Communism Imitates Capitalism

October 9, 1950

The latest Bulletin of the Soviet Union’s Academy of Science reveals, according to Harry Schwartz in The New York Times of Sept. 24, that Russian bureaucrats are trying to fix their socialist prices on capitalist principles.

“Prices charged by Soviet enterprises must now be set high enough to cover costs and to permit profits to be made,” reports Schwartz. “In addition they must be based on demand and supply so that prices for scarce commodities will be sufficiently high to stimulate increased production and reduce consumption of such scarce items.

“But these prices are still determined by planning authorities rather than set in markets through the interplay of competitive forces. These principles were apparently used to help frame the major revision of the Soviet wholesale price structure [in 1949 and] this year. During and immediately after World War II Soviet economists boasted that wholesale prices of industrial commodities had remained stable. Only later did they reveal that this policy had been possible because of very large government subsidies to many plants.”

To those who have followed the discussions of the more enlightened socialist theoreticians over the last two decades, not to speak of those who have peered behind some of the curtains of propaganda to the economic realities in Russia, none of this will come as a blasting revelation. Socialism and Communism began as a revolt against the alleged folly and iniquity of capitalism and the free market. The supreme irony is that, once the socialist and Communist theorists had finished their joyous work of destruction in the countries where they had seized power, and were called upon to buckle down to the task of producing the economic paradise which their rhetoric had so long and confidently promised, they found themselves forced, in the end, to try to imitate and revive the very price system they had so eagerly destroyed.

The whole problem is one of which the cocktail-party socialists are blissfully unaware. As long as there is only partial socialism, as in the Western democracies, the problem can be concealed. The city-owned New York subways, for example, are run at a deficit; but the city merely forces property owners, and the private industries within its boundaries that are run at a profit, to make up the deficit. The nationalized railroads of Britain and France are run at a deficit, but the British and French Governments can simply force the profit-making private industries in their countries to pay that deficit. (Of course today, with ERP, they in effect get their nationalized railroad deficits paid for out of the profits of private American business.)

There are many other ways in which partial socialism can camouflage its deficits. Nationalized enterprises don’t make the same kind of deductions for interest, depreciation, and taxes that private industry is forced to make. The Labor government can increase the apparent productivity of the British coal mines by mechanizing those mines at the expense of private projects in which the new capital could be used to more advantage. Or the government, because of its monopoly, can raise coal prices, and so force consumers to make up a hidden deficit by what is in effect a stiff excise tax on coal.

But none of these devices are open as a general practice in a country where socialism, as in Russia, is virtually complete. Partial socialism is parasitic on capitalism; but complete socialism is forced to be self-supporting. A deficit in one part of the socialist economy can only be made up at the expense of another part.

And so, in present-day Russia, the Communists find themselves compelled to imitate the very “profit system” they have spent their lives denouncing. But their imitation, unfortunately for them, can’t take the place of the real thing. Under their system, in which wages, prices, and interest rates are all arbitrarily set by bureaucrats, they can never know what their real costs are, or even what real consumer demand is. They must play capitalism, competition, price and profit system, the way children play house. Only their game is more like blind man’s bluff.