Knowledge that Transforms

7 ESTERN writers on Soviet fiscal probVI' lems have centered their attention principally on the theoretical implications of the turnover tax during the five-year plan periods. Treatment of the operative mechanics of the turnover tax has been brief and of recent date. The aim of this paper is to combine features of both expositions with respect to one specific commodity. Section I will discuss some of the assessment and collection techniques that apply to the bread-grain economy; section II will present a computation of costs, tax, and price for bread for selected years; and section III will attempt to quantify the importance of the bread-grain economy in the fiscal structure of the Soviet Union for selected years.

IN econometric models of the business cycle,one of the most difficult problems is the occurrence of relaxation phenomena, or what Georgescu-Roegen has termed phase-periodicity. 1 An actual system appears to behave according to one rule of behavior during a certain phase of the fluctuations, and then according to an entirely different rule during another phase. This is precisely the sticky thing about the bottleneck problem in an inflation and about the excess capacity problem for a depression. This paper reports on some research into the excess capacity problem made possible through using Whirlwind I, a high-speed, electronic computer.

AN insight into the problem of the fluctuations of iron and steel prices or, generally, of the prices of investment goods, is important with regard to the part these prices play in the relation between saving and investment. A change in the prices of investment goods will in general affect the physical volume of investment as well as the amount of money savings which is absorbed by investment activity. The influence of these prices on the volume of investment might not be very large (several investigations seem to point in that direction), but even if that were the case the influence of a price change on the amount of savings that is absorbed by investment activity will be important. In this paper our attention will be concentrated exclusively on the way prices of investment goods are fixed by the producers, more specifically on the relation between the volume of production of investment goods and the prices of these goods (the price flexibility). As the best available figures are for the United States, we tested the influence of changes in the percentage of capacity used upon prices of investment goods on the basis of United States data. i. Tinbergen's analysis. The starting point for our investigations was the explanation of price fluctuations of investment goods given by Tinbergen in his League of Nations publication, Business Cycles in the U.S.A. I9I9-32. In his price-determination equation ' Tinbergen explains prices of investment goods by the following factors: (a) the variable costs per unit of product, represented by the wage rate, (b) the volume of production of investment goods, and (c) a trend factor. The purpose of this paper is to extend Tinbergen's analysis in some aspects. In the first place more observations are available now. Tinbergen's book covers the period I9I9-32, while our analysis is based on figures for the period I9I9-40. There is still another difference between our investigation and Tinbergen's. We were especially interested in finding examples of bottlenecks. As we could not detect any influence of bottlenecks on the price movement of finished investment goods, we went back a little on the way from raw material to final product, and investigated the prices of iron and steel, as the chance of finding nonlinear relations becomes larger when the products investigated approach raw materials more closely. With regard to the factor mentioned under (a) Tinbergen says: we are considering all enterprises, which are here regarded as being vertically amalgamated, practically the only element in variable cost will be variable labour cost. Its influence on price may be estimated on a priori grounds, which in general seem safer than any other basis. Labour costs may be estimated at about 50% of prices of investment goods. This does not correspond, however, to direct labour only but to all labour. From the figures of the Federal Reserve Board it may moreover be estimated that a io% increase in production of durable goods is accompanied by a 7% increase in hours of work. Marginal labour-costs seem therefore to be about seventenths of average labour-costs for average production. The price increase, corresponding to a 1o% increase in wages, will therefore, in the short run, be equal to 5 X 0.7% = 3.5%. (Italics are ours.) For reasons to be mentioned afterward we shall use unit labor cost and not the wage rate as an explanatory variable, deviating from Tinbergen in this respect. 2. Changes in labor costs and prices. Since Tinbergen's study our knowledge of the influence of changes in labor costs on prices has been considerably extended by Leontief.2 The statistical material presented in his papers there'A price-determination equation is a relation that tells what factors influence the decisions of producers or sellers with regard to the prices to be fixed. This relation contains the same variables as a supply relation, but price is an effect rather than a cause and may therefore be lagged behind quantities and supply factors. 2 W. Leontief, Wages, Profits, and Prices, Quarterly Journal of Economics, I946-47, p. 26.

THE following price and ration data were compiled in the city of Kiev in the months of June and July, I946.1 No attempt has been made to translate the prices into dollars, since both the official exchange rate of 5.30 roubles to the dollar and the diplomatic rate of I2 roubles, in effect at the time, were admittedly arbitrary. The problem of comparing Russian food prices with those prevailing in other countries is further complicated by a number of factors. The Russian diet stresses different products than those making up the western dietary,2 hence a comparison of specific prices may possess little significance. The price of rye and whole wheat bread is of dominating importance to the Russian consumer, while it is of secondary concern to the consumer in Canada and the United States. Quite the reverse holds true of the price of meat. The wide spread between prices in the ration stores and those in the commercial stores and the public markets characteristic of the period of rationing adds another complicating factor, and one that is only partially resolved by reference to the official ration scale, since the ration issue in some categories fell considerably short of the ration scale. Any calculation of food prices in Russia must also take into account the mid-day meal provided for workers in the factory canteen or in other types of communal feeding establishments.3 These meals were in addition to the regular ration and, although there are differences of opinion as to their adequacy, the price for what was provided probably was somewhat below the price for foods normally bought outside the ration. That the amount of foodstuffs allocated to this form of communal feeding was substantial is indicated by the following approximate distribution of foodstuffs delivered by UNRRA to the government of the Ukrainian S.S.R.: 55 per cent to the trade network for sale to the population on ration cards; io per cent to children's institutions, hospitals, and the like; 35 per cent to other forms of communal feeding, and of this category of supplies the mid-day meal for factory and office workers accounted for more than 8o per cent. These factors make the direct comparison of Russian food prices with those in the western world indefinite and ambiguous. More defensible and informative, if sufficient data were available, would be a comparison of food expenditures with monthly earnings based on a range of 350 to 500 roubles per month for unskilled workers and 8oo to Iooo roubles for skilled workers.4