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"Supply and Demand" laws in the USSR

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Soviet cogitations: 21
Defected to the U.S.S.R.: 08 Feb 2018, 23:56
Ideology: Marxism-Leninism
Pioneer
Post 08 Aug 2020, 00:02
I transcripted the following text from the book “Is the Red Flag Flying?” by Albert Szymanski, specifically the chapter “The Role of Market Forces” (which basically explains why -or tries to do so- market forces were not present -or in a very limited role- inside the soviet economy) and I want to know your opinion about it. If you agree or disagree, why, etc.

“… Commodity markets are not hegemonic in the Soviet Union. Their logic does not exert any appreciable influence on the Soviet economy. The Central Plan, however, does utilize some devices developed first in market economies in order to secure compliance by enterprises and consumers with the goals of the plan. Consumption goods are allocated through markets, but markets which are structured by the central plan and state regulations, rather than by the laws of commodity production and autonomous market forces.* In all market economies, the law of value operates autonomously to determine the level of prices*… in planned economies… the extent that the law of value operates is determined by the planners who may or may not elect to make prices reflect the labour time that goes into producing them. In the Soviet Union retail prices are set by the state to clear the market. If there is too much demand for a commodity, its price is raised; if too little, it is lowered.* If the government wants to encourage consumption, as is the case with basic consumption goods, it sets their price artificially low; retail prices for food, for example, are maintained at a fairly low level to ensure a low cost of living for industrial workers. On the other hand, if the state wants to discourage consumption, as in the case of luxury goods, it sets prices very high… retail prices serve primarily to allocate consumption goods… the only rationing of consumer goods is for automobiles, housing and certain consumer durables. These relatively few consumer goods are rationed in order to keep their prices lower than what they would be in a free market (in which those with the most money would bid their prices up to where only the better ff could afford them). This also makes their distribution fairer than would be the case if they were distributed to those with the greatest purchasing power. The laws of commodity markets* clearly do not operate to determine the distribution of goods…”

“Autonomous market forces” – What should I understand by this? The laws of Supply and Demand?

“the law of value operates autonomously to determine the level of prices” – Again, is he talking about Supply and Demand being the determining factors in the formation of prices in commodity markets?

“The laws of commodity markets” – Again, Supply and Demand?

“In the Soviet Union retail prices are set by the state to clear the market. If there is too much demand for a commodity, its price is raised; if too little, it is lowered.” – To me, this sounds like planned economies (or the Soviet-type at least) DO take into account the Supply and Demand laws for the production and distribution of consumer goods, which affects the prices they set for them. Isn’t this in contradiction to a planned economy?
--The Revolution will not be made with silk gloves--
User avatar
Soviet cogitations: 825
Defected to the U.S.S.R.: 28 Jan 2008, 19:10
Ideology: Marxism-Leninism
Komsomol
Post 08 Aug 2020, 02:41
It seems like he is saying that both market and planned economies operate under the Law of Value, which is ultimately based on labor time, so there will be similarities between them.

In most cases the ways in which planned prices differ from market prices is to make things artificially cheap. And this is present even in capitalist economies. The price controls of the Jacobins or even Nixon.

Now of course the standard capitalist complaint of this is that it makes goods scarce. The shortage economy. And the author acknowledges this to an extent. He mentions cars. And its famous in the West how long it took to get a car in the bloc. But he argues this is an egalitarian measure aimed at fairness. So the waiting in time is to compensate for those with the most money not just bidding it up and grabbing it 1st.

So it sounds like planned prices will largely mirror market prices as the default starting point. But the state has more control over prices for the sake of social goods. Keeping food and necessities artificially low etc. The market only looks at who has the most dollars, socialism tries to serve the people. Mises referred to the "market democracy" of $1, 1 vote. Under that system resources can be poured into luxuries, while food is scarce. The Soviet system prioritizes the necessities used by all people, over the luxuries of the elite.
Kamran Heiss
Soviet cogitations: 21
Defected to the U.S.S.R.: 08 Feb 2018, 23:56
Ideology: Marxism-Leninism
Pioneer
Post 14 Aug 2020, 00:43
Thanks for the answer. So as i suspected the laws of Supply and Demand are still present in a planned economy. So would be accurate to say that this is the difference between Planned and Market economies (strictly speaking about the prices of goods)?

"In a market economy the Supply and Demand of goods and services determines the level of prices of said commodities, along with market competition and market strategy, while in a planned economy the price of products is the result of Supply and Demand, although the state intervenes on the economy so that goods and services can be acquired at lower prices."
--The Revolution will not be made with silk gloves--
User avatar
Soviet cogitations: 825
Defected to the U.S.S.R.: 28 Jan 2008, 19:10
Ideology: Marxism-Leninism
Komsomol
Post 14 Aug 2020, 01:33
Thats not entirely the answer. In that historically there have been many capitalist regimes that imposed price controls, starting with the Jacobins and extending to Nixon. There are even medieval example of setting "the just price". So you have the basic private property, free market system with govt price controls.

Its not the same as in the USSR when all the enterprises are state-owned and run according to a centralized plan. idk its complicated. To some extent they just "borrow" the world market prices from the capitalists. And then they also have to respond to demand when it shows up in shortages and gluts. So the relationship is between state enterprises meeting consumer demand.

Oskar Lange who was more in theory, but also had some influence on the planning board of Poland, he basically described it as the State duplicating the role of markets, but doing it more efficiently. So the Plan could be closer to Perfect Competition than what the market is. Then the capitalist objection is whats the point of having the Plan just duplicate the market, why not just have the market? Lange's answer was similar to the above, to look after socially necessary goals that the market can't; like keeping a temporarily inefficient factory running for longterm goals.

>while in a planned economy the price of products is the result of Supply and Demand, although the state intervenes on the economy so that goods and services can be acquired at lower prices."

So this is somewhat true. Maybe a better way of phrasing is that "in a planned economy the price of products is set by the state in accordance with the result of Supply and Demand except when social goals take priority."

Its not like a social democracy of the state only intervening to correct the market, the state is the market.

In the Soviet system even when the price matches supply and demand, it is still a "state intervention" because its the state setting the price. The state is always intervening.
Kamran Heiss
Soviet cogitations: 21
Defected to the U.S.S.R.: 08 Feb 2018, 23:56
Ideology: Marxism-Leninism
Pioneer
Post 18 Aug 2020, 03:49
Thanks again for answering! One last doubt:

To cite the author: “… In the Soviet Union retail prices are set by the state to clear the market. If there is too much demand for a commodity, its price is raised; if too little, it is lowered. If the government wants to encourage consumption, as is the case with basic consumption goods, it sets their price artificially low; retail prices for food, for example, are maintained at a fairly low level to ensure a low cost of living for industrial workers. On the other hand, if the state wants to discourage consumption, as in the case of luxury goods, it sets prices very high…”

But then the author proceeds (contradictorily) to state:
“… The fact that the laws of commodity markets do not prevail in the Soviet Union is shown by the absence of inflation and erratic price movements in the economy. The index for retail prices for all commodities (food and non-food) barely changed from 1955 to 1975...”

Indices of Soviet Retail Prices (1955 = 100):

Food:

1955 – 100
1975 – 108

Non-food:

1955 – 100
1975 – 92

All Commodities:

1955 – 100
1975 – 101

So the question is: How could the government keep stable prices (never mind if artificially high or artificially low) if it was trying ate the same time to bring balance between Supply and Demand? Like the author states, there was no inflation nor price fluctuations in the USSR. But price fluctuations are necessary and unavoidable in ANY economy that seeks to achieve equilibrium between Supply and Demand (like the USSR), yet prices in the USSR hardly changed (a meagre 8% up or down in 20 years!) So, I can’t figure out this contradiction…
--The Revolution will not be made with silk gloves--
User avatar
Soviet cogitations: 825
Defected to the U.S.S.R.: 28 Jan 2008, 19:10
Ideology: Marxism-Leninism
Komsomol
Post 18 Aug 2020, 04:25
I'm not sure myself. Just throwing guesses. Maybe its a sign of the "Success" of the system. If artificially low prices were set in 1955 and then maintained?

I notice food went slightly up, and non-food slightly down. Maybe this reflects a more industrialized USSR being able to have more control of non-food goods? The goal in both categories to keep prices low and ideally push them down.
Kamran Heiss
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