Question

1- Planning: Describe the framework for resource allocation within the socialist economic system. How does the planning process solve the problem? How are prices viewed?

2- Material Balances: Describe the concept of material balances as used by centrally planned economies. Explain what it means, how it is used, and how it was done in practice. Finally, what are some critiques of the material balances approach? How is input-output analysis relevant for planning in a centrally planned system?

3- Labor Theory of Value: Describe Marx’s labor theory of value. Explain how he argues that capitalism is unsustainable. In explaining his argument, use the system of equations (logic).

4- Lenin and Socialism: According to Marx, the three laws of capitalism are: a) law of the falling profit rate; b) law of disproportionality (the problem of overproduction); and c) law of concentration. Marx said that these laws would eventually cause the demise of the capitalist system, which would be replaced by the socialist system. Lenin, however, noticed that this was not the case and he proposed the fourth law of capitalism. Read “Lenin’s Critique of Global Capitalism” at the Commanding Height website (Google: Lenin’s Critique of Global Capitalism) and explain how Lenin added to Marx’s view of the capitalist system.

Answer 1

Socialism refers to a system of economic organisation in which

(a) the ownership and control of basic productive resources rest with the State and

(b) resource allocation is determined by central planning rather than by market forces

Centrally determined and administered schemes are responsible for deciding the allocation and use of resources in a socialist economy. Important economic decisions such as quantity and modes of production, the relative proportions of investment and con­sumption of various commodities along with the decision of allocation of products are all managed by the Central Planning Authority.

Socialist system organizes economic activity through planning rather than market forces, and speed up production towards needs satisfaction rather than profit accumulation. Production in a socialist economy is planned or coordinated as goods and services were produced solely for use and to satisfy human needs.

Under socialist economy, the government determines output and pricing levels by synchronizing these decisions with the needs of consumers. Prices reflect the social preferences and are fixed by the central planning authority. However, as government officials adjust prices, the lack of competition between different producers reduces the incentive to do so.