Chapter 1.2.

Chapter 1: What is a planned economy?

1.2. Planned economy and exchange economy

A market economy is an economic system that revolves around a place of exchange called the market, so a market economy is an exchange economy. In particular, in the modern exchange economy, a chain of exchange transactions is established using an intermediary product called money, so a market economy can be considered to be virtually synonymous with a monetized economy.

However, theoretically, the question of whether economic management is based on market mechanisms or economic planning and the question of whether money is the medium for exchange transactions are two different issues, and it is considered possible to achieve both a planned economy and a monetized economy. Therefore, the former Soviet-style planned economy actually operated under a monetized economy.

However, when we move beyond the conceptual level and look at it as a practical issue of economic management, a monetized economy that revolves around monetary exchange and a planned economy do not harmonize. A monetized economy is made up of a chain of monetary exchanges, which depends on supply and demand and often has speculative elements. In Marx's words, it is driven by "the undisciplined arbitrariness of commodity producers perceived by the barometer fluctuations of market prices," and is therefore uncontrollable by advance planning. 

If a monetized economy is to be adapted to a planned economy, it will have to rely on the technique of price control by public institutions, especially the government. In theory, it is possible for public institutions to set appropriate prices based on prior forecasts of economic conditions and supply and demand, but in practice it is impossible to completely control speculative monetary transactions, and it is inevitable that there have been no successful examples of price control policies, including those of the former Soviet Union.

In light of this, it seems better to regard a planned economy as essentially being outside of a monetized economy. If we consider this from the perspective of money, a monetized economy that is inherently anarchic is incompatible with economic planning in the true sense of the word.

If we go back to the fundamentals of this principle, we can safely say that a planned economy is essentially a non-exchange economy. They generally do not exchange money or barter. That is pure planned economy. If even some elements of an exchange economy remain, it cannot be called a true planned economy.

Since a market is a place of exchange, a non-exchange economy is also a non-market economy, but only then does economic planning become necessary. This is because in a non-exchange, non-market economy, goods and services cannot be produced and distributed unless there is a plan that serves as a normative guideline for economic management.

In summary, a purely planned economy is first of all a non-exchange economy, and therefore also a non-monetized economy. If we look at it this way, we can understand why the Soviet-style planned economy, which operated under a monetized economy, was unable to eliminate the elements of exchange economy and ended up being a half-hearted planned economy that lacked discipline.

👉The papers published on this blog are meant to expand upon my On Communism.

Chapter 1.1.

Part I: PRINCIPLES OF SUSTAINABLE PLANNED ECONOMY

Chapter 1: What is a planned economy?

1.1. Planned economy and market economy

When thinking about a planned economy, it is first necessary to establish what a planned economy is, but in reality, this is not easy.

When you hear the word "planned economy," you may think of "socialism," but planned economies and socialism are by no means synonymous. In fact, today's China advocates a "socialist market economy" and is trying to combine socialism and market economy, and all modern socialist systems, to varying degrees, aim to adapt to the market economy. 

Additionally, planned economy and controlled economy are sometimes equated, but this is also not an appropriate understanding. A controlled economy is often introduced in times of war for the purpose of centrally procuring materials necessary for the war effort, going beyond the system's slogan, and the fact that a wartime controlled economy is possible even within the framework of the capitalist system. For example, we can see this in the wartime controlled economy during World War II.

However, since production and distribution are usually regulated in a planned economy based on economic plans formulated by the government, it cannot be denied that the "control" factor is stronger than in a market economy, but a distinction must still be made conceptually between a controlled economy and a planned economy.

On the other hand, although market economy is considered the opposite of planned economy, the two are not as opposed to each other as is usually thought. Even if an economy advocates a market economy, if the government's authority to intervene in the economy is widespread, it will take on the role of planning, and a planned economy modified by market principles is also possible.

An example of the former - a planned market economy - is the aforementioned socialist market economy. Although the government's economic plan is maintained here, it lacks the normativity of the original planned economy, and its significance remains as a general guideline for economic activities. Furthermore, up until a certain point, the postwar Japanese economy had a strong character of "guided capitalism" through government economic planning and administrative guidance, but this was also a variant of a planned market economy, although it was looser than a socialist market economy.

Although there are not many examples of the latter type of market-based planned economy, the "self-managed socialism" of the former Yugoslavia can be counted as an example. Here, a certain competitive relationship was observed between self-managed enterprises in which workers themselves were said to be involved in management. Furthermore, the economy of the former Soviet Union, in which the profit principle was partially introduced in economic reforms after 1960, was also a variant of a market-based planned economy, albeit to a more limited extent than Yugoslavia.

Thus, the conceptual distinction between a planned economy and a market economy is by no means strict, but one essential requirement for a planned economy is that economic management is based on a formal and normative economic plan. The reason why the above-mentioned planned market economy is a market economy and not a planned economy is because the economic planning or guideline does not have normativity.

However, it is a matter of policy choice as to whether economic planning with such norms extends to all economic activities - a comprehensive planned economy - or whether it is limited to basic industrial sectors - a focused planned economy.

👉The papers published on this blog are meant to expand upon my On Communism.