My favourite Mandels

Jim Farmelant farmelantj at
Mon Dec 30 14:43:54 MST 2002

On Mon, 30 Dec 2002 16:01:27 -0500 "Henry C.K. Liu" <hliu at>
> Jurriaan Bendien wrote:
> >William Mandel writes "And the economic record shows
> >that a market economy, for all its ups and downs and
> >unfairness and cruelty, brings a higher living standard to a
> >larger proportion of the people than does Marxist socialism."
> >
> The notion that market capitalism is superior as an economic system
> is
> only a recent invention.

I remember as a child when Nikita Khruschev's boast that
"we will bury you" - by which he meant that he expected
the Soviet Union to eventually outproduce the US - was
taken quite seriously.  Back then the Soviet Union was
enjoying very high rates of economic growth, and apparently
most people were expecting that situation to continue

>And its success in the past decade has been
> propped up by complex geopolitical factors. From the 1930s to the
> 1950s,
> the US in fact adopted many aspects of the Soviet model of planned
> economy.

It should be noted that many of the New Dealers were taking
Italian fascism as a model too.  But then again much of
the appeal of fascism in the 1930s laid in its promise of
offering a model of a planned economy which would retain
private property and capitalist social relations of production.
The Nazi regime in Germany attempted to create a planned
capitalist economy.  And it should be noted that of the capitalist
power, they were by far the most successful in implementing
a Keynesian economic program (centering round state
expenditures on public works and military rearmament).
And that program succeeded in pulling the German
economy out of the Great Depression.

>In 1931, a book about Russian planning, New Russia's Primer
> by
> M Ilin, was one of the more popular monthly choices in the Book of
> the
> Month Club. Stuart Chase, an economist at the Massachusetts
> Institute of
> Technology (MIT), proposed a Peace Industries Board as a successor
> of
> the War Industries Board of 1918 and historian Charles Beard
> suggested a
> National Economic Council to organize industrial syndicates
> regulated
> under the theory of public-utility control and supplemented by
> planning
> agencies for agriculture, public works, foreign trade and the
> rebuilding
> of cities. A committee of the National Progressive Conference in
> 1931
> published a memo on "Long Range Planning for the Stabilization of
> Industry". Schemes for planning by separate autonomous industries
> according to the principles of trade associations or cartel came
> from
> many business sources, from Gerald Swope of GE and even the US
> Chamber
> of Commerce. National planning was the mantra of the day. The
> National
> Bureau of Economic Research put together the figures that came to be
> known today as GNP (gross national product), NNI (net national
> income)
> and other indices. The growth of US higher education was a centrally
> planned affair. The Federal Reserve Bulletin on money credit and
> industrial production was issued for the purpose of planning. The
> profession of economics itself grew up in the US under the aegis of
> planning. Hoover was also a planner. He attempted to save capitalism
> through government planning by abandoning laissez faire and threw
> government credit into the breach to protect the great capital hoard
> from the onslaught of deflation, not unlike what US Federal Reserve
> chairman Alan Greenspan is trying to do to prop up the over-valued
> equity markets today.

Quite so.  He attempted to fight the Depression by having the
Federal government coordinate corporate planning.  Many
of the policies associated with FDR's New Deal had their
origins in Hoover's administration.  Hoover also resorted to
deficit spending to combat the economic slump too.
It is interesting to note that when Roosevelt ran against
Hoover, he did so by running to Hoover's right on fiscal
matters.  FDR ran as a supporter of fiscal orthodoxy and he
bashed Hoover for engaging in deficit spending.  Naturally,
when he got into office, FDR being a sensible man jettisoned
all that orthodox dogma that he had run for office on.
Hoover, when out of office, bashed FDR in the name of
an individualist creed which he had honored more in the
breech when he had been president.

> Hoover, while in the name of laissez faire vetoing government
> measures
> to help the unemployed, was at the same time unleashing government
> to
> interfere with the free play of market forces to protect the centers
> of
> economic power. The net result was history. Not until president
> Franklin
> D Roosevelt adopted Keynesian and many so-called socialist measures
> of
> demand management did the US economy stir, and it remains
> controversial
> today whether a Keynesian program could have succeeded without World
> War
> II. The RFC (Reconstruction Finance Corp) was established at the end
> of
> 1931 to prevent pending bankruptcies by lending government
> guaranteed
> funds raised from tax-free debentures ($1.5 billion) to banks and
> business corporations that were frozen out of the credit market -
> and
> the loans were even kept secret to protect the credit ratings of the
> corporate borrowers. Its original two-year temporary life was
> extended
> to well beyond the end of World War II, until 1950, financing war
> expenditure in the interim. The planned economy did not came under
> attack in the US until well into the final phase of the Cold War,
> with
> the rise of supply-side economics in the late 1970s.
> Warren Nutter made a well-known study in 1962 for the National
> Bureau of
> Economic Research: The Growth of Industrial Production in the Soviet
> Union. It estimated the percentage of planned output achieved by
> important industries at the end of successive five-year plans, in
> "value-added" terms. The first five-year plan (1928-32) achieved 75
> percent of its target, the second (1932-37), 76 percent. The plan
> ending
> in 1950 achieved 94 percent and 1955 achieved 99 percent. The area
> of
> trouble in Soviet planning was in agriculture, not so much in the
> state
> farms but in the collective farms made of small farmers. The knotty
> problem of reward and incentive in collective enterprise has yet to
> be
> solved by human ingenuity. The same was also true in China. When
> China
> abandoned collective farming, the agricultural problem also eased.
> Even
> in the US, free-market principles never touched agriculture, which
> has
> remained a fortress of government subsidy.
> The Agenbeguan report, published on July 9, 1965, in the New
> Statesmen,
> gave a revealing assessment of the Soviet economy as still backward
> in
> industrial production compared with other developed economies, even
> though Russia had come from a lower base. The USSR had as many
> machine
> tools as the US, but some 50 percent of them were in constant
> repair.
> Production was siphoned off to maintenance. The report proposed a
> form
> of just-in-time inventory (in 1965!). And the agricultural problem
> had
> not been solved (and would not be solved by the end of the USSR and
> is
> still not solved today). The report focused also on rising
> unemployment,
> which had been denied in official figures. The report identified the
> defense sector as the cause of these problems. It was a direct
> attack on
> incompetent management disguised as planning.
> This is an important point. The US excels in corporate and strategic
> planning, despite the myth of free enterprise and competition. The
> Soviets erred by neglecting the science of management and suffered
> from
> both excessive centralization and excessive democracy at the
> operational
> level. Workers could not be fired or laid off by mangers and were
> not
> particularly obliged to carry out instructions, on the ground of
> political equality. China was faced with the same problem with its
> copying of the Soviet model, which Chinese planners did not correct
> until after 1978. In management terms, production increased in the
> Chinese economy when management was given more autocratic power, not
> less, despite Western wishful thinking. General Motors was not run
> by
> democracy. There is no democracy in the corporate organizational
> structure or governance, power being vested in the number of shares
> rather than the corporate population. In fact, the American managers
> in
> the GM joint-venture operation in Shanghai repeatedly complained
> openly
> about increasing Chinese political liberalization and its damaging
> effect on productivity. They longed for a return of the good old
> days
> when the Communist Party commissar called all the shots and problems
> could be solved by getting the approval of a few powerful persons
> rather
> than endless levels of power centers. The Central Intelligence
> Agency
> never predicted the collapse of the USSR, especially from structural
> economic shortcomings.

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