Socialist Integration of the Economy

May 09

There is also a socialist approach to the integration of the economy. This is achieved by the socialisation of the means of production which would lead to the economy becoming one big farm or one big factory. In the academic discussions, there was mention of the possibility of rational calculations of costs in an economy where factor markets and thus factor prices were abolished. The efficient allocation of resources on the principles of the hypothetical perfectly competitive conditions that were being championed could in practice only be achieved in an economy where factors of production were completely socialised. The argument was that socialisation of the means of production would ensure the distribution of assets on the basis of true factor proportions of only the equilibrium prices could be found, and these, it was pointed out, could be arrived at even in the absence of markets for factors of production. The point to note is that under this arrangement although the procedures are different, the integration of the economy is achieved through a regime of uniform prices or on the value principle.

Consequently many socialist writers have tried to analyse and prescribe policies for the economies have also become victims of the commodity illusion. For instance, taking into account the productivity of labour to ensure the need to increase the productivity of labour to ensure a steady accumulation of surplus and on the assumption that the surplus is socialised socialist economies have tended to prefer capital-intensive techniques of production. Where the non-labour resources are primarily privately owned, emphasis on techniques and industries using such resources intensively will also lead to a concentration in the ownership of the means of production which, in turn, can give the growth process twist into directions which socialists will not approve of.

How can the government restrain private investment to the level allocated to it in the plan? If this condition is fulfilled, private savings over and above private investment may be absorbed by the government without causing inflationary pressures. The absorption of private savings by government investment will not happen by direct purchase of government securities; the savings will manifest themselves as the increase of indebtedness of the banking system to the private sector i.e. the increase in excess of cash and deposits held by the private sector over banking credits granted to that sector. The counterpart to these savings is the increase in indebtedness of the government to the banking system. It is in this way that the government get hold of private savings.

Enough has been said to indicate the analytical inappropriateness of treating the economy as if it is a completely integrated system and pointed out some of the misleading policy prescriptions arising from the fallacy. The greatest danger of this procedure is that it tends to abstract from the crucial structural aspects of the economy and approaches it solely in terms of its working and its commodity profiles. Whatever else is the merit of this procedure it is highly inadequate to analyse the problem of poverty, and hence policy recommendations based on it must be subjected to through scrutiny.

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