Clark’s (1939) A Critique of Russian Statistics attempted to apply the new national income measurements to the centrally planned economy of the USSR. It sought to “…collate and test Russian statistics, by tests of internal consistency and by comparison with statistics of the external world” (p1). Clark employed the method of aggregation to determine the actual quantities of goods and services produced in Russia at certain recent dates, “expressed at the market values of these goods and services prevailing in Great Britain during a base year (1934)”. Clark was the “first extensive western user of a statistical p.p.p.” (purchasing power parity) (Wiles 1964). The Critique of Russian Statistics preceded Wiles’ cited example of Clark’s use of PPPs by a year.
Clark explained that the procedure was necessary as “prices in Russia do not necessarily bear any determinate relation either to the cost of production of goods, or to the consumers’ demand for them, being fixed by the planning authorities in
accordance with their own decisions (p1). In the West national income and economic activity was limited to marketed output, “Every pursuit whose products are either sold on the market or are largely directed toward it is treated as economic; no others are, although their yield in the way of satisfying wants may be substantial” (Kuznets 1975, p124). In the USSR where nothing was produced for sale on a market,
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“In a planned economy like the Soviet Union, the phrase National Income does not necessarily mean the same thing as it does elsewhere. In the Soviet Union certain goods and services are supplied at arbitrarily low prices, others at arbitrarily high prices, and to add together the values of outputs of all goods and services at these arbitrarily determined prices would not give us anything like a measurement of national income” (p3).
The very notion of Soviet national income based on non-existent market prices was a contradiction in terms. To establish what he considered to be a “satisfactory measurement of the Russian national income” (p3), necessitated reckoning the quantities of goods and services produced, either at the prices which prevailed before the planning regime started, or at the prices prevailing in some other country. This required the establishment of a common coverage of economic
measures. Soviet measures of material product included transport, wholesale and retail distribution and postal services, but;
“…exclude the rents of dwellings…services performed by public authorities (which we have now included, in line with the definition of national income now used in other countries) and also other personal services, for which some allowance must be made, such as professional and medical services, domestic service, catering, barbering, cab-driving etc.” (p5).
Clark estimated the value of such services from the proportion which they are found to bear to the national income in other capitalist countries with a similar development of the productive resources. There is no particular reason why a centrally planned economy, in which consumers preferences were established
without reference to the consumers themselves, should share a similar distribution of output between production and services as a capitalist economy. Nonetheless, Clark was working with limited information and attempted to establish a thoughtful guesstimate.
Clark needed to establish a price-index number to correct for the differences in prices, but the existence of the turnover tax levied on consumer goods meant that,
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“[T]he price at which goods and services are sold will be very different form the incomes of their producers” (p7). Clark rejected one possible solution, the
removal of turnover taxes from the calculation noting that “We can hardly adopt the clumsy expedient of constructing price-index numbers in which all goods are reckoned at their untaxed prices” (p7).
This “clumsy expedient” was to provide the later basis of Bergson’s Adjusted Factor Cost (AFC). Instead Clark aggregated physical units of output, to establish the real value of roubles versus British pounds Stirling. He started with food “because food production can be expressed in terms of a comparatively limited number of physical units” (p7). Clark’s index was composed of twelve physical quantity series: cotton cloth, woollen cloth, trucks, passenger cars, locomotives, freight cars,
aluminium, copper, lead, paper, cement and gold for the period from 1928 to 1937. Clark made no allowance for changes in the composition of output of trucks, locomotives and freight cars by size and type (Hodgman 1954, p98). The quality of output affected costs of production and value and this made international
comparisons of different physical products more difficult.
Clark noted that establishing the purchasing power of the rouble over other goods and services “is a far harder problem” (Clark 1939, p7), not least as planned prices meant that roubles had different values depending on what they were purchasing. Even in 1928, the final year of the New Economic Policy (NEP), the different purchasing powers of the rouble were very marked. For food 6.5 roubles purchased the equivalent of £1 of 1934 purchasing power, for other consumption goods and services 18.5 roubles to £1, for investment goods, 24 roubles to £1,
“These discrepancies are of course the result of deliberate policy, and the principal instrument by which they are created is the turnover tax. In the 1934 budget, revenue from turnover tax and profits of State enterprises amounted to the enormous total of 43 milliards. Turnover tax and levies on profits fell comparatively lightly (again a matter of policy) on the heavy industries, and
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for this reason we can regard their ratio to purchasing power parity (29 roubles to £1) as fairly indicative of true costs of production in Russia” (p39).
These figures reflected the high costs of production in newly established industrial plants and the deliberate policy of the USSR government. It used the internal terms of trade to tax rural incomes to fund industrialisation. Clark’s figures demonstrated how the collapse of agriculture in the period of forced collectivisation from 1928 to 1931 offset the growth in industrial production. The forced savings required for the rapid increase in investment directly resulted in a collapse of food consumption, “the value of food consumption per head of the population was 18 per cent lower in 1934 than it had been six years earlier” (p22).
In capitalist economies the price of the fixed capital stock is determined by the rate of interest, multiplied by service life, less the cost of upkeep. This price fluctuates around the current replacement cost of the fixed capital. The principal element determining service life is expected obsolescence, which is the average period before technological progress renders the continued use of the machine more expensive than its replacement. A high rate of interest and low rate of obsolescence create a high value and vice versa.
In centrally planned economies investment in means of production took the form of an interest free grant from the central authorities. Machines were allocated in physical quantities. The Soviet fixed capital stock was a quantity of means of
production that increased the physical amount of use values each unit of labour could produce. It did not provide revenue streams as in the West. It was not capital. There was no rate of interest and machinery was not rendered obsolescent by technological advance. In a capitalist economy technological advance means that machinery is often scrapped long before its potential useful life. Not so in a centrally planned economy, where the original “value” of the machine was a purely nominal unit of account. This amount was depreciated according to the reduction of the machines usefulness due to wear and tear, but repairs restored the nominal value of the machine (Campbell 1960). Clark considered that if the lower, Soviet depreciation
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rate, was applied it would have systematically underestimated depreciation and so overstated output in comparison with similar Western investments. The problem of measuring value of the fixed capital stock and appropriate rate of depreciation was a recurring theme of Western alternative measures of the central plan. Clark bypassed it by adopting Western rates.
According to Clark Soviet national income increased during the decade from 1928 to 1938 by 54% rather than by the official figure of 320%. Clark’s estimates of real income per capita showed that by 1934 the USSR produced less per capita than before the First World War.
Table 3.1. Real Income per head of population at 1934 Sterling Prices
Aggregate Income, £m Per Head, £
1913 2803 20.1
1928 2840 18.8
1934 3299 19.6
(Clark 1939, p41)
Clark concluded that;
“Thus the net return after the tremendous effort of the First Five-Year Plan seems therefore to have been an increase of 4 per cent in net income per head, which is now 2.5 per cent lower than it was in 1913. As will be shown below, there was a serious decline in agricultural productivity which offset the industrial gains” (p41).
It was only after the Soviet authorities retreated from the worst excesses of collectivisation in the mid-1930s and the newly proletarianised peasantry had become at least a little more attuned to the factory that the volume of industrial production started to grow rapidly. Between 1934 and 1937 it increased by “about 67
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per cent” (p65), as “Average income per head of the working population taken as a whole has risen by as much as 42% between 1934 and 1937” (p69).
Clark’s rejection of official Soviet financial statistics and prices reflected a difference within Western statisticians as to how to establish the nominal “real” output of the centrally planned economy. Clark’s ground breaking use of purchasing price parity to overcome the distinction between non-capitalist Soviet prices and capitalist market ones pointed to one solution to the problem. It abstracted from the social relations of the central plan and measured physical output in the prices of a comparable Western economy. His differentiation between rouble values in different sectors addressed the significance of the turnover tax and provided at least a tentative answer to the issue of coverage with alternative estimates of the quantity of services in the planned economy were not included in the Soviet NMP. Naum Jasny gave a critical but essentially positive appraisal of Clark’s work;
“Clark applied the prices which he chose to data in physical terms, which themselves were very incomplete and in part arbitrarily estimated…the industrial goods considered by Clark were only a small part of the total industrial output. The increase in total industrial output of 209 per cent during 1928-38 implied in Clark’s estimate nevertheless agrees well with the present writer’s estimates. It seems however, that with an increase in industrial output of this size, national income could not possibly have risen by only 26.1 per cent during these years (Jasny 1951a, p144).
Jasny concluded, “Clark’s methods of estimating are perhaps somewhat courageous…and can stand improvement” (Jasny 1951b, p8), but Jasny thought that official statistics expressed in values “he could only regard as a pack of lies….. after years of study the writer came to accept Clark’s general position, if not his decimal points” (Jasny 1951b, p9). The validity of Soviet statistics in general and the “value” of measurements used to estimate official Soviet national income was a key point of contention between the rival Western statisticians.
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