JPRS ID: 8565 USSR REPORT ECONOMIC AFFAIRS

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ii JULY i979 CFOUO 61~9~ i OF i
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NdR OF~ICIAL U5F: ONI.Y
- .1PRS L/8565 ~
11 July 1979
CFOUO 6/79)
USSR Re ort . -
p
ECONOMIC AFFAIRS
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~ ~ JPRS L~8555
' 11 July 1~79
USSR REPORl'
! ECONOMIC A~FAI~S
(FOUO 6/79)
CONT~N7S PAG~
Efficiency of Capital ?aivestment in Social Terms Analyzed
(U. Baymuratov; VOPROSY EKONOMIKI~ May ?9) 1
Rate of Efficiency of Capital Invnstmenta
(N. Miroahnikov; VOPROSY EKONOMIKI, May 79) 12
Role, Problems of Monetary Circulation Discussed
- (I. Levchuk; VOPROSY EKONOMIKI, May ?9) 20
Production snd Improving Territorial Organization
(N, N. Kazanskiy; IZVFSTIYA ~?KADF~+III NAUK SSSR. SERSYA -
(}~~RAF'ICEIESKAYA, Mar-Apr ?9) 33 -
- a - [III - USSR - 3 FOUO]
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EFFICIENCY OF CAPITAL INVESTNIENT IN 80CIAL TERMS ANALYZED
M~scorr.VOPR03Y IICONOMIKI in Russian No 5, M~y 79 pp 49-57
[Art~cle by U. Berymuratov, Alma Ataj
[TextJ In the context oP advanced socialism capital. investmenta in the
sphere of msterial production ar~: aimed both at achieving ~}rnamic economic
- growth and also at f~nediate performance of society's social tasks. This
advc~nqes the social aspect of the efficiency oP capital investmentsl to the
foreground.
In the variouB stagea of development of the inveatment process in the USSR
capitial investmenta in material production have as a rule been dietinguished
by the r~ther restricted list oP tasks to be perfarmed. Moat frequently
they had to do with building up production capacities and raising the tech-
nical level of production.
Multipurpose capital investments and comp3ehensive long-range investment ~
programs which accomplish integrated performance of socioeconomic tasks at
~ various levels are inherent in the econom~y of mature socislism. In the eco-
! nomics lite:ature a number of authors have right~jr noted the advantages of
comprehensive programs.2
Creater emphasis on the social orientation of capital investments presup-
poses a larger share of outleys for ~orkplace health and saPety, conserva-
tion of natural resources and environmental protection, as well as to sat-
isf~r the nonmaterial needs of the public.
A number of circumstances have made it an urgent matter ta take into account
the social consequences of capital investments. They a�re the growing scale
and high pace of the investment procesa, the increase in the relative ehare
of outlsys committed to performance of the CPSU social program and to cre-
� ation oP the prerequisites for Well-rounded development of the individual,
and the necessity of enhancing the role oP social factors in economic growth
and in raising the efficiency of social production. Moreover, We should
also note that in the past the social consequences of industrial dev~lopment
and of their efPect on economic efficiency Were underestimated and scientific
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energie~ were not sufr'iciently concentrated on the theoreticQl problems of
, determinir,g the,efficiency in socigl terms of capital inveetments, new tech- ~
nology and scientific research. That is how evaluation came to be baeed so
widely on exclusive~}r c~conomic criteria.
The theory of the efficiency of capital inveatmenta and of aocial production
is fa?ced with the need to atuc~y not only economic aspecta, but also social
aspects. p,s noted by T. Khachaturov, member of the academpr: "We have a
number of very important problema yet to solve, above all the socioeconomic
effic~zncy of capital investments, or the efficiency of investments in the
nonproductive aphere."3
In the broad senae the social efficiency of capital investments is mani-
fested in the development of the socialist wey oP life and in the gradusl
evening out of regional, ethnic aad other differences. In the narrow sense
it means solving the most urgent socioeconomic problema. Normal~j? capital
investments are not required by all social traneformations. Three coneoli-
dated groupa of social benefits should accordingly be diatinguished:
a) improvement o! sanitary-Y~ygiene and eathetic conditions of the workplace,
making work eaeier (reduction or eliminatiou of heavy manusl labor, reduc-
tion of the monotoqy and pace of work, and reduction of nighttime Work),
workplace saYety, eliminai~o~ or reduction of accidents and in~uries, and
regulatiag manufacturing px~ocesaes aithout man's direct intervention; {
b) alteration of the character aad coatent of work, raising tihe level of
worker education and skill, creative ~ob enrichment, improving the level of
~ob satisfaction, transformation of farm work into a variety of industrial
work, guaranteeing choice of occupation, type of vork and ~ob according to
aptitude and inclination, abilities and vocational training, aad interna-
tionalization of labor;
c) the social i~pact resulting from protectioa and improvement of the envi-
ronment: achievement of clean sir aad water, prevention of soil pollution,
reproduction of natural resourcea, preservation of unique natural complexes,
farm and forest land, and flora aad fauaa, and creation oP proper conditiona
Por people's rest and recreation. We should alao include here the benefit
from prevention or reduction of the destructive effect of the elements on
man and his environmeat.
A separate group is made up of the eocial benefita maniYested in the process
of consumption proper and achieved by improvement oY the use characteristics
of products, improvement of the pattern oP services, and the formation of
nev needs.
In accordance xith the theory of efficiency, social criteria should be taken
into accoiint when variaats of cs~pital investments and of nex technology are
being evaluated. This proposal is unquestionably correct in its general .
form, but its ia~plementation does not seem altogether correct to us.
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The normative appro~ch is taken t,o evaluating the efficiency of capitel in-
vestmenta ~?t the present time. Easentially thfs meana ~hat capital inveet- ~
ments are regar~:ted as a meana of achieving goals aet in advance with minimtun
expend3tures ol gocial labor. All alternativeg of capital investmente are
assumed to bs equivalent or comparable, and the ~ask comes down to finding
the best variant that minimizea the coste to aociety. The normative approach
greatly aimplifies the methodology of economic calculations, b~lt at the same
time it does not improve the soundnesa of the deciaiona made, but rather de-
tracts from it.
First of a11, it is not always technically feasible to achieve f`u1.1 equality
of benefits for the variants being compared, so that this premise muat be
regarded with great caution. Second, it is a1.so unacceptable from the eco-
nomic atandpoint, since it is assumed that the variants being evaluated xill
bring about social goals given in advance and sometimes inaufficiently aub-
stantiated, without taking into account the volume of capital inveatmente.
Third, the normative e,pproach does not guarantee full utilization oF the
achievements of scientific-technical progress materialized to the greateat
degree in some variant of capital investments. In this approach only by ac-
cident can the ob,~ective be in 1i~e with the maximum parameters of a spe-
cific type oP new engineering and technology.
The variants must be made comparable in the volume of out;put, liat of prod-
ucts, product quality and the tioe factor, and also With respect to certain
especially urgent social tasks, which are defined as a function of eectoral
and regional peculiarities: for example, with respect to achievement of
standards concerning working conditions and maximum permissible concentra-
tions of pollutants in emissions and effluente. ~
In future work to develop the theory of efficiency, then, it xill be wise to
. provide for an organic combination of the normative approach xith the ex-
ploratory approach. If the normative approach is needed to ensure the grosrth
of capacities for given volumes of output, product quality and range of prod-
ucts, the exploratory method is needed to substantiate the social goals made
possible by scientific-technical progress. Combining these two approachea
Will make it possible to utilize feedback between the possible results and
the setting of goals, as Well as to optimize the degree of their attainment.
In the normative-and-exploratory approach the optimum variattt of capital in-
vestments should be characterized by a given level of satisfaction of soci-
ety's needs for given material goods, by specific social standards and by a
maximum of other beneficial social results, While adequate economic effi-
ciency of capital investments is maintained.
The most important task in efficiency theory is to make the transition from
qualitative analysis of social changes to their quantitative evaluation.
This is dictated by the growing importance of social factors in economic
groxth, by the need to mitigate and altogether eliminate certain adverse
consequences of scientiPic-technicFil progress, and by the evolution of social
benefit into something that is planned.4
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' The problem of quantitative evaluation of social. consequencea has two as-
pects: measurement of acale and economic evaluation. At the present time
many forms of social effect are determined quantitative]y on an 3ndividual -
basis (reauction of noise 1eve1, vibration, duat concer,~rration, etc.). But
not enough attention ie being paid to development of mAthods of evaluating
the swn total of social benefita. The reason is the complexity of this aci-
entific problem. Since qualitatively different social results and needs are
not comparable with one another and irreducible to one another, it is, of
courae, impossible to correlate them in absolute terma. But relative indi-
cators of various social benefits are altogether sub~ect to comparison and
even to summation under proper conditiona. The computations involved are
rather simple and include the following basic atagea. Firat we must estab-
liah the expected leve]. of each social result to be quantitatively deter-
mined. By setting the maximum possible level at 100 percent, we can compute
the level of its attainment.
For social resulta which cannot be determined quantitatively (~ob satisfac-
tion, realization of the intellectual and pY~ysical abilities of the workers,
the worker's attitude toward hia work, etc.), the range oP which is compara-
tively narrow, it is possible to make an expert evaluation of the level, of
their attainment on a discrete acale: full attainment of the result--1;
partial attainment of the result--0.5; reault not attained--0. As experi-
ence is acquired in evaluating thia group of social benefita, the scale of
their measurement should be refined, becoming more detailed and better sub-
stantiated.
A aingle methodological principle for determining the rePerence point is ad-
hered to in both these casea. Regardless of the method of recording a par-~
ticular social benefit, one does not take as the basis of comparison the ex-
isting state of production, but the m~cimwa state of production desirable in
terms of social parameters and are given specific conditions. It is obvious
that irith thia method, which alloxs for comparisons tirithin sectors a.1d in-
dustriea, among sectors and industries attd other comparisons, the social in-
dicators of real designs ~ill be found between the actual and the maximum
levels. The closer they come to the upper limit, the higher the socie,l. ef-
ficiency of capital investments. _
The degree oP improvement (xi) of aqy social parameter i(quantitatively de-
terminable or not determinable) for an enterprise or facility as a xhole
should be determined so as to take into account the depth (wi~) and breadth
_ of the chaage (d~):
M
. ~ ~ ~{,d'' _
.
in vhich wi~--degree of attainment of the i-th social benefit for the ~-th
rrorker occupation, fractions of unity; d~--relative share of workers in the
~-th occupation in the total number of production personnel proper, fractions
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- of unity; m--number of occupationa for which the sacial parameter i. 3a being
improved.
i As an example we wi11 examine txo varianta for construction of a mining and
ore dressing combine which differ in the level oP attainment of eocial pa-
rametera. The table below givea the princ3pal socioeconomic indica~ora of -
the variants being evaluated.(t~ypothetical figures):
Table 1
Unit of Variants
Indicators Measurement I II
Conanodity output Thousanda 15,000 15,000
of rubles
Annual current expenditures, total " 10,200 9,870
Breakdown:
For technological progress " 9,150 9,150
For reduction of gas content of the
air " 30 30
For reduction of the dust content
of the air " 20 20
For water pollution control " 52p 52p
For soil pollution control " 480 150
Profit " 4,800 5,130
Work force, total F'ersona 970 970
Breakdown: �
In cyanidation ahops " 20 20
~ . In crushing shops " 10 10
Degree of reduction of the gas concen- Fractions 1.0 1.0
tration of the work area of cyanidation of unity
shops
Degree of reduction of the dust concen- " 1.0 1.0
tration of the work area of crushing
shops
Degree of reduction of stream pollution " 1.0 0.5
Degree oP reduction of soil pollution " 1.0 0.5
Level of improvement of transport condi-
tions " 0.5 0.5
Capital investments, total Thousands 37,2~0 34,200
Breakdown: oP rubles
For the technological process " 31,200 31,200
For reduction of the gas concentra-
tioa of the air " 100 100
For reduction of the dust concentra-
tion of the air " 80 80
For water pollution control " 1,800 1,800
F~r soil pollution control " 4,020 1,020
_ Efficiency coefficient of capital in-
vestments 0.13 0.15
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As we see from the table, theae variants of the construction pro,~ect prov3de
for attainment of the following social reaults: reduction of the dust con-
centrgtion and gas concentration of the air, complete elimination of pollu-
tion of atreams and ta some extent of the soil, and also improvement of
transportotion conditions. The table gives these social resul.ta in terms of -
degree of reduction. In the case of the social benefit referred to as "im-
provement of transportation conditiona," which is atnong thoae not determin- -
able quantitatively, the degree of attainment of the maximum level. desired _
was determined by expert evaluation. The figures on the breadth of the
change (d~) for the first two parameters, determined from the data in the
table, are respectively 0.02, (20/970), and 0.01, (10/970). In the other
cases the value of this indicator was talcen at 1.0. The magnitude of im-
provement of these socisl parameters for the first variant, calculated ac-
cording to the formula given above, are as followa: reduction of gas con- �
centration of the air wl = 0.02; reduction of the dust concentration of the
air w2 = 0.01; reduction of stream pollution w3 = 1.0; reduction of soil
pollution w4 = 1.0; improvement oP transportation conditions w5 = 0.5. For
the second variant, which c'~iffers from the first only in the lower degree of '
reduction oP soil pollution, the valuea of wi will be the same with the ex-
ception of w4, which is 0.5.
The ran~cing of social problems and goals, which is a separate phase in eval-
uating the efPiciency of capital investments, has paramount importance to
devising a comprehensive standard of ineasurement of the social benefits of
capital investments. The ob~ective necessity of this ranking is also dic-
tated by the fact that society's capabilities in terms of resources are lim-
ited in at~y particular time interval. A concrete determination must 'be made
of the most important social problems in the context of all the sectoral end
regional peculiarities of the given industry's operation. For example, for
coal mines the social task of first priority might be to eliminate dust con-
centration at longwall working faces; for textile enterprises it might be
elimination of noise and vibration, and so on. Even related industries lo-
cated in different regions of the country have their own specific problems,
so that it is unacceptable as a method to adopt a standard ranking for them.
Well-known methods of expert evaluation (survey, questionnaire, the Delphi
method, etc.) are quite suitable Por ranking social goals and tasks from the
standpoint of their urgency.
Yet to improve accuracy and reduce the time required to determine the effi-
ciency of capital investments, the more proper wey of establishing weighting
- coefficients to ad~ust for the significance of social results using some
mathematical mod~i than by expert evaluation. A specific expression of a
mathematical fl~nction assigning weights to the ranking criteria and meeting
a sufficiently general system of conditions has been argued in the special-
ized literatures and is written as follorrs
, ~
9 t = 2i-i �
6 ~
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i This formula is used to determine the absolute we3ghts, and this one for de-
~ termining the relative weights:
! ~
~ 9i= q~ 0. It is c1Nar that in this case the addition~l investment DKi
ehould be used ~t the pro~ect under consideration. IP J~, > 0 for a11 vari-
ants, then the most efficient of them ia that Por which the following rela-
tion~hip hoids
AC~._ G~~'c11~i n~~rr,
- This product will be produced in the variant the size oP whose capita]. in-
veatments is K1 + pKi Qnd who~e production cost ie C1 - OCi~
Formula can also be derived with elementary mathematica]. procedures. It
is well known that a condition for introduction into production of the most
capital-intensive variant (Ki, Ci) ga compared to the variant (K1, C1) ie
fulfill,ment of the relationehip
(;~--Cr ~
Kr-~-Ki Z i~. ~2)
Since Ki - K1 > 0, then C1 - Ci 2 EH �(Ki - K1), pCl - EH � GKi 2 0~ But
that variant of additional investmenta for xhich aCi - EH ~ AKi ~ max will
be the moat ePficient.
So, formula (1) makea it possible to compare the benefit from using a apeci-
fied amount of additional capital investmente at a particular fscility and
in other sections of the national econoa~y. The coePPicient EH figurea as a
basis of that comparison. It is this coefficient which performs the role of
that measure of the efficiency of capital investments used as the bQSis for
selecting the variants to be used, thoae xhich provide for maximum groxth of
the productivity of social labor by reducing expenditures of labor for pro-
duction oP all output to a minimum. In accordance with that function, the
indicator EH is nothing other than the rate of efficiency of capital invest- -
ments. Indeed EH has Por a long time been used in that role in economic
practice and has been extensively treated in the economics literature. Re-
atricting ourselvea to this treatment of that indicator, we underetand the
meaning oP selection oP variants with respect~to formulQS (1) and (2): e
comparison is being made of the economic benefit from additional capital. in-
vestments at each particular production Pacility with the proportion of that
beaefit from the stanrlpoint of the national econoa~r. But everything becomes
much more camplicated if xe move from Yormulas (1) and (2) to the formula of
imputed costs Ci + Ex � Ki = min. We should note at onr,e that Prom the
standpoint oP calculations of the co~parative efficiency of variants these
formulas are equivalent to the following:
ACi - f�� � DKr = C~ - Cr E~~ (Kr - Ki) _ (Ci -f- ~ K~) (Cr -I- E~~ � Kr) = max.
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Since the oum C1 +~H � K1 = constant for the given set n~ v~riante, the
latt~r expresgion will have maximum value for that variant for which Ci +
EH � Ki = min.
If the economic meaning of conditions (1) and (2) 3s simple and comprehen-
eibl.e, if we regard E~i as the rc~te of the benefit in the form of a saving on
expenditures of lgbor, we c~nnot explain that meaning in the case of the sum
Ci + EH � Ki~ This circumstance h~s long been noted in our literature.
"But doe~ the sum Ci + Kep � Ki have any ~ort of real economic content?
The first term Ci expressea the coat of the product, i.e., a definite eco-
nomic ce~tegory whose magnitude mqy vary only as the result of a change in
the productivity oP soci~l labor. The second addend has an economic content
of a different kind and expresses the savinA on expenditures of social 1~-
t~or i.e. it is the direct o osite of labor e enditures. But aft~r all
uantitativel different cate ories cannot be added to ether~ Ita].ics
mine--N. M. It is diPficult to ob,~ect to this line of argument. In our
view a contradiction arises which cannot be reaolved: the legitimacy of _
using the method of imputed costs Por selection of the most effective vari-
ants of capital investments has been convincingly proven in the mathematicel ~
domain, but it would seem imposaible to clarify the economic meaning. Thia
is the circumgtance that is the reason wl~y certain economista either re~ect
this method sltogether or look upon it only as a computational procedure.
It is obviously imposaible to resolve this contradiction if We reatrict our-
selves to treatment of the indicator EH as an economic benefit (the a].low-
able minimum of efficiency) which has b~en known for a long time. A wqy out
can be found only if EH is regarded as an indicator of expenditures of so-
cial labor. Such attempts have been made in our literature, as we mentioned
above. There is every ,justification for posing the problem in this way. As
a matter of fact, by proclaiming the indicator EH to be the national-ecnnomic
rate of efficiency of capital investments, we are failing to anaxer the quea-
tion: And on what basis does it perform the role of such a rate? More pre-
cisely, what is the ob~ective economic content of this indicator, What is it
that makes it possible to use it as a socia]. standard?
In our opinion the original economic content of this category is that it ex-
presses expenditures of surplus labor. Let us suppose that at a particular _
production facility a variant calling for additional capital investments in
the amount AKD by comparison ~rith their minimally neceasary amount K1 has
been chosen in accordance ~rith condition (1). Carrying out this variant
xill provide a saving on current costs amounting to ACp. Since capital in-
vestments amounting to AK~ are used at the facility under consideration
rather than elsexhere, at other sections of the national ecor,o~r additional
outle~ys xill be correspondingly less by that amouat. So current expendi-
tures oP labor to produce the output of those sections will prove to be
greater by the amourrt EH � ~K~. This mearis that the potential bene~'it in
the amount of EH � AK~ Yrom use of the additional investments aK~ is ttot be-
ing realized, is being lost.
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What effect doee this aircumgtar?ce have on Pormation of eacpenditures of ~e-
bor in production of the given outpu~ ag e component of th~ gocial product?
A se~v3ng on current eacpenditures of labor brings about a growth of surplus
labor used by society to expand product3on. Since ~he potential benefit in
the form of a saving on current expenditures of labor (the growth of aurp].us
labor) ia not realized, thie in praatice means 1~rger expendii;ures of sur-
plue ~~bor of society resulting from production of the given product through
application of more expensive technology. At the same time the uae of the
improved technology, es Marx put it, would create an additional amount of
surplus labor.13
- 7'he difference ~CO - EH � ~KQ compares the surplus labor obtained in society
by applieation of a more capital-intensive technolo~r at the given produc-
tion faci~ity (OC~) and the surplus labor aociety expends because of the
need to create more expensive technology for production of that product
(EH � DK~). On the Whole the difference ~C~ - EH � ~KD characterizea the
growth of the surplus labor society obtains to c~rry out expanded reproduc-
tion by app]ying improved technology to production. It is only this meaning
that can be given to K. Marx' worda to the effect that the uae oP machinea
creates aurplus labor.
The econamic meaning oP the condition of optimality of a particular variant
~Ci - EH � AKi = max now becomea clear. The gro~,rth of potential surplus le~-
bor by the amount ACi - EH � AKi at every production section thanks to the -
application of more expensive arid improved technologyr actual~y brings about
a growth of the national income at the acale of the entire national econot?~r.
This is in line with that cxiterion of the economic efficiency of socie.].
- production which is now acknowledged by moat economiats.14 Thus EH ex-
presses the social~y necessary expenditures of surplus labor brought about
by the use of the unit of capital investments to expand production by intro-
~lucing new technology. At the same time this indicator performs the role of
a measure of the efficiency of additional capital investments whose attain-
ment indicates that it is advisable to make them in order to introduce im-
proved instruments of labor:
C, ~r > E~~ (Kr - Ki).
In this case the meaning of ineasuring expenditures of social labor to pro-
duce every product urider the conditions oP limited capital investments in
the form of the sum C+ EH � K also becomes clear. The production of every
particular type of product can be regarded as a growth of the gross social
product, of which it is an integral part. This means that the productfon of ,
~he particular product provides for a groxth of the current outleys of the
national econompr made in the form of expenditures of~a particular enterprise
by the amount C and an increase in expenditures of gross surplus labor of
society by the amount EH � K. For that reason that variant of the a].terna-
tives being compared at a particular production facility will be most effi-
cient which brings about the smallest growth oP expenditures of social labor
in production of a given,product:
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C-~-~�~K= min,
In the socialiat context profluction should be accomp~ished with minimum ex-
penditures of social labor 3n accordance with the requirements oP ~he basic
economic 1aw~ Qiven ~he scarcity oP capital investments, attainment of the
overa].1 minimum of,expenditures of labor throughout the national econo~y ig
poasible 3f they are meesured in the form C+ EH � K. When thie measurement
is made, the value of the grosa surplus product is rec~iatributed among sec-
tors. In other words, this redistribution, reaulting from the material con- ~
ditions of socialist production, conforms to the requirements of the system
of economic lawa of socialism, which is based on the standard EH. 7'hege
circumstancea tnake it possible to look upon the rate of efficiency EH and
the sum C+~H ~ K as real economic categories of socisl.ist production rela-
tions.
And the last question which was posed above: WY~y doea the indicator EH per-
form the role of a standard of the efficiency of capital investments? In-
trodUCtion of more progressive technology in a particular section of the na-
tional econoa~Y necesaitates additional capitsl. investments. This circum-
stance gives rise to processes which are dual in nature. On the one hand,
there ia a saving on current expenditures (production cost) in the given
section. On the other larger expenditures oP aurplus labor are incurred in
society because oP the need to make additional capital investmenta. This
gives riae to the need for an index vhich xotil.d expreas those social~}r nec-
easary expenditurea oP surplus lebor. Then it becomea poasible in every
production facility to make a social evaluation of the economic efficiency
of additional investments: the saving on current costs, aignit`ying a growth
of reso~urces oP surplus labor, must be greater than the expenditurea oP sur-
plus labor in society resulting from the additional capital investmenta. �
This is the real economic content of formulas (1) and (2). This approach
subordinates local measurea taken in the econoaqr to the attainment of the
maximum saving of aocial labor as a xhole. That is how EH comes to have the
role of a standard level of efPiciency of capital investments.
FOOTNOTES
1. T. S. Khachaturov, "Results and Upcoming Problems in Determining the
Efficiency of Capital Investments," "Metody i praktika opredeleniya
effektivnosti kapital'r~ykh vlozheniy i novoy tekhniki" [Methods and
Practices af Determining the Efficiency of Capital Investments and NeX
~ TechnologyJ, No 25, I2datel'stvo "Nauka,'~ 1975, p 3�
2. Ibid., p 6.
3. M. A. Vilenskiy, "ScientiPic-Technical Progress--Decisive Conditions
for Raising the Efficiency of Social Production," "IIconomicheskaya
effektivnost' obshchestvennogo proizvodstva v period razvitogo
sotsializma" [Economic EPPiciency of Social Production in the Period of
Advanced Socialism], Izdatel'stvo "Nauka," 1977, p 174.
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4~ V. V~ Novozhilov, "Probl.e,a~pr i zmereniya zatrat i rezu],'ts~ov pri
- optimal'nom planirov~n:~" [Pr~oblems of Meaeur3ng Costs and Benefitg in
_ Optimum Planning), rzdate].'stvo ~~Nauka~" 1g72, p 295.
5~ ~~Meto,c~y i praktike opredeleniya effektivnoeti kapita].'nykh vlozheniy,"
No 25, p 6.
6~ K. A. Volkov, "Efficiency of So~ial Production and 3election of Deci-
sions in the Econoa~y," I2VE3TIYA AN $83R. SERIYA EKONOMICHESKAYA,
No 6, 1973, p 49.
7~ See, for example, A. I~ Ka,ta, "Dinaaiicheskiy ekonomicheakiy optimwn"
[Dynamic Ecnnomic Optimum~, Izdatel'stvo "Ekonomika," 1970, p ii5;
K. A. Volkov, "Effektivnos~' obehcheatvennogo proizvodetva i vybor
khozyay8tvennykh resheniy" [EfPiciency of Social Production and Selec-
tion of Decisions 3n the Econwqy], p 49; A. Mitrofanov, "Calcu].atione
and Substant~ation of the Effioiency of Capital Investmenta," PLANOVOYE
KHOZYAYSTVO, No 3, 19?3, p 101; 0. I. Volkov, "Planovoye upravleniye
nauchno-tekhnicheskim progreaeom" [Planned Management of 3cientific~
Technical Progresa), Izdatel'atvo "Nauka," 1975, p 119; A. Pan and
V. Ionov, "Profitability of the Enterpriae and Economic Juetification
of 3olutions in Pro~ect Plana," PLANOVOYE KHOZYAY3TV0, No l, 1976,
p 78; etc.
8. M. A. Vilenskiy, "IIconomicheekqya effektivnost' obahcheetvennogo
= proizvodstve v period razvitogo sotaializma," p 174.
' 9� L. A. Vaeg, "On Ways of Improving the Mechaniam and Methods of Economic
A~tivity," IZVESTIYA AN SS3R. SERIYA EKONOMICHESKAYAs No 6, 1976, p 43.
10. "Ekonomicheskaye effektivnost' obshchestvennogo proizvodstva v period
razvitogo sotsializma," p 175.
11. IZVESTIYA AN SSSR. SERIYA EKONOMICHESKAYA, No 6, 1976, P 43.
~ 12. A. S. Probst, "Ekonomicheskaya ePfektivnoat' novoy tekhniki" [Economic
Efficiency of New Technology], Gospolitizdat, 1960, p 68.
13. "A savinR of necessarv labor and creation of sur lus labor," wrote
Marx, "is typical of the application of machine" K. Marx and F. Engela,
"Sochineniya," Vol 46, Part I, p 358).
14. See T. HI~achaturov, "Efficiency of Social Production," VOPROSY
II{ONOMIKI, No 6, 1975, p 132.
COPYRIGHT: Izdatel'stvo "Pravda," "Voprosy ekonomiki," 1979
7045
~ Cso: 1820
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ROL~, P~tOBLF~+-iS OF MONE'TARY CIRCULAmTON DISCUSS~D
Moscow~VOPROSY EKONOMIKI in Russian No 5, May 79 pp 17-26
[Article by I. Levchuk: "Monetary Circulation and the Role of Money Under
Socialism") ;
~ (TextJ The 25th CPSU Congress raised the task of the abler utilization of ~
economic incentives and levers. Money is one of tb~ woat important such ,
levers.
Again and again economist~ turn to the question of the esaence and role of
money under socialism. And this is natural, for the fuller utilization oF
money in the interests of production development and improving its e~fi-
ciency presupposes a constant deepening of the corresponding research.
Marxist-Leninist theory is a sound basis for such research. In each stage ~
of economic construction, new problems arise related to the use of money,
and additional knowledge is acquired. This makes it possible to strengthen
the grounds for the effective use of money for the intensification and
growth of the national econo~r.
r ,
V. I. Lenin soon after the victory of the socialist revolution wrote that ,
"money, or more accurately, paper money" is a form of weal~h and proof of
'r,ne share of social wealth.l Money serves as a universal equivalent of ,
commodities (although the sphere of the action of money under socialism is ;
limited). Socialist production relationships have altered the essence and
role of money, and it has ceased being a weapon of exploitation and has ;
become a means for the planned management of the econoa~y. In aiding eco-
nomic development, money makes it possible to organize social monetary '
accounting and control over the production and distribution of national
product, it acts as a means per se of planning production, sales and con-
sumption (of course, along with the physical indicators), it provides an ~
opportunity at the present stage of development to carry out material in- '
centives for labor, and so forth. 1
r
Money carries out the designated role with the aid of prices and on the I
basis of the action of the economic laws of socialism, including the law of , ~
~ j
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- v~~.ue, 'i'tie overall developmertt propoxtions oC the national econol?~y are
expressed 3n the planfs in the value indicators of the production volwne,
national income, cap3tal invegtments, and ao forth, Expendi~ur~~ on pro- ~
, ciuction and sales are accounted for in monetary terms, and in comparison
with na~ional income they prov3de an opportunity to determine the ~.eve1 of
efficiency in social production, Money, as a carrier of exchange value,
wi11. die out in the higher phase of the communist formation.
~3ut under socialism the conditions remain for the functioning of money, and
we must not overlook this. Marx wro~~e: "...It is imposaible to eliminate
money itself, while exchange value remains a aocial form of products. It
3s e~aential to understand thia clearly in order not to aet irresolvable
problems for oneself and to know within what limita monetary reforms and
changes in circulation can alter the product3on relations and the social
relations based on them."2 The survival of value as cne of the social
forms of product until the complete conatruction of communiam necesaitates
the use of a monetary form of value, that is, money. We adhere to the
viewpoint that precisely this explQins t1~e neceasity of money and monete~ry
circulation under socialism.
In examining ;he question of the essence of money, it ia essential to bear
in mind that socialist production relationships have given a new content
to money. "In communist construction," states the CPSU Program, "it is
essential to fully utilize commodity-monetary relations in accord with the
new content inherent to them in the period of socialism."
As is known, in the process of historical development, gold has acquired
the role of a monetary corrmiodity. Paper money and bank notea have acted
and do act as tcnens of value and as tokens of gold. However it is essen-
' tial to consider that the concepts of bank notes and paper money are not
identical. Why the former have been brought to life by the needs of eco-
nomic circulation, the latter derive from the needs of the treasury, that
is, they are designed to cover state expenses. In the capitalist nations
under present-day conditions the difference between them has been virtually
eliminated, since bank notes are Wide],y used to pay for state expenses.
The money circulating in our nation is bank notes; at the same time this
money is tokens for gold. A number of aspects substantiate this. The
monetary reform of 1922-1924 which is the basis for the present-day ~zone-
tary circulation system was carried out in accord with the demands of the
party. The Resolution of the llth RI~(b) [Russian Communist Party (Bolshe-
vik)] Congress held in March-April 1922 stated: "...Our economic and
financial policy is decisively aimed at restoring the gold backing for
money which is essential since gold has firmly remained the world money
and since this importance of gold on the world market is inevitably ex-
pressed also in relations on the domestic market. Such a policy should
- in practice be expressed in a course of rr~~.aintainin~ an untouched gold hold-
ing and developing the mining of precious metals."
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l1~ tt~r. same titt~e it w~.~ ~~tablinhed by 1.eQi~lation that bank notes are t;o
be n~cured by ~old, precious metals and other assets of the USSR Sta~e 13ank.
The ruble possesses a fixed gold content, and ~his is of practical signifi-
cnnce as it lies at the basis for determining the foreign exchange rates.
Marx showed that the developed capitalist countries widely replace money, -
on the one hand, by credit opere,tions, and on the other, by bank no~es or
credit money. This makes it possible to save in�distribution costs, it ac-
celcrates, facilitates and simplifies payments, a~nd so forth. But durin~
periods of economic and monetary-credit crises, as well as during other di~-
turbances of the capitalist econon~r, the syatem of the circulation of credit
money and credit operations is disrupted. Capitalism is unable to utilize
the advantage3 provided by the replacement of real money by credit. Under
these conditions credit money as soon as it ceases being exchanged for gold
loses its strength, it is deval.ued and is turned into paper money. Proof
of this is the state of monetary circulation, the monetary chaos and the
permanent inflation in the capitalist countries and the devaluation of the
currencies, even those which for a long time were considered relatively
stable. ~
"The entire history of modern industry shows," wrote Marx, "that if produc-
tion within a country was organized, then the metal would be needed only to
pay the difference in the balance of international trade, when its equilib.-
rium was disrupted at a given moment."4 The planned organization of produc-
tion under socialism and the absence of economic disturbances provide the ,
prerequisites for the continuous functioning of credit money and credit
operations ~ahich replace real money and gold. Under these conditions the
possibility and necessity arise of fully utilizing the economic advantages
provided by such an organization of monetary circulation. The circulation
of gold is disadvantageous for a socialist economy. It wuuld lead to an
increase in distribution costs, to a complicating and slowing down of pay-
ments in the national econou~y, it would cause a dispersement of the gold
reserves, an~? ~:iis, in turn, would reduce the centralized reserves of world
moni.es which the state holds.
The credit money in our nation replaces the actual value-possessing money
in circulation and thereby acts as a token of this money. The prerequisite
of the normal funetioning of credit money is the conformity of its nominal
amount to the value of the replaced gold. Marx stressed that "credit money
itself is money only to the degree that in its total nominal value it abso-
lutely replaces real money."5 The amount of credit money in circulation
and replacing gold is determined considering the bulk of co~odities in
circulation, the price level, the turnover rate of the money, the exist-
ing forms of payment, and so forth. ~
Bank and credit notes under socialism are not directly tied to gold in the
form of a free or even limited exchange. At the same time the conformity
of money to its gold content in our country is ensured by fixed retail ~
prices for the basic consumer goods, by a stable level of wholesale prices ;
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and rates for industri.al praducts and tran~port~tion aervices, by tih~ b~l~nc-
ing of the solven~ demand of the popul.ation and supply, by the obaerv3ng
of the planned proportions of production and distribution for production
and ~echn3cal products, as well as by the pl.anned formation and u~ilization
~ of fina.~cia1 r~esources. A11 of this necessita~es ~he constant at~ention by
the planning bodies to improving the el.aboration of the ma~teri~. and finan-
c3~1 balances, to developing the production of consumer goofls and service~
for the population, an improvement in the compiling of ~he income and ex-
penditure balance of the population, and so forth.
Under socialist conditions thz aggregate monetary circulation op~ratea ae
a unified entity and is divicled into apheres of cash and clearanc~ circula-
, tion. 7'hts serves the unified process of socialist expanded reproduction
and the socialist planned market. The~planned regulation of the volume of
monetary circulation is achieved by using credit. In granting credit, ~he
sphere of either clearance or cash circu].ation is expar~ded depending upon
the ob,~ect of crediting and the procedure for granting the loans, and in
collecting the credit, this is reduced. I~n the proceas of the uae of money,
it moves from one sphere to another, from a cash form into a form of book-
keeping entries, and vice versa.
The intercirculation of the various forms of money shows the unity of mone-
tary circulation. Hundreds of billions of rubles are paid out from accounts
in the form of cash for paying wages to employees, monetary income for kol-
khoz members, pensions, scholarships, and so forth. Payments for agricul-
tural~products and pa~rments by consumers to suppliers for production and
technical goods, and payments of enterprises and organizations to trade
organizations for goods sold by stores are also partially made in cash.
, The bulk of the money put into circulation is returned to the bank and de-
, posited as receipts of the trade organizations, amusement enterprises, and
transport, deposits of citizens (on account in savings banks and institu-
; tions of the State Bank), and so forth. The money involved both in cash and
i clearance circulation is used as credit resources and is employed for grant-
ing bank loans.
Seemingly the unity of monetary circulation would not be disputed. H~wever,
in recent years at times it has been asserted that in certain inatances
(in truth, there is no mention of the specific cases in mind), money is
separated from the circulation of material goods.. Such conclusi~ns, in our
- view, are incorrect, as they are based on a nonexistent division of mone-
tary circulation in which supposedly, on the one hand, money in the form of
- tokens of gold reflecting its value function, and on the other, not money
but rather "paper."
We cannot agree with the economists who der~y the monetary nature of clear-
ance cirrulation. Thus, E. Andres has asserted that socialism excludes the
necessity of monetary circulation in the sphere of the exchange of the means
of production. In his opinion, in cleaxance circulation money operates
solely as "accounting money," for in this sphere not money but rather goods
circulate.s
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~dit U~'~ICIAI, U5~ ONLY ,
Cl.e~~r~~nce dr n~nc~~h cir~ul~tion, nd r+~s ne~tr~d above, ic mon~t~ry eir~ul~-
tifon in whi~h mdney Wf~ich i~ unifnrm for a11 ~~grege~t~ turhav~r fun~ttnn~.
ffoWever if dne follnr+Fi th~ logie df E. Anc~r~~, th~n nonca8h cireu~Ation
~~,~rat~~ n13o a~ nat tdmpiet~ly nonmonet~ry. it, in hi~ opinion, is rep-
re:;~nt~d by ~ccountinf; manpy in the are~ o~' ~~rvin~ th~ mean~ of produc-
ti~n; but in pravidin~; fcar the mov~ment of commoditi~g for the popu~~tion
the t1eCeS~~ty of monetary ~ircul~tion p~r h~~ ~~i11 n~t b~~n ~limin~t~d.
'~t~us u pnrtion nf nonc~s~h cir~ul~?ti~n i~ repr~g~nt~d monetary ~irculation,
nnd c~ pdrtidn i~ ~ir~ul~ti~n of e~ecduntiag unftn ahic~, Andr~g ~s-
c~~rt~, "hnve ingt ~r nvareom~" Lh~ pPOp@fti@9 ~f mon~y. In follor+iag thp
logic c~f the giv~n ggg~rtion~, obvir~ugiy paymc~nt~ in c~gh and eheeks
~authori~~tic~n~ ) f'nr th~ m~~n~ of production mugt al~c~ be congider~d d~
nonmanetary.~
t~~aever, un~i~r th~ ednditivng of using eammodity-mon~tary r~latiana, it is
imp~s~ib1~ to eliminat~ the int~rm~di~ry rol~ of money for the mov~nent nf
~u~t c~rtr~in individusl type$ c~f commodities~ In t~rmg c~f the me~nn of
production monpy alga c~rri~s out th~ function of a meast~r~ of
value and
the function df ~ mpans r~f paym~nt~ ~'he monct~ry ~ccuraule~tian ot enter-
~.ri:~~~, the stnte manet~ry holdings, and the fundg of the loan holdingn
:~re used to create neW capacity er?d to reconstruct end exp~nd production.
F'or thi~ re~son not ~ccaunting unitg operate in noncash rirculation vhich
~erv~s th~ mov~nent of the me~ns of producLion, but rgth~r money in the
form of credit entries. Thus,~ if there are ~}r delnys or digrupt3ons in
thP procesu oP selling commodity or materSal ve~luables, then it ig irua?edi-
~tely clegr that the economic boc~y require8 nnt Qecountin~ unitg buL rgther
real money.
As is known, there is the rule according ta which a commodity i~ paid for
after its dispatch. But if the recipient systematice~lly de14Ys in its pay-
ments, the supplier has the right to ahift it to prepayment oP tht goods,
to detnand the submission of letters of credit vhich guerantee the immediate
(after dispatch) receipt of money for the goods. Hence here the so-called
accounting money is indispensable, all the more becguse the inceming pay-
ments anrn+ the degree of fulfilling the product sales plan, and the xages
.and economic incentive tlind depend upon Lhis.
A neqution of the monetary ngture of noncesh circulation leads to the i~nar-
. ing of a number of problems vhich are raised by management practices. In
particular, not enough consideration is given to the signiPicance of prac-
tical measurea s~hich prevent the more rapid increase in noncash circulation
in comparison With the gros+th rate of gross social product and national in-
come.3 Thi3 leads to the Pormation of ineans of payaent at the enterprises ~ ~
and organizations exceeding their planned needs. Of course, this does not ~
influence Wholesale and retail prices. They are set on a plsnned basis,
and the surplus means of p~yment in noncash cfrculation do not effect direct- ~
' ly the level of these prices. Hovever, the proportions betr+een the means ~
of ~a;rment and material goods can be violated When the value of tbe latter ~
does not correspond to the totel means oP paycaent. This has e negative �
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c~t'fe~~ u~on the cr~~nixgti~n of ~aan~omi~ prae~~~~o. If ~uch a~itu~tion i~
n~~ nurm~lix~d, by r~dueing th~ amoun~ o~ the me~ns af p~yment in aggre~4te
~ir~u~.~tion, th~n ~~~rtain prasaure c~n Whole8al~ pri~PS arigee. The eur-
p1u~~m~~ng in nonra~h ei~~culation leeda to Q~WeQkening of economie eccounta-
bi~,ity anfl financi~l dieeiplin~~
tn ~xaminin~ thc ~uratidn~ af ncnc~eh cireulatioa, it i~ e~0ential ta aa~
~~~~'im~~Y" di the mov~m~nt of canmoditiea in relaLion to the ttonc~~h
~r ~l~~r~nc~ p~ym~nt~, ~ehind th~ bank entry Qtand the eeonomie ~nd eredit
r~l~tians ~f ~ s~ai~li~t $ociety. A b~nk er?Lry ia a credit oper~tion, for
i~ i~ earried aut for accowit~ opened as Q reeult of the occurrence of
rr~dit ablig~tion~ a r d eb t~. A b~nk entry is one oP the forms of money
~n~tioning in our ~cono~qy. The tw~- Porms or apheree (ceeh and noncaeh)
of th~ gin~i~ moneL~?ry circulQtiion eerve the aingle proceas of socialiet
expe~nd~d r~production ~nd the r~oveMer?L of the value of sggregete eocisl
product. Th~ mov~sa~nt of valu~ ob~ectiiv~~y presupposes tha use oP tokens
nf v~lu~ ~uch mon~y (ea~h e~nd noncaeh) in ~ocialiet monet~ry circulation.
ihis d~termin~~ the tim~lin~a~ of the planning and regulation of nonc~?eh
manetary circui~tion. In 1975, the noncash monetary circulation of the
USSR, ~ecordit~g to thr payment data, exceeded 2 trillion rublee, end in-
rreas~d by more than 2-fo2d in comparison with 1965, ~nd by ~Lnost ~+0 per-
cenL in comp~ri~on with 1970. In 1976, it reached 2.13 biilion rubles, or
Wga 44 percenL greater than in 1~70. The decisive factor in its increese
is the developu~enL of production and circulgtion of social product. The
gtate ~?nd development of nonc~ah monetary circulaLion, in turn, ~.nfluences
thp proresses ahich occur ir~ th~ netional econosny. All of Lhis neeeesi-
t~tes the pl~nning of noncash r~onetary eircu~ation, the broad ;xse of com-
puLer centera in this, and the employment of adv~nced eccounting equipment.
tigtur~lly Lhe plaaning of noncash monetary circulation, like CaBt'1 circula-
tion, should be carried out considering the action of the laWa of moneLary
circulation, and the ~^,ain one is the laW of the quantity of aetual money
required for circulation. F?o:rever, this laW, in our opinion,�in influenc-
ing noncash cireulation, cannot be cor~pletely manifested in it as it ia
tr~r~ife:,trd in cush circulation. ihis is explained by the specifie nature
of noncash circulation nnd by the functioning in it of money in the form
of credit entries and by Lheir servicing of the payments of the state as
~�~ell r~s ~ocial r~nd kol}:hoz-coope:ative enterprises and organizations.
"4one;~ in this circulgtion does noL go be;/ond the limits of' the credit sys-
t~ nnd circulates in the accounts in carrfing out the distribution plans
_ und ~upplying goods and services. If certain associations or enterprises
develop ~urplus rceans of payments, this is deposiLed in their bank accounts.
In speakir?g of the lews of motietary circulation, it is essential to con-
sider the relationship o� cash and noncash nonetery circul$tion, and the
po~sibility of Lne ~ppearance of cash in circulation as a result of credit
entrie~ on the banr accoianL~. For Lhis reason iL is important in the
proce~s of planning and .�ulfilling the plans tc prevent the forraation of
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~oa o~~~tctnt. us~ oNt,Y
~urplu~ m~~n~ of p~ym~?nt, ar~ th~y int~n~ify th~ pr~~~ur~ on caeh circul~- _
ti~n and fa~ilit~t~ th~ tran~f~r of mon~y from ~ n~nrngh form into a cn~h
on~. ~nn~id~r~tion of the 1Qw of the emount nf mon~y needp8 for circula-
~ tion in pl~nninp, nanen~h circulaLion aet~ firm limit~ for ita ~ror+th, and
W~nk~nn itg influen~e vn th~ ~m~unt of m~ney in cg~h rirculation~
'J't1r. r~r~!ant~ntinn c~~' the ~oviet monetary �~ygtem in clns~ly related to the
~~tnte ~urren~y m~nopoly. 'I'h~ 1~Lter ~rog~ With the formation of the gocial-
int ~t~t~ which t~ok rnnLrol over a11 man~tary and ~~ld reserve~, it monc,p-
vlixed foreign trade ~nd concentr~t~d intern~tion~l payments in the 5t~te
~gnk. $y th~ gt.~te curr~ncy monopoly nhe und~rgtgnds th~ concentratiion
- o� the forei~n ~xchan~e holdin~s in the appropriate bodies, and thi9 pro-
vider~ dnly th~ ~tgte r+ith the exclugive right of organizing and carrying
dut internatSonal paymenta and other operation~ in Poreign c:urrencies, and
to e~rry c~ut oper~tions With gold, platir?ua? and other valuebl~s. The con-
c~ntrstinn of foreign exch~nge eernin~g in th~ bodi~g of thF Soviet b~king
system hag mud~ it posgiblp to elimingte th~ circulgtion of. foreign curr~ncy
inside the nation. 7'he effectivenese of such ~ statp monopoly }aag been �
teated out over the decades.
The Soviet monet~ry syst ~n also differe in the fact that Soviet money circu-
lat~s only within the nation. The importing or exporting of Soviet money
in prohibited.9 In this manner the state currency monopoly end the orggniza-
tion of m~netary circulation whereby the national currency can circulate
only Within the country protect the Soviet monetary aystem sgainat the con-
~t~nt monetary disturbances in the capitalist states. This is an importent
advantage.
Under the conditions of the broadenir.g of international economic ties, ever
~re~ter attention is being given to the question of the convertibility of
Lhe ~oviet ruble. The Soviet ruble meets those requirements ~hich are made
upon national currencies from the standpoint of their convertibility into
other currencies, as it is based upon a c~ynamic national econom~y which holds
one of the leading places in aorld industrial and agricultural production.
The foreign econoaic circulation of the country is grrn+ing, monetary circu-
lation Within it is stable, prices for commodities are stable, the budget
is dePicit-free, the nation is a gold producer, and so forth. Hoaever the
approach to the qu~s+..ion of the convertit+ility oP the ruble ahould be dif-
ferentiated. A dist~~action should be drawn betWeen the currenciea oP the
capitalist states and the currencies oP the socialist countries. In terms
of the capitalist currencies, it is completely srrong to raise such a ques-
tion. The convertibility of the ruble in the given 8spect is incampatible
with the planned management of the economy and the planned organizgtion and
functioning of monetary circulation. In addition this contradiets the
state currency monopoly. ~
The convertibility oP a currency presupposes the possibility of the free
exchange of it for another currency and the goods oP another country. If
st~ch convertibility oP the ruble is introduced for the currencies of the
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~
cnpituli~t cnuntric~, th~n the rub~e will fn17. inta ~Mpit~li~t mon~tiary
mark~tg and will be sub~e~t~d to gpontaneou~ pr~c~g$e~. ~t~ purehasin~;
pow~r wi11 d~p~nd upon a ch~nge in th~ priceg for Podd~s on th~ capt~aliat
mt~rk~t ~nd upon the inf~a?tionary ph~nomena inh~rent to capitialism. The
nece~8ity Wil1 aria~ of creating a gpecial ren~rv~ c~f for~ign exchange or
~tild in the 5oviet rredit 6ygE@ifl for mainba~ining the rub1~ exchanEe rate~
N~r~ the main thinE; i~s that the production und distribution ~i' goads in ~ur
country ~re determin~d by a plnn ~nd tih~ sale of ar~y producbion and t~ch-
nicgl artialcn or con~um~r gnodg (even with a high demand for th~m on the
Wor1.d market) to ~nother country, if this is not envis~ged by th~ plan,
udul.d be g viol~tiion nf it~ ~'or bhi~ re~son the convertibility of the cur-
rency ~nd the free movement nf the rub1~ on the money mgrketa of the West
rrould le~d only t~ a disruption of the planning eystem and C&Llg@ h~rm to
bLlt' CCOt]OT[~y.
Certain Wegtern expertg feel ~h~t it would bE advantag~oue For the USSR to
cre~t~ n ruble Which would b~ convertible only for finsncial operationa,
in maintainiag in force its nonconvertibility into goods. Tn their opinion,
the ruble could become ~ sort of shelter against devaluatian in ~he Western
countrieg, it aould gain from these devalustions, it r+ould create addi~3onal
means of p$yment �or our country, and ao forth. However all of this is
nothing in comparison with the negative consequences Which the converti-
bility oF the ruble into capitalist currencies xou].d involve, as this Wou1d
mean the undermining of the state currency monopoly, and the openinE of a
posgibility for the capitalist econocqy to influence the proportions of the
socialist econocr~yy and the monetary circulation of our nation.
- The question is different ~+ith the convertibility of the ruble into the cur- ~
rencies of the CEMA members. This convertibility has become a real fact, '
glthough at times it is called partial. This consis~s in the fact that by ,
a~reement betrreen our nation and these countries, Soviet citizens traveling
in them have the right aithin certain limits to exchange rubles for the
national currency of the other country. (The same situation operates for
the citizens of the CEMA countries visiting our country.) But the main
thin~ is that in practical termA there ts no questfon of exchanging the .
ruble fur the currencies oY the socialist countrie~ for Foreign trade and
other pqyments. Such payraents are carried out in the transferable rubles
betWeen the International Bank for Economic Cooperation (MBES) as well as
thrcugh the International Investment Bank (MIB).
Certain economists feel that the absence of the capacity for our national
currency to circulate on an international scale impedes a definition of the
effective f~nctioning of the econon~y, as it is impossible to compare the
national values of goods. These arguments are scarcely valid. The ques-
tion is that an evaluation of the ef~iciency of social production is based ~
upon the dominant form of the o~+nership of the means of production, and
for this reason the approach to determining this cannot be similar in the
socialist and capitali:t countries. A socialist society has its o~+n cri-
teria of efficiency inherent to it. At the same time the currencies of the
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~ox o~F~cint. us~ o~n,Y `
- capit~list nstii~ns ar~.~ in ~uch ~ st~te and nx~ gub~ect to such fluctuationa
that they cannot serv~ a~ any stable measure for comparison.
Of ~reat signif3cance for raieing the efficiency of social production, sa .
L. I. Brezt~nev stressed in hia speech at the ceremony devoted to the pre- ~
gentation of the Order of Lenin and the c~old Star m~dal to tihe het~ city
~ of Min~k, "i~ the greatesti possible strengthening of thriftinesa and env3ng,
the reinforcing of economic a~rcount~bility in a1.1 unita, ~nd above a11 the
strict observance of plannin~ discipline." The eolving of these problems
presupposes a more active usQ of money.
Tn r~vi~win~ the role of money under eor.ialiem, it ia important to coneider
the limitations, in comparison With capitalism, in the acale of using money
under the conditions of the dominance of soc3alist oti+nership of the means
of production~ Although the means of produCtion are manufactured as ~:om-
moditieg, they possess a value and consumer value, they do not have fr~~e ~
circulation and individuals cannot acquire them. The le.bor force, the fac-
tories, plenta, the land and spiritual values which are a sub~ect of purchase
and aale under capitaliem are not coumnoditiea and cannot be taken out of
commodity circulation. The funetioning of the public coneumption funds pro-
videa for the allocating of a nwnber of services by need. These sre free
education (higher, secondary and apecial), free treatment, and so forth. -
The planned management of the economy, including the ple.nned regulation of '
wholesale and retail pricea for commodities, ensures stable pricea for the
basic congwnption products (in a number of instances below their coat).
The Wage rates and salaries are also set on a planned basis.
At the same time money remains a universal commodity equivalent (of a par-
ticular sort), and hence a means which encourages a gro~rth of the effi- ,
ciency of sociel production and labor productivity, for v~ages are paid
according to the quantity and quglity of labor. And in this sense it is
e~sential to have the fuller use of money (considering its nea content and
all the flinctions inherent to it), and to strengthen the impact of money
on accelerating the processes of intensifying production and improving the
quality of aork.
The necessity of increasing the role of money as a measure of value is also
caused by the fact that a rise in production efficiency and its intensift-
cation necessitate a stronger control over the measure of labor and the
measure of consumption. Ensuring a precise coinciding of expenditures and
product output is an important condition for improving e~onoa~r. And the
strengthening of the connection betxeen aages and the results achieved due
to a rise in the productive force of labor helps to strengthen the effect
of money en the growth of labor productivity and the intensiPication of
production.
A rise in the role of money as a measure of value is also related to im-
proving the level oP planning, and fn particular the planning of the mone-
tary income and expenditures of the population. In this regard obviously
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it i~ ees~ntia~ in u centralized procedure to more fu11y det~rmine th~ wage
fund and enaure tih~ preaise fulfil].ment of the correspond3ng plan ind3cators.
mhe ~ctual exceeding of the planning quot~s for monetary income c~n have ~
negative ei'fect on en~uring the previously balanced ~olvent demand of th~
popul~tion for goods ~nd p~id servicea. A broadening of the outiput of
consumer goads and the overfulfillment of tihe plans for th~ir produrtion
and ttie providing of paid services help to r~ise the role of money in en-
coura~Sng economic development.
Money plays an active role in material incent3vea~ As ie known, bonusea ere
uged to encourage collectives and individual workere to ru~.rtii and over-
fulfill the plan quotas. With the underfulfillment of plan quotae by the
enterprises, money h~s a much less effect on the results of their oppra-
tions~ In these instancea the role of money has a meane of controlling the
measure of labor and the measure of conaumption is weakened. The problem
is that the enterpriees which do not fulfill the plan qu~tas pay both wages
and bonuses to the employeea. The use of money for encour~ging the effi-
ciency of social production preaupposes a corresponding increase in the
paying out of money for the fulfil]ment and overfulfillment of plan indi-
cators, and on the contrary, a reduction in payments if the corresponding
indicators have not been achieved. 3uch a procedure ehould involve nct
merely the bonuses. In our opinion, wagea calculated for the organizers
and leaders of production, proceedir~ from the existing salaries, ahould
be paid fl~lly only With the ftilfillment of the plan quotas by the enter-
prise or association as a Khole for the quantitative and qualitetive indi-
cators. The nonfulfillment of the plan due to factors dependent upon the
economic boc~y should tell on the amount of wages paid to the designe~ted
. wnrkera. This should be actually earned. The influencing of an improve-
ment in Work results must be sought not only by bonuses (they comprise
far from the basic share of earninga) but rather through all of aages.
In our vieW it is advisable to consider the bonuses in the existing level
of �he wage rate, that is, to increase it by the Qverage amount of the
bonus, and stop paying bonuses for the fulfillment of the plan quotas end
output norms by each individual worker. It is essential to rely more on
Lenin's instructions on bonuses for labor heroiam, and to pay bonusea for
the early achieving of the ~nd results oP operations by the entire collec-
tive and for the overfl.ilfillment of the indicators for raising production
efficiency. With such an approach the dependence of wages upon the labor
contributions of the employees will be increased. The role of money in en-
couraging production will be strengthened.
In the fl,inction of a means of circulation, money directly opposes the com-
modity and mediates its movement. The larger the amount of commodities in
relatian to the amount of money in circulation, the more full,y the given
function is disclosed. Here there is an important control role of money �
related to the conversion of C--M--C.
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Ar. t?~ known, un~1~r ca}~itulinm the break in bhe ntages of conv~rtir~N bhe aom- '
modity inbo money ~~ada to economic crises, The aituation ia different under
social.iem~ Under ~he cond3tions of a balanced aupply and d~mand, a cert~in ~
diaruption or slowing down of thig converaion can show either an inaufficient
quantity or an un~atigfactory quelity of ind3viduQl goodg and a surplus sup-
p1y of commoditiea in the given region. In theae 3nstances a"signal" ig
receiv~d on violation~ commi~ted, and this affirms the necesaity of taking
the approprigte messur~s by tihe plannin~, fine~ncial and banking bodies~ In
the gphpre of trade, auch disturbances requii�e a strengthening of control
over the assortment snd quality of the goo~is received from industry and a
correct allocating of the mass of goods to the republics and oblastn.
A rise in the role of money as a means of payment also is of great si~ntfi-
cance. Money acta in this funetion in the repqyment of various obligations
and above all in Fdytng for goods and services in noncash circulat~,on.
Certain ~conomists assert th~t the payment for goods and services means the ~
recognition by society of the labor spent on them. In our opinion, this
conclusion is wrong, as it contradicta the generally acc~pted theoretical
notion of directly social labor under socialism, it underestimates the role
of the state plan for economic and social developtaent, and exaggerates the `
importance of money as a means of payment.
The direct social nature of labor under socialism is determined by the ac-
tion o� the law of planned, proportional development and by the planned
management of the national economy. All types of products produced by
society are included in the plans of the various economic levels. Here
they proceed from the necessity of a balancing of the production and con-
sumption of each product. The product output and distribution plans are
concretized in economic contracts for the delivery of goods and the provid-
in~ of services. The products are produced and delivered in the quantities
stipulated in the plans, and should meet definite quality parameters. The
recognition of this fact by society is affirmed by the active payment car-
ried out by the purchaser to the supplier after he has made certain that the
given batch of goods (as a rule, on the basis of the commodity and pqyment
documents) meets the contractugl conditions.
Thus, the fluictioning of money as a means of payment makes it possible to
exercise control over the conformity of goods and services to the require-
ments of the plan and the delivery contract. The payment affirms the satis- 5
fying of these demands. For this reason the greater the opportunities for
the economic bodies to control the fulfillment of reciprocal obligations, ,
and hence to influence one another in the interests of their fullest im-
plementation, the more efficiently money is used as a means of payment, and
the more sub3tantial its influence as one of the instruments for controlling
the quality of work of the enterprises and associations.
Recently there has been an active discussion of the questions related to
the fl~nctioning of money as a means of accwnulation. In particulax, gre~t ~
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i
atten~ion has been given to ~ncouxagin~ ~h~ eredit form nf acrumuln~ion fnr
the ~nterprlaeg uain~ intereet.
As is known, the atate enterprises and organizationg ke~p their free money
on accounts at the banking 3nat3tutions, however they do no~ receive p~nnent
for this. They pay in~erest to the bank for loans. Certain eeonomists have
used this circwnst~nc~ a~ an argwnent for favorin~ the p~yment o:f inter~s~ 'yF
~ for the funds of enterprises and organizatione kept in banks. Tt is ~1so
asaerted that such a procedure woul.d help to strengthen economic accounta-
bility.
We cannot agree with such conclusSons, for, in our view, it ig wrong to
bage all economic relationships on the principle of payment, ae this also
leada to the creation of surplus monetary floxs in the econorqy. And if the
propoaed procedure were instituted, the bQnk would have to make a11 its
service~ paid and not ~ust the granting of credit. Th3a would involve the
- collecting of funds under demanas for payment, the iasuing of lettera of -
credit, the transferral of funda by payment authorization, the clearing of
accounta, and so forth.
In the opinion of other economiats, the interest paid on the deposits of
citizens could be eliminated. They feel that tiiere is nowhere else to put
; the money except for savings banks and a bank and there are no other credit
� institutions. However, such arguments do not sufficiently consider that
the depoaits of the public comprise a significant portion of the bank re-
sources. The paying of interest on the deposits makes it poasible to more
~ fully accumulate the personal savings of the public in the state credit
~ system. The question should not be the elimination of interest on deposits,
but rather to utilize most efficient]y the funds of the public in the form
- of bank loans.in ~conomic circulation. This will meke it ~~~-:sit~le not only
to cover the interest, but will also help to raise social ~,rnduction and
its efficiency.
The long-range policy of the CPSU of improving efficiency and quality re-
quires an improvement in all economic levers and incentives. The fuller
utilization of the advantages of Soviet money and the monetary system is an
important factor for intensifying social production.
FOOTNOTES
1. See V. I. Lenin, "Poln. Sobr. Soch." [Complete Collected Works), Vol 36,
pp 13~+, 135 �
. 2. K. Marx and F. Engels, "Soch." [Works], Vol 46, Part 1, p 87.
3. ."KPSS v Rezolyutsiyakh i Resheniyakh S"yezdov, Konferentsiy i Plenumov
TsK" [The CPSU in Resolutions and Decisions of Congresses, Conferences
and Central Committee Plenums], Part I, Gospolitizdat, 1970, p 6~4.
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FOR OF~IC~AI. US~ ONL~' ,
4. K. Marx anfl ~n~eys, "Soeh~,?' Vol 25, P~rb II, p 6~.
5, Tbid., p 61~
G. ~ee E. Andres, "Osnovy Teoriy Deneg Sotaialiaticheskogo Obshcheatva"
~Principles of Monetary Theory in a Socialiat 3ociety~, Izdatel'stvo
Mvsi~, i975~ ~p i94, i98-i99�
7. W~ would note, incidentally, that on page 9 of the cited work the author
asgerta something to the contrary, namely; "Commodity circulation is
carried out by money~ Without monetgry circu].ation commodity circula-
tion does not and cannot exiat."
8. The reason for this, as a rule, is the rapid development of credit,
the broadening of the range of credited pro3ects, and the easing up of .
conditiona for receiving bank loans. `
9. An exception is the CE~W countries r+hich will be dealt aith below.
COPYRIGHT: Izdatel'stvo "Pravda", "Voprosy ekonomiki", 1979
10272
cso: i820
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i ~OR OFF,ICIAL US~ ONLY.
~
i ~
' ,
1 '
~ '
1
; ~
PRODUCTION AND IMPROVIN4 TERRITORIAL OR(}AN'I2ATION ~
Moscow IZVESTIYA AKADEMII NAUK SSSR. SERIYA GEOGRAFICHESKAYA in Russian
No 2, Mar-Apr 79 pp 5-16
; CArticle by N. N~ Kazanskiy: ~'Production Intensifica~Cion and the Problem -
of Improving the Terrftorial Organization of the Productive Forces"]
[Text] The author shows that the improvement of the territorial organiz- -
ation of the country's productive forces will increase the intensification
and effectiveness of production and advances a number of practical and
theoretical problems which must be resolved by the joint efforts of
planners and scientists (economic geographers and economists specializing
in the siting of production facilities).
~ The construction of developed socialist society in the USSR marks our
country's entry into a new stage of socioeconomic development. The 24th
: and 25th CPSU congresses articulated the party's economic strategy which
~ outlined the socioeconomic goals of our society and the means required to
~ reach them. The rinci al lo ~
; P p ng-range goal of the party s economic policy
' is to secure the continuous rise of the living standard and cultural level
~ of the people. In the process of com ilation of lo
P ng-range national economic
plans, this goal is concretized in both economic and social programs for
j our society~s development.
"In order to resolve the broad spectrum of economic and social problems
confronting the nation, it is absolutely essential to increase labor
, productivity rapidly and to secure a sharp increase in the effectiveness of
all social production. Emphasis on effectiveness," stated Comrade L. I.
Brezhnev at the 25th CPSU Congress, "is the most important component part
of our economic strategy." The transition to intensive methods of management
is determined by the str3ving to use all accessi.ble additional reserves to
accelerate economic development in order to resolve social problems.
_ In earlier stages of our country's socioeconomic development, planning was
' primarily oriented toward the creation of the foundations of a socialist
' economy. The major problems in the territorial organization of the economy
were: national industrialization, the electz+ification and chemicalization
, ~ 33
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~ ~
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i
o~ ~he national aconomy, the collectivizat3on of agrieul~ure, the inv3goration
of the economies of the national hinterlands, the economic development of
~rhe resources of the eastern reg3ons, the format3on of a sys~em of cities, ;
and the development of major transportation arteries. Planners of our
economic development gave preference to the construction of new enterprises~
Tr~ditional methods were used ~o substantiate the s3,t3.ng of theae en~erprises
and essential.ly 3nvolved the analysis of various factors that influenced
the cit3ng of a given production facilfty.
The 25th Congress and especially the December Plenum of the CC CPSU (1977) .
stressed the importance of restructuring all our work in the dfrection of
focusing attention on intensive techniques of economia development. The
urgency of such restructuring stems from the new stage of the country's
economic and social development. The features of this stage must be
carefully considered in the territorial organization of labor particularly
_ in vi.ew of the fact that each feature has an important territorial aspect. ~
The most important aspect is the new demographic situation in the country.
Its characteristic traits are: the lowering of the growth rate of labor
resources in the next three quinquennia and the markedly territorial .
unevenness of this growth. The growth of labor resources throughout the
nation will be signiffcantly lower in the Eleventh Five-Year Plan compared
with the preceding five-year periods and will be still lower in the 'huelfth
Five-Year Plan. Six union republics Kazakhstan, Azerbaydzhan and the
Central Asian republics, where less than�one-fifth of the coun'try's population
lives will account for one-third of the total increase in labor resources.
'1'he reproductfon of labor resources is diminishing sharply in many western '
regions. At the same time, a number of industrial centers in these regions
are even now experiencing a shortage of labor power. '
For example, at many industrial enterprises in Leningrad the number of ,
workplaces exceeds the total projected work force by 2-2.5 percent. This
has adverse consequences for the development of the city: less effective
use of fixed capital and equipment, higher personnel turnover, the need
to bring in outside labor power, and the deterioration of the housing problem. -
At the same time, approximately one-third of the workers at the city's
enterprises are performing low-skill jobs. Indeed, approximately 40 percent
of the workers [rabochiye] throughout the nation are performing unmechanized
la.bor. Therefore, a sharp reduction in the share of manual labor and
the automation of production become a most important condition to further
economic growth.
As shown by the positive experience of many Leningrad enterprises (Leningrad
Svetlana Optical and Mechanical Association, Metals Plant, etc.), this can
be realized in the process of technical reconstruction of enterprises ~
and organization of production associations that create cond~tions for
the concentration of production and the intensification of specialization of -
enterprises and shops belonging to the association. This path promises an
important end result: the increased effectiveness of production and
higher labor productivity without increasing the size of the work force.
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The ever increas3ng rec~uirement for fue1, and raw mate~+ials is another factor
tha~C necessitates the intensification of produc~ion. Our country now ranks
first in the worl.d in the production of many types of raw materials (coal
and oil, pig iron and steel, timber, cement and prefabricated reinforced
concrete components, etc.), The use of new sources of raw ma~eria].a
requires ever inareasing expenditures since i~ is necessary to develop
these sources in remote northern and eastern regions ~f the nation.
At the same time, there is waste in the u~ilization of resources. Th3s is �
because many of our machine tools, railroad cara, and other machines are
sti11 heav3er per unit of capacity than the best foreign models~ Another
factor is the large quantity of waste at machine building plants, in
. nonferrous and ferrous metallurgy, in the t3mber and wood proeeasing
industry, and in other branches of the national economy. This waste farma _
as a rule in raw material regiona that ara unevenly devaloped. -
The extractive branches of industry require higher inputs of live labor '
and capital investment per unit of output than are required by the manufact-
uring branches. Consequently, in order to pravent the excesaive increase
in capital investments, we must strive to secure the more rational use of
resources by reducing the material-intensiveness of production, by ueing
less expensive materials, by imp~oving product quality and thereby prolonging
service 1ife.
The intensification of production acquires special importance in connaction
with the fact that the country's economic complex functions over a vast
territory and by virtue of the nation's economic geography entails coatly
types of land transportation. 'IY+ansportiation ~oday accounts for more than
10 percent of the capital invesfinents. Despite this fact, the country's _
transportation system is strained. Consequently, in the future there will be
a need for considerable additional capital investments in the development
of the rail network, in rolling stock, in traction devices, in communfcations,
and in material-technical supply.
Finally, there will be an increase in the share of capital investments
allocated for environmental protection. Eleven billion rubles have already
- been allocated for this purpose under the current five-year plan. In the
industrially developed regions and in the major cities, pollution and other
environmental impacts acquire an increasingly urgent character. P.ccordingly,
in the future there will be a need for large-scale efforts to eliminate the
harmful consequences of many technological processes in production and
. transport which have a negative impact on people's lives and thei.r mode of
settlement. Funds for these purposes must be sought first and foremost
from the increased effectiveness of production.
A positive solution to the production intensification problems posed by the
25th CPSU Congress cannot be attained without a new approach to the
territorial organization of the nation's economy. The factor approach
in preplanning research and in planning becomes clearly insufficient by
itself. We must apply a comprehensive approach to the development of
territorial production systems in order to ensure the rationalization of
the territorial division of labor and to increase the social productivity
of labor. 35
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~OR 0~'FICIAL US~ ONLY
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"The etru~gle for ef~ectiveness and qu~lity," L. I. Brezhnev emphasized in ~
his speech a~ the 18th Komsomol Congress, ~~.,.is not ~ temporary campaign.
It 3s the party's policy which has been ~dopted in earnes~ and for a long
tim~ to com~." He continued: "...effectivenQSS and quality.are ver,y bro~d _
concept3. They 3ncorporate such basfc elements as the moat ra~ional
deployment of the productive forces, the improvement of sta~e planning, and
the comprehensive approach to the solution of major economic problems."
Characteriatically, the ques~ion of the most r~tional deployment of ~he
productive forces is advanced to the for~front. In past d3scussions of '
the problem of effectiv~ness, scientific and technical progress was more ,
frequently cited as the principal means of increasing the social productivity ,
of labor. However, in our vast country new technologies and production
_ techniques cannot be developed in isolation from the concrete conditions
of their operation in various regions and without regard ~o the ~erritoz+ial
organization of the economy. Only a comprehensive approach to the
rationalization of the siting of producti.on and to scientific and technical
progress can ensure the attainment of the goal of increasing the effectiveness
of our economic system.
The November Plenum of the CC CPSU (1978) emphasized anew the importance ~
_ of stepping up the struggle to increase the effectiveness of social '
production and to improve the quality of the work at all levels of production
and management. "Now we are more and more acutely aware of the need," ~
L. I. Brezhnev observed, "for the in-depth, all-round analysis ~f the `F
main problems in the development of the national economy with an eye to
increasing its effectiveness further." The resolution of the Plenum �
notes that "...special attention must be devoted to raising the productivity
of labor, to incorporate the attainments of science and progressive know~-
how in production...,to bringing existing reserves and potential into play
in order to increase production and to raise the technical level of production
at minimal cost." ~
From the foregoing it can be concluded that the mobilization of reserves
for increasing the effectiveness of the organization of the country~s unified
economic complex has been advanced to the forefront of scientific and
planning work.
r'
In connection with the task of improving the territorial organization of
the productive forces with due regard to the existing economic situation
in our country, several groups of problems can be advanced ~ox+ the long run,
The first group is associated with the impz~ovement ofl the structure of :
regional production complexes that exist ~n the European part of the.nati,qn. .
The comprehensive approach to the substantia~ion of paths of economi,c and ~ .
social development of this territory px+esupposes the soluti.on o~ questions ,
relating to the improvement of the territorial organization of the~econon~y '
in the following directions:
� .
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~he dr.~;ree of inechaniLation ard au~omation of 1