Inflation in the Ussr and Eastern Europe (1)

It has for long been generally accepted that excess demand, or the existence of a sellers’ market, is an essential element in the chosen ‘command’ economic systems of the USSR and the countries of Eastern Europe (2). Given the stress on full utilisation of productive capacities and rapid economic growth as policy objectives, this can hardly be contested so far as the inter-enterprise ‘market’ in fuels, raw materials and intermediate products is concerned. Whether the functioning of the system necessarily depends also upon a sellers’ market for all final output — capital goods and consumer goods — is perhaps worth considering as a question, despite the considerable volume of literature accepting that it does. A second question is whether significat ‘cost-push’ forces can be expected to exist in these economies. Finally, is it conceivable that they were in fact managed for some twenty years up to the mid-1970s, and in several countries virtually up to the end of the decade, so as to hold the average annual rates of increase of prices in the market for consumers’ goods to two per cent or less? This is the maximum rate of increase indicated by any of the official consumer price indices, which show a rise of about 45 per cent over the twenty years to 1975 in Poland and, at the other extreme, about a 10 per cent fall in the German Democratic Republic (GDR). The Soviet index for 1975 is almost precisely the same as that for 1955 (and significantly lower than in some earlier years) and only in Poland (in 1957 — 58) have the official price indices risen by more than about two per cent in any single year up to 1973.