandinavian Journal of Economics, Vol. 78.
The incentive problem and the problem with inputs, as well as the scarcity of goods and the overemphasis on goods production have been treated as a starting point in:
Kornai, The Socialist System.
Winiecki, Jan (1991), The Distorted World of Soviet-Type Economies. Routledge, London, especially chs 3 and 4. (Winiecki discusses the various forms of inflation in a planned economy in ch. 2.)
In this context we have also used:
Kornai, János (1982), Growth, Shortage and Efficiency. Basil Blackwell, Oxford.
Kornai, The Socialist System, esp. chs 11 and 12.
The role of foreign trade in a planned economy has been described with the aid of:
van Brabant, Jozef M. (1989), Economic Integration in Eastern Europe. Harvester Wheat-sheaf, New York.
Kornai, The Socialist System, ch. 14.
Winiecki, Jan (1991), The Distorted World of Soviet-Type Economies. Routledge, London, ch. 5.
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© 2002 Hans C. Blomqvist and Mats Lundahl
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Blomqvist, H.C., Lundahl, M. (2002). The Socialist Planned Economy: The Price System Eliminated. In: The Distorted Economy. Palgrave Macmillan, London. https://doi.org/10.1057/9781403914347_9
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DOI: https://doi.org/10.1057/9781403914347_9
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