From the Mid-1950s to the Mid-1960s
It was only after Stalin’s death that changes became possible. It was now understood that if there was to be economic development, new approaches in economics were needed. 1957 saw the first experiments in the calculation of input-output tables and in that year Kantorovich was able to publish his article on an optimization model for the planning of the national economy (Kantorovich 1957).
In 1958, Nemchinov organized the Laboratory of Mathematical Methods in Economics in the Academy of Sciences of the USSR and became its Director. The Laboratory was the centre of input-output studies and in 1958-59 it produced several regional input-output balances. On the basis of this work, the Central Statistical Administration began preparing an input-output balance of the national economy.There were several crucial developments during the years 1959 and 1960. In 1959, Kantorovich was able to publish his main book Ekonomicheskii raschet nailuchshego ispol’zonvaniia resursov (English translation Optimal Use of Economic Resources published in 1965). Nemchinov edited the first volume of Primenenie mathematiki v eko- nomicheskikh issledovaniniakh (English translation The Application of Mathematics in EconomicResearch published on 1964). In this collection, Kantorovich’s work of 1939 was republished and Novozhilov’s major article “Evaluation of costs and results in a socialist economy” was included. In April 1960, an All-Union Conference on the Application of Mathematical Methods in Economics was organized by Nemchinov and the materials of the conference were published in six volumes. This conference laid the organizational foundations and completed the official recognition of a new branch of Soviet economic science: the so-called “mathematical revolution” in Soviet economic science was launched. In 1963 the Central Institute of Mathematical Economics (TsEMI) of the Academy of Sciences was created, and in 1965 a new journal, Ekonomika i matematicheskie metody, was published.
At the core of this “revolution” was the concept of optimal planning, developed (albeit conceived somewhat differently) by Kantorovich (1959 [1965]) and Novozhilov (1967 [1970]). Kantorovich aptly renamed resolving multipliers as “objectively determined valuations” (ODV). Kantorovich’s ODV and Novozhilov’s “differential costs” were connected as a result of the calculation of an optimal plan to every scarce resource and basically coincided with the optimal solution of the dual problem. Their idea was that they should play a major role in the transformation of planning and pricing. The main features of optimal planning were summarized by Kantorovich as follows: it will consist in the simultaneous drawing up of the outlines of a plan and of economic indicators (ODV); it will be calculated for implementation at various levels; it will proceed by consecutive stages, by gradual implementation and by coordination of short-term with long-term planning; it will furnish planning solutions of a flexible rather than a final character. These should be adjusted in the process of plan fulfilment and be supported by economic accounting and a system of incentives (Kantorovich 1959 [1965]: 146-7). After explaining the mechanism of planning and the process of gradual increase in the accuracy of the ODV, Kantorovich emphasizes that whilst his approach is “outwardly reminiscent of the process of competition in the capitalist world”, in reality his scheme is a “competition among plans and methods in the process of planning calculations” (ibid.: 150). Thus, there was no real market and there were no real prices; rather there were valuations used in the process of elaboration of the plan. It seems that at this time Kantorovich was not acquainted with the famous “Socialist Calculation Debate”, but in fact his work had much in common with the arguments used by Lange against von Mises. Later, Kantorovich explicitly expressed his belief that the ODV concept undermined the arguments of Hayek and von Mises as to the ineffectiveness of the socialist economy (Gaetano 1984: 79).
Novozhilov’s concept of indirect centralization, his proposals for the regulation of prices and cost accounting contributed to the elaboration of the economic reform of 1965. On the other hand, his model of the determination of an optimal plan presupposed a fully centralized system.Up to the mid-1960s, mathematical economists made significant contributions to the theory of planning. Input-output studies flourished, and a variety of optimal models were created. Planning processes remained, however, basically unaffected. Even inputoutput models were not wholly integrated into the planning process because of various informational, organizational and institutional impediments (Hardt et al. 1967). The optimization approach made even less of an impact. The 1965 economic reform, which incorporated some of the ideas of the mathematical economists, held out some prospect of improvement. Among the basic ideas of the reform were an increase in enterprise autonomy and a greater role of the market. However, the reform was not based upon a mathematical model of the new economic system or of the planning process. In a sense, the situation was similar to that of the mid-1920s: the planning system did not directly make use of plans based upon mathematical models, but was influenced indirectly through the implementation of procedures elaborated by economists who were familiar with quantitative analysis.