The Great Desideratum of Soviet Economic Policy

Abstract

A CORNERSTONE of the methodology of Western economic thought is the conception of rationality of economic decisions. Rationality is thought of in terms of the behavior of economic units leading to maximization of various desiderata (satisfaction, profits). In a market economy rational behavior takes the form of calculation based on information supplied by the market, and the outcome of numerous individual maximizing decisions is an optimum pattern of resource allocation. In the view of some Western economists, the existence of a free market is therefore a necessary condition of a rational economic system. Ludwig Mises, the classic representative of this school of thought, expressed the idea as follows: When there is no free market there is no pricing mechanism; without a pricing mechanism, there is no economic calculation. 1 The implication is clear: in a socialist economy characterized by absence of private ownership of productive resources, and hence absence of a free market for their services, the pattern of resource allocation will fall short of the optimum that would be attained if resources were owned privately. As a reaction to this criticism other Western economists developed what is known as the Competitive Solution of the economic problem under socialism.2 The solution can be summarized as follows: Maximization of consumer satisfaction is the basic postulate of rationality in the socialist economy, as it is in the market economy. Consumers are therefore free to allocate their expenditures as they see fit and to dispose of their labor services (the only productive resource which is privately owned) as they choose. Under these conditions consumers can be expected to behave in the same way as consumers in a market economy; and managers of socialist enterprises are instructed to behave in the same way as managers of private enterprises in a market economy with respect to the level of output and the combination of inputs. The only distinction between the operation of the market economy and the socialist blueprint is the nature of the mechanism by which the data relevant for rational calculation are supplied to the decision-makers. In a market economy the data emerge spontaneously as a result of the interaction of market forces; in the socialist economy they are the outcome of conscious action of the Planning Board. However, in fixing the relevant data (prices) the Planning Board of the ideal socialist economy does not attempt, as a rule, to override the dictates of consumers' autonomous decisions to purchase goods and sell labor services.