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The Theory of Price Formation in Communist China*

Published online by Cambridge University Press:  17 February 2009

Nai-Ruenn Chen
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Extract

The theory of price formation has been vigorously discussed in Communist China since 1953, but the main themes of the discussion have varied. Generally speaking, the discussion may be conveniently divided into two periods. The first period covers the years prior to 1960, during which there were a large number of articles dealing with the role of the “law of value” in socialist planning and the problem of price formation for producer goods transferred within the state sector. The discussion was partly a result of Stalin's publication of Economic Problems of Socialism in the U.S.S.R. A number of Chinese economists disagreed with Stalin's assertion that the law of value and the concept of commodity production and exchange did not apply to the state sector.

Type
Research Article
Information
The China Quarterly , Volume 27 , September 1966 , pp. 33 - 53
Copyright
Copyright © The China Quarterly 1966

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References

1 Jo-i, Fan, “The Pricing Policy for Products of Heavy Industry,” Ching-chi Yen-chiu (Economic Research), No. 3 (06 17, 1957), pp. 54–67Google Scholar.

1a Ping, Nan and Chen, So, “On the Problem Concerning Prices of Producer Goods,” Economic Research, No. 2 (05 17, 1957)Google Scholar.

1b Fan Jo-i, op. cit.; and Keng-mo, Lo, “Problems Concerning the Policy of Low Prices for Producer Goods,” Economic Research, No. 3 (06 17, 1957), pp. 68–77Google Scholar.

1c Fan Jo-i, op. cit.

1d Department of Planning and Statistics, Hupeh University, Industrial Statistics (Wuhan: Hupeh People's Press, 1960), p. 95Google Scholar.

1e Fan Jo-i, op. cit.

1f Ibid.; see also Jo-i's, Fan article in To-kung Pao (Impartial Daily), 08 11, 1956Google Scholar.

2 Hsueh Mu-ch'iao, Chairman of the Price Control Commission of the State Council, published an article in the May 1963 issue of Economic Research, in which he pointed out various problems existing in the present price system and asked economists to join planners in seeking proper solutions. (See Mu-ch'iao, Hsueh, “Several Problems of Commodity Prices in the Socialist Society Have Yet to Be Discussed,” Economic Research, No. 5 (05 17, 1963), pp. 1–5Google Scholar.)

3 Included are farm subsidiary products and part of the so-called third-category goods, which do not fall within the government procurement scheme.

4 Department of Planning and Statistics, Hupeh University, Industrial Statistics (Wuhan: Hupeh People's Press, 1960), pp. 388–390Google Scholar.

5 State Planning Commission and Ministry of Finance, “Regulations Concerning Agents of Production Expenses, Items of the Cost of Products and the Checking and Computation of the Cost in State Industrial Enterprises,” Cht-yeh k'uei-chi (Enterprise Accounting), No. 17 (09 7, 1959), pp. 5–7Google Scholar.

6 Wen, Chang and Li-kuang, Chao, “An Analysis of Factors Forming Commodity Prices under Socialism,” Hsin Chien-she (New Construction), No. 12 (12 20, 1963), pp. 28–35Google Scholar.

7 Ibid.

8 Ibid.

9 Additional prices not considered include foreign trade prices, transportation rates and wages.

10 Chinese concepts of average cost differ from Western usage primarily in the omission of capital charges and rent from Chinese cost accounting.

11 Ken-mo, Lo, Problems of Commodity and Value under Socialism (Peking: Science Press, 09 1957), pp. 162–165Google Scholar.

12 Chung-huang, Niu, Accumulation and Consumption in China's National Income (Peking: Chinese Youth Press, 1957), pp. 94–97Google Scholar; Hung-tao, Yang, “Several Problems Concerning Profits in the Formation of Industrial Prices,” Economic Research, No. 8 08 17, 1963), pp. 43–49, 66Google Scholar; and Chang Wen and Chao Li-kuang, “Commodity Prices under Socialism.”

13 Li-kuang, Chao and Ching-chuan, Hsiang, “Objective Criteria for Commodity Price Differentials and Bases for Determining These Differentials under Socialism,” Economic Research, No. 2 (02 17, 1964), pp. 52–61Google Scholar.

14 Lo Ken-mo, Problems of Commodity.

15 However, the normality of price relationships during 1930–36 has been questioned by some economists.

16 Chao Li-kuang and Hsiang Ching-chuan, “Objective Criteria.”

17 Ibid.

18 Prior to 1958, the Ministry of Food employed interview and “model survey” (tien-hsin t'iao-cha) methods to obtain cost data. In recent years, “survey and accounting networks of agricultural costs” have been established in various provinces to undertake the measurement of the cost of production in the people's communes. Such networks were first instituted by Kwangtung Province in 1958 and by other provinces in the following years. Available evidence indicates that rent and interest on fixed capital do not enter into the cost measurement, while interest payments on agricultural loans are treated as costs. See Price Department, Bureau of Commerce, Kwangtung Province, “The Method of Estimating Agricultural Costs in the People's Communes,” Chung-yang ho-tso tung-hsin (Central Co-operative Bulletin), No. 2 (02 11, 1959), pp. 20–21Google Scholar; and Yuan-hung, Wu, “How to Establish Survey and Accounting Networks of Agricultural Costs in the People's Communes, Economic Research, No. 8 (08 17, 1959), pp. 63–64Google Scholar.

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20 Yi-lin, Yao, “Commerce in the Past Ten Years,” in Ten Great Years (Peking: People's Daily Press, 1959), pp. 359–376Google Scholar; Chao Li-kuang and Hsiang Ching-chuan, “Objective Criteria”; and Fan Jo-yi, “ Agricultural Price Policy.”

21 The defects of Soviet prices were examined by a number of economists in the West, e.g., Bornstein, Morris, “The Soviet Price Reform Discussion,” Quarterly Journal of Economics, LXXVIII, 02 1964, pp. 15–48CrossRefGoogle Scholar; and Nove, Alec, The Soviet Economy (London: Allen & Unwin, 1961), Chaps. 4, 8 and 11Google Scholar.

22 For the functions of Chinese prices, see Mu-ch'iao, Hsueh, “The Law of Value and Our Price Policy,” Hung Ch'i (Red Flag), Nos. 7–8 (04 16, 1963), pp. 1–9Google Scholar.

23 Little attention has therefore been given to the problem of pricing the products produced by handicraft producer co-operatives.

24 Due to lack of better terms, the sum of c+v is identified as “the cost of production” in this paper. Cost of production as used here does not include rent and capital charges.

25 Ch'i-yeh, Wang, “A Preliminary Inquiry into the Problem of Measuring Value under Socialism,” Economic Research, No. 11 (11 17, 1962), pp. 24–32Google Scholar. Hung, Pai, “On the Problems of the Basis for Price Formation under Socialism,” Economic Research, No. 6 (06 15, 1964), pp. 6–15Google Scholar.

26 Wang Ch'i-yeh.

27 The total value of the surplus product (S) can be defined and calculated as that portion of the total value of net domestic material product, i.e., the national income in its Chinese sense, which is not paid out as rewards for labour. However, for each product separately the surplus value (s) is not known since its “value” cannot be identified as such.

28 Yang Hung-tao, “Profits in the Formation of Industrial Prices.”

29 Lin, Yu, “How to Correctly Determine the Prices of Various Products,” Economic Research, No. 5 (05 15, 1964), pp. 1–11Google Scholar.

Two additional deficiencies of this pricing formula not pointed out in the Chinese discussion were discussed by Soviet economists and summarised by Bornstein. First, within a given branch of industry, those enterprises using more capitalintensive methods than average would have lower costs and higher profits, with the paradoxical result that they would create more surplus product in the form of profits with less labour. Second, it appeared more profitable for enterprises to produce labour-intensive (and therefore higher-priced) products, but at the same time more profitable to use more capital-intensive (and therefore lower-priced) inputs. (See Bornstein, , “Soviet Price Reform Discussion,” p. 30.)Google Scholar

30 Chang Wen and Chao Li-kuang, “Commodity Prices Under Socialism.”

31 Wang Ch'i-yeh and Pai Hung, note 25.

32 Yu Lin, note 29.

33 Ibid.

34 Yuan, Tso, “The Relations of Labor Productivity to Value and Price Formation,” Economic Research, No. 1 (01 17, 1964), pp. 44–55Google Scholar.

35 Ibid.; and Hsüan, Min, “The Discussion Concerning Pricing Bases under Socialist Conditions,” Kuang-ming Jih-pao (Kuang-ming Daily), 07 21, 1964, p. 4Google Scholar.

36 Tso Yuan.

37 Yang Chien-pai; and Chien-chang, Ho and Lin, Chang, “On Prices of Production in the Socialist Economy,” Economic Research, No. 5 (05 15, 1964), pp. 12–20Google Scholar.

38 Yang Chien-pai and Ho Chien-chang and Chang Lin.

39 Li, Kuan, “On the Causes for Price Formation—A Discussion with Comrade Yang Chien-pai,” Kuang-ming Daily, 04 13, 1964Google Scholar; Ch'un-jin, Chang and chung, Chien Chun, “The Real Nature of Prices of Production is to Abandon the Planned Economy,” Economic Research, No. 10 (10 15, 1964), pp. 1–5Google Scholar; and Chao-mu, Lin and Shu-ch'ing, Wu, “The Average Rate of Profits and Prices of Production are not Applicable to the Socialist Economy,” Kuang-ming Daily, 10 12, 1964Google Scholar.

40 Li, Kuan, “Prices of Production and Socially Necessary Labour Expenditure,” Kuang-ming Daily, 05 18, 1964Google Scholar.

41 Chen-ch'uan, Chang, “The Discussion of the Problems Concerning the Basis for Price Formation and Economic Effectiveness at the Seminars Held at Nankai University,” Economic Research, No. 1 (01 17, 1964), pp. 56–58, 24Google Scholar.

42 Kuei-lin, Ho, Chung-chang, Hsieh and Chen-nuan, Peng, “Prices of Production Cannot be the Basis for Price Formation under Socialism,” Economic Research, No. 4 (04 15, 1964), pp. 1–14Google Scholar.

43 Ibid.

44 Yuan-ch'en, Tai, “Comments on Prices of Production and the Average Rate of Profits in Relation to Capital,” Economic Research, No. 9 (09 15, 1964), pp.1–11)Google Scholar; Chang Ch'un yin and Chien Chung-chang; Yu Lin; and Min Hsuan.

45 Li-fu, Lin, “On Basic Economic Laws Underlying Various Social Forms of Production in China during the Transition Period, Economic Research, No. 2 (02 17, 1955), pp. 25–61Google Scholar; Chui-hai, Chen et al. , “Problems Concerning the Form of Rent and Returns to Land in Preliminary Agricultural Producer Cooperatives,” Chiaohsueh yu yen-chiu (Teaching and Research), No. 10 (10 4, 1956), pp. 36–46Google Scholar; and Chien-nun, Chu, Agricultural Rent in China during the Transition Period (Peking: People's Press, 1957)Google Scholar.

46 Min, Kung and Ke-cheng, Chia, “The Problem of Differential Rent in Chinese Agriculture at the Present Time—A Discussion with Comrade Yu Lin,” Economic Research, No. 7 (07 15, 1964), pp. 32–38, 53Google Scholar. Each work day is said to consist of ten work points. How the value of each work point is determined is explained in the following section on labour cost.

47 Yu, Ho, “Correctly Treat the Economic Differences Existing Within the Rural People's Communes, Red Flag, No. 23 (12 1, 1961), pp. 27–31Google Scholar; Chung Cheng-chang, “On Differential Rent in China's Rural People's Communes,” ibid. pp. 32–38; and Ku Ming (ed.), “The Discussion Concerning the Problem of Differential Rent in the Rural People's Communes,” ibid. pp. 39–41.

48 The value of average socially necessary labour expended in agricultural products, refers to the average cost of production of all farms producing the same product, excluding interest and rent, plus a normal profit.

49 Lin, Yu, “Different Rent and Our Price Policy,” Economic Research, No. 6 (06 15, 1964), pp. 1–5Google Scholar; Chung Chieh, “The Discussion of Problems of Different Rent under Socialism by Chinese Economists in the Past Year,” ibid. No. 3 (March 17, 1963), pp. 68–74; and Chin Li, “Diversified Views in the Discussion of Price Problems under Socialism by Chinese Economists,” ibid. No. 6 (June 17, 1962), pp. 63–69.

50 Chili-yuan, Hou, “On the Causes for Differential Rent in Rural People's Communes in China at the Present Time,” Kuang-ming Daily, 08 6, 1962, p. 4Google Scholar; Tao, Wang and Lien, Shu, “An Inquiry into the Causes for Differential Rent under Socialism,” Economic Research, No. 2 (02 17, 1962), pp. 35–47Google Scholar; Chou Cheng, “On Agricultural Cost,” ibid. No. 4 (April 15, 1964), pp. 15–24; and Kung Min and Chia Ke-cheng.

51 Tse-chung, Li, “An Analysis of Differential Net Income from Land in Socialist Agriculture,” Hsin Chien-she (New Construction), No. 2 (02 20, 1963), pp. 31–44Google Scholar; and Chung Chieh.

52 “The Discussion of Problems of Differential Rent under Socialism at the Institute of Economic Research of Amoy University,” Economic Research, No. 7 (07 17, 1962), pp. 67–69Google Scholar; “Problems Concerning Exchange on the Basis of the Parity of Value and Agricultural Price Formation—Viewpoints Discussed by Chinese Economists in Recent Years,” Ta Kung Pao, April 10, 1964, and Chung Chieh.

53 Kuang-chieh, Liu, “Several Problems Concerning the Distribution of Differential Land Income in Rural People's Communes in China at the Present Time,” Wu-han ta-hsueh pao (Wuhan University Journal), No. 2, 1962Google Scholar.

54 “Problems of Determining the Social Value of Agricultural Products under Chinese Socialism,” Chiang-han hsueh-pao (Chiang-han Journal), No. 6, 1962Google Scholar; major points of this article summarised in Chung Chieh. Advocates point out that all land sown to industrial crops is average or superior.

55 For the work-points method and the work-day system of payment, see Hoffmann, Charles, “Work Incentives in Communist China,” Industrial Relations, III, No. 2 (02 1964), pp. 81–97Google Scholar; for assessment of work points, see Hsia, T. A., The Commune in Retreat. As Evidenced in Terminology and Semantics, Studies of Chinese Communist Terminology No. 11 (Berkeley: Center for Chinese Studies, University of California, 1964)Google Scholar.

56 Yuan-ching, Han and Hua-cheng, Chien, “Problems of Individual Cost and Average Cost of Agricultural Products in the Rural People's Communes,” Kuang-ming Daily, 04 23, 1962Google Scholar.

57 Yuan, Tso, “Several Problems Concerning the Method of Measuring Agricultural Cost,” Kuang-ming Daily, 06 11, 1962Google Scholar; Chou Cheng, “On Checking and Computation of Agricultural Cost in a System of Collective Ownership,” ibid. February 11, 1963; and Chu Chia-chen, “Methods of Measuring Agricultural Cost,” ibid. February 24, 1964.

58 Chou Cheng, Economic Research; and Tso Yuan.

59 Ibid.

60 Han Yuan-ching and Chien Hua-cheng; and Chu Chia-chen.

61 Han Yuan-ching and Chien Hua-cheng; Chu Chia-chen; and Chou Cheng, Economic Research.

62 During 1950–56 the state took 7 per cent, of peasants’ net income in taxes and 5 per cent, through price differentials. (See editorial in Jen-min Jih-pao (People's Daily), April 1, 1957.)

63 “Problems Concerning Exchange …,” Ta Kung Pao, April 10, 1964; Ching Li; and Yun, Chuan, “A Summary of the Discussion Held by the Economic Research Institute and the Department of Economics at Nankai University,” Economic Research, No. 1 (01 17, 1963), pp. 66–69Google Scholar.

64 Chien-chang, Ho, “Comments o n ‘Several Theoretical Problems Concerning the Exchange of Industrial and Agricultural Products on the Basis of the Parity of Value,’” Chung-kuo ching-chi wen-ti (Economic Problems of China), No. 7, 1961Google Scholar. Economic Problems of China is one of the two most authoritative economic journals in China today, unfortunately it is no t available outside. Ho’s article was summarised by Hsueh-mu, Tsiang in New Construction, No. 2, 1962Google Scholar, and in Ta Kung Pao, April 10, 1964.

65 Ching Li.

66 Ibid.; Ta-fan, Tsou, “Problems of Agricultural Price Formation in a System of Collective Ownership,” New Construction, No. 4 (04 20, 1963), pp. 31–40Google Scholar.

67 Shanghai Academy of Social Sciences, Economic Research Institute, “A Summary of Major Problems Discussed at the 1961 Annual Meetings of the Shanghai Economic Association,” Economic Research, No. 3 (03 17, 1962), pp. 52–61Google Scholar; and Fang Ch'ing, “On the Problems of How Economic Research Work May Serve Agriculture,” ibid. No. 5 (May 17, 1963), pp. 6–16.

68 Although proponents of price differentials agree that agricultural prices should be sufficient to cover the cost of production, they disagree about the extent to which the surplus product should be included in prices.

69 Ken-mo, Lo, “Several Theoretical Problems Concerning the Exchange of Industrial and Agricultural Products on the Basis of the Parity of Value,” Ta Kung Pao, 06 5, 1961Google Scholar; and Hsueh-mu, Tsiang, “On the Exchange of Industrial and Agricultural Products on the Basis of the Parity of Value,” New Construction, No. 2 (02 20, 1962), pp. 1–10Google Scholar.

70 Ibid.; Li-kuang, Chao, “Problems of Relative Prices between Industrial and Agricultural Products,” Kuang-ming Daily, 03 30, 1964Google Scholar.

71 Ibid.

72 Ibid.

73 Prior to 1961, Soviet writings on price formation were frequently translated or summarised and Soviet sources frequently cited. Since then no translations or summary of the Soviet discussion have appeared and to the best of my knowledge no reference to Soviet literature, apart from the works of Lenin and Stalin, has been made.

74 Prof. Grossman is preparing a paper on the Soviet discussion of price reform, in which he classifies the Soviet discussants into the voluntarists, the legalists and the imputationists. I am grateful to Prof. Grossman for sharing with me his knowledge of the Soviet discussion and permitting me to use the classification before the publication of his paper.

75 Campbell, Robert W., “Marx, Kantorovich, and Norozhilov: Stoimost versus Reality,” Slavic Review, 10 1961, pp. 402–418Google Scholar.

76 Chia-pei, Wu, “The Use of Mathematical Methods in Economic Research and Planning Work,” Economic Research, No. 2 (02 17, 1964), pp. 62–73Google Scholar.

77 “Speech by Li Hsien-nien, Vice Premier,” Documents of the Eighth National Congress of the Chinese Communist Party (Peking: People's Press, 1957) pp 386–396Google Scholar.

78 For a discussion of Chinese prices, see Perkins, Dwight H., “Price Stability and Development in Mainland China (1951–1963),” Journal of Political Economy, LXXII, No. 4, 08 1964, pp. 360–375CrossRefGoogle Scholar.

79 Mu-ch'iao, Hsieh, Red Flag, Nos. 7–8 (04 16, 1963), pp. 1–9Google Scholar.

80 There is no evidence of planners shifting from physical planning toward value planning which has received little attention.

81 In addition to resource allocation, prices are used for controlling and evaluating enterprise management in both physical and value terms, such as the gross value of output, cost, use of working capital and profits. Secondly, prices are used for distributing income. The state obtains revenue through prices, and in the case of agricultural products the state also affects the distribution of income between urban and rural areas.

82 Except enterprises under central ministries, such as state farms and ranches.

83 Reportedly, the general prices went higher during 1959–1961 when China suffered economic difficulties but have returned to the pre-1959 level since 1962. See Lin, Yu, “Price Stability and Our Monetary System,” Economic Research, No. 5 (05 20, 1965), pp. 15–19Google Scholar; and Chang Yi-fei, “Several Problems Concerning Prices under Socialism,” ibid.. No. 7 (July 20, 1965), pp. 27–36.