Dalal, K.

Domar, E.D.

Kalecki, M.

Lundberg, E.F.

Perroux, F.

Rueff, J.

Tinbergen, J. (Jan)

Zagorski, J.

Erasmus University Digital Repository

The Practice of Economic Planning and The Optimum Allocation of Resources:DiscussionFrancois Perroux; J. Tinbergen; Jacques Rueff; Evsey D. Domar; E. F. Lundberg; M. Kalecki; J.Zagorski; K. DalalEconometrica, Vol. 17, Supplement: Report of the Washington Meeting. (Jul., 1949), pp.172-178.Stable URL:http://links.jstor.org/sici?sici=0012-9682%28194907%2917%3C172%3ATPOEPA%3E2.0.CO%3B2-SEconometrica is currently published by The Econometric Society.Your use of the JSTOR archive indicates your acceptance of JSTOR's Terms and Conditions of Use, available athttp://www.jstor.org/about/terms.html. JSTOR's Terms and Conditions of Use provides, in part, that unless you have obtainedprior permission, you may not download an entire issue of a journal or multiple copies of articles, and you may use content inthe JSTOR archive only for your personal, non-commercial use.Please contact the publisher regarding any further use of this work. Publisher contact information may be obtained athttp://www.jstor.org/journals/econosoc.html.Each copy of any part of a JSTOR transmission must contain the same copyright notice that appears on the screen or printedpage of such transmission.JSTOR is an independent not-for-profit organization dedicated to and preserving a digital archive of scholarly journals. Formore information regarding JSTOR, please contact support@jstor.org.http://www.jstor.orgThu Apr 19 09:22:42 2007OSCAR LANGE Mr. Tinbergen: I have been struck by the fact that there is much similarity between the way in which Dr. I, a n g e puts his problems and the way in which we are accustomed to put our problems in some Western European countries. The planning in the Netherlands, which I may perhaps choose as an example, is rather detailed for the moment, in view of the extreme scarcity of foreign exchange and of other factors of production. I t  might be that in later years the planning would take the shape of a more over-all character. Rut for the moment, as I said, there is a great similarity. And I quite agree with Dr. Lange that i t  is hardly possible to take decisions only on a rational basis. I should like to add, hon-ever, that in free econo-mies also, there are a number of important decisions that are not rational, either. It seemed nevertheless possible, in some cases, somewhat to rationalize decisions. The first example concerns investments. These were provisionally estimated on the basis of the total number of xvorkers for whom employ- ment has to be provided in the next five years and the average capital per worker that is customary in the Netherlands. As a further example, I may perhaps add the example on the plan for building schools which was based on forecasts of the number of chil- dren to be expected and the need for trained workers. Another example is in a similar program for hospitals. Tt was possible to some extent to give a background to the rationing system of the government, by comparing rations to the budget statis-tics of prewar times, taking account of a number of corrections. Dr. Lange also invited us to answer the question whether i t  wolllcl be possible to test the efficiency of this type of semi-planned economies. I t  is very difficult indeed, as you can surmise, to malie such a test. One rather superficial but riot uninteresticg possibility, however, in the case of the Netherlands, seems to be the comparison with Belgium, a country uhose economy is much freer than the Dutch economy is at  present. And now i t  is interesting to state that the velocity with which the general index of production for industry has gone up in both coun-tries since the very low point that was reached in the beginning of 1915 has been almost the same in both countries. Moreover, price control and wage control had far more success in Holland than it had in Bel,' mum. On the question raised by Dr. Lange, in what respect i t  woi~ld be pos- sible to take more advantage of marginal analysis for advising the govern- ment on its economic policy, I should like to answer that, even if we did not succeed in finding very fine instruments of distributing resour-ces, i t  might be not such a terrible accident for this transitory period 174 INTERNATIONSL STATISTICAL COHFERENCES: ECONOfilETRIC of great scarcity. Generally speaking, however, I think i t  is too early yet to  answer this question. Therefore, collecting experiences as we are now doing may be useful for all countries involved. M.  Rueff: J e  tiens, en premier lieu, it rendre hommage au trbs remarquable expose de M. L a n g e. J e  voudrais seulement ajouter une question B celles qui lui ont &ti: posies. J e  voudrais qu'il nous indique les ~nbthodes par lesquelles les previsions du plan peuvent Gtre transformkes en rdalit6. E n  eFet, en r6gime planifi6, si la conduite des producteurs e t  des con- sommateurs n'est pas determinee par des prix tels qu'ils les incitent B vouloir spontanement accomplir les actes susceptibles de conduire it 1'Qquilibre 6conomique, il faut que ces actes leur soient impos8s. Le drame des politiq~ies planifiees dans beaucoup de pays, c'est, qu'en fait, producteurs et  consommateurs restent libres do se decider d'aprbs les prix du march&, alors que ceux-ci ne sont pas ce qu'ils doivent Gtre pour que les previsions du plan soient satisfaites. J e  vondrais que M. Lange nous dise quelles mQthodes pratiqaes doi- vent Gtre employees pour que le plan soit, en fait, efficace. Mr. Domar: My remarks are theoretical. dssuming that  our objective is to  satisfy consumer wants with a minimum of centralized interference, the problem of resource allocation falls into two parts: how to deter- mine the desirable pattern of behavior on the part of industrial managers, and how to  make them hehave in the desirable manner. 'In eit>her society, the first problem is solved in the well-known manner of equating marginal costs to  prices. Tn a capitalist society with per- fect competition, the second one is solved by allowing producers to  max- imize their profits. The emergence of monopoly (in its several mani-festations) destroys this solution, and so far no other has really been found. I n  a socialist society (according to I.ange and Lerner), the second problem is solved by i n~ t r z~e t i nythe managers to equate marginal costs to  prices. But  what incentives will society offer to  make them behave in this manner? And what method will he used to  determine whether they so behave? Surely we cannot merely rely on their sense of duty. Nor is i t  practical administrative policy to make a contini~ous study of their accounting records: all decisions are made for the future, and perfectly honest differences of opinions are possible. I don't believe tha t  either our economic theory or Mr. Lange's paper have ansurered thess questions. -4similar question arises in connection. with uncertainty. We don't want the managers to be foolhardy, nor do we want them never to take chances. So the punishment for a failure must be severe, but not too severe to inhibit experimentation; and the reward for success must be generous, but not too generous to encourage waste. I don't know how the socialist society will solve this dilemma, yet on its proper solution depends its whole economic development and progress. For the United States these are academic questions. But they must be real and urgent in Europe, and I would like to ask the speakers whe- ther much thought has been given to them in their respective countries. Mr. Lundberg: There is a fundamental difficulty with regard to effective planning that I think is on our minds, and is implicitly involved in the speeches that we have heard, not least in, Professor L a n g e's lecture. But i t  has to be said 'explicitly. This difficulty refers to the disturbing fact of politics in a free democracy. The concentration of intereet naturally tends towards the questions of income distribution on the cost of positive planning. I like to draw a parallel with the development of planning in Sweden during the postwar years. One of the main problems with regard to the future development of the Swedish economy refers to the stagnation in population growth. There will hardly be any increase for twenty years in our labor force. That means great difficulty for a capitalist system to work. One of the ways to solve that problem is to get labor from agriculture where there are certain reserves. An agricultural planning commission has been working for four years with thirty members. The economists in that oommission made a dynamic plan for agri-culture put into a framework of the general Swedish employment de-velopment. The solution implied a continuous rationalization of agri- culture during a period of a generation without danger for our food situa- tion. We could calculate the marginal cost of having more of agricul-ture than according to that plan, that is to say the real price for security in food stxpply. But when the politicians got hold of the plan their main interest was the equalization of income between agriculture and the other parts of the population. I will by this example only remind you of the risk that politicians in a free society %rill be much more inter- ested in income distribution than in long-term planning because of the fact that they to a large extent represent different pressure groups. And this of course is very disturbing for long-term planning. My con-clusion is that in order not only to have good plans made up by experts in different fields and consistent planning for the economy as a whole but also will and power to make the plans work, u e have either to have 176 INTERNATIONAL STATISTICAL CONFERENCES: ECONOMETRIC an  enlightened dictatorship, if I may say so, or a people very united about the aims of economic policy. Tf you have a free society, then you can have people united about the aims of economic policy under the condition tha t  these aims seem predominating to  all of us. That was the situation after the  war in conn- tries with large rebuilding and reconstruction problems such as Poland and the Netherlands, as Professor T i 11 b e r g e n said. Then you can get a general understanding of and common interest in the  plans. I n  Rwe- rlen the needs have not been urgent to  the same extent and therefore we get too much of the income-(and power-) distribution problems about which people cannot easily agree with much room for politicians to  play in. However, the Swedish economic policy has not been able to  save Sweden from the dollar crisis (partly just because of its emphasis on the income-distribution aspects). Although we may regret i t  the new alarm- ing ditficulties, breeding urgent needs, will perhaps make better pros- pects for efficient planning in the future. Mr. Kalecki: I think tha t  the basic mistake in this discussion is to  com.pare what actually exists to  something tha t  has never existed. The present planned or controlled economies are being compared to capitalist econoniy as it was pictilred in textbooks until recent. times, where i t  was endawed with perfect equalization of marginal cost and prices, sma,ll degree of unemployment, optimilm distribution of resources, and so on and so forth. I n  fact, i t  was an apologistic myth of the capitalist economy and nothing of the sort has ever existed. F'rices were never equal to marginal cost; unemployment was consiclerab!e, and so on. It is from this point of view tha t  the problems of the  present discrission should be considered. Talre for instance the problem of the slow response to changes in the pattern of demand in a fully employed economy. It is true tha t  in a normal capitalist economy this response is very quick; but this is due to the fact tha t  usually a significant part  of productive equipment and of available labor is unemployed. Another problem consid.ered in the  present discussion was whether it. would be possible in a planned economy to achieve equalization be-tween prices and marginal cost. However, i t  is perfectly clear tha t  in a capitalist economy prices are really not determined tha t  way but by average prime cost and something like the  degrec of monopoly or by "full cost" principle. Does this assure the optimum distribution of resources? Why should we then complain tha.t under planning or controls there is no exact equalization between prices and marginal cost if this has never been realized? I should like still to add a word about devastated countries. I n  con-sideration of planned and controlled economies in devastated coun-tries, you have to compare them with what would actually have happen- ed if their economies should be "free". An extreme shift to profits from other incomes would take place in present circumstances and the demand for luxury goods would influence to a great extent the pattern of produc- tion. Now, however great are the difficulties of planning production in EasternEurope, I still prefer the priorities established by i t  to those determined by the demand of black marketeers. Mr. Zagorslei: The present state of economic planning in Poland, because of the enormo~s de~truct~ion When Profes- has certain special characteristics. sor L a n g e said that we are in the stage of reconstruction, he did not mean what Professor P e r r oux  tried to suggest, that our aim.istorecons- truct all that was before, for i t  is not. Every decision as to reconstruc- tion is before examiners who know of the changed economic conditions. What Professor Lange had in mind is this, that Pola~ld is in this stage of intra-marginal decision which means every decision is a right one; when the time comes for extra-marginal decisions, and I hope it will he very soon, I hope that our distinguished couilsellor will come back to our country and help us to get a most efficient and most rationalized and optimum economy. For such is, in my opinion,the intention uf the Polish Government. However, in my personal opinion, I don't think that conditions of the optimum system elaborated by Professor L e r n e r and Professor TAange are practicable or are just. I don't think you can gather individual cost aggregates into social marginal costs, and I think i t  is social marginal costs that must be taken into consideration when you try to construct an optimum system. As to the question whether we shall ever get an optimum system, or whether we shall get an efficient system, of course it is very difficult to answer. We can answer only in a comparative way. I t  is certain, to me at  least, that  you cannot get an optimum system in a capitalist economy. I n  order to get an optimum system in a capitalist economy, you must aboiish monopoly profits, and abolishing monopoly profits means, of course, abolishing capitalism. I n  our country, as far as  I understand i t ,  the chief principle is to equate price^ to average cost. There are no monopoly profits in Poland v-orth mentioning, at  least in the nationalized sector. And I think, whatever be the ultimate conditions for optimum systems, this principle will get us nearer an optimum system than the capitalist countries. 178 INTERN.iT1ONAL STATISTICAL CONFERENCES: ECONOMETRIC Mr. Dalal: The system of prices fixed freely in the markets to equate supply and demand performs, among other functions, that of shifting resources from the uses where they are less nrgent to uses where they are more urgent, as reflected in the relative price of the different uses of the limi-ted resources. This function of the price system can be called the dynamic function of prices. In  derastated economies or economies that are fundamentally disequi- libriated, th'e price system fails to perform the djnamic func.tion. Tt is often observed that even if the prices offered f(,r the part ic~lar  uses of resources rise, thnse resources fail t o  be augmented. The productive or distributive system ceases to be sensitive enough to the changes in prices. Under these circumstances, when the price system no longer performs its dynamic function, there is a logical and economic basis for controls and planning to achieve an optimtlm allocation of resources. 

The Practice of Economic Planning and The Optimum Allocation of Resources: a discussion

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The Practice of Economic Planning and The Optimum Allocation of Resources: a discussion

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