SECTIONAL TRANSACTIONS.—F. 419 
mally rapid process of industrialisation. How far does current economic theory have 
application to these problems ? How far do the institutional contrasts of a socialist 
and a capitalist economy invalidate the application of current economic principles 
to the former ? 
Economic theory may be (a) a normative study, or (b) a study of equilibrium 
designed to establish certain absolute relations between economic quantities. The 
core of a normative theory is the balancing of utilities and costs and the consideration 
of an optimum equilibrium (the principle of the equalisation of marginal net returns). 
Such principles seem inapplicable to a socialist economy owing to the inadequate 
nature of the conceptions of cost and utility. There seems no reason to think that 
the demand-valuations and supply-valuations on a free market have any major 
significance from the standpoint of such a problem, and no reason to think that the 
automatic valuations of a free market are likely to approximate any nearer to an 
optimum than the conscious calculations of a planning body. 
The most significant relation dealt with by equilibrium theory is that of the interest- 
rate. The question: Are Tractorstroi, Gigant, Magnitorstroi, &c., ‘economic’ ? 
A common answer is ‘ No, in view of the height of the interest-rate in U.S.S.R. com- 
pared to the cheapness of labour.’ This reply is fallacious, because in a Planned 
Economy the interest-rate is conditioned by planning decisions, not conditioning. 
There seems no reason why the concept of an interest-rate in its customary form should 
exercise a governing influence in the calculations of a Planned Economy (as Henderson 
and Cassel claim). 
Further, there are special reasons why the principle of equi-marginal yield should 
be deliberately violated in the allocation of capital. This is connected with con- 
siderations of obsolescence of equipment and the planning of capital accumulation 
into the future. The analogy with Pareto’s ‘ pursuit-curve.’ The relation of this 
problem to the problem of uncertainty : uncertainty in a Planned Economy tends to 
be altered and considerably narrowed. 
The Monopoly of Foreign Trade in relation to.industrialisation. Its effect on the 
relations between industry and agriculture. The question of the so-called ‘ exploit- 
ation ’ of agriculture, and its connection with the problem of the interest-rate. How 
far is a ‘closed system’ a necessary adjunct of industrialisation ? It seems to be 
necessary if industrialisation requires the aid of inflation or the exploitation of 
agriculture, and such aids may be essential in capitalist economy where the height of 
the prevailing interest-rate precludes industrialisation. This latter question does 
not necessarily arise in a socialist economy ; and a ‘ closed system’ is not essential 
to industrialisation without these aids. The relation of internal and external price- 
levels in U.S.S.R. and its relevance to the problem of ‘ dumping.’ 
The balance-sheet of a Planned Economy. It seems possible that in a Planned 
Economy ‘ economic’ problems may give place to ‘ technical ’ problems and economic 
theory (whether of Marshall or Pareto) have little application. 
Mr. J. W. F. Rowe.— Artificial Control of Raw Material Supplies. 
The main object of this paper was to enquire whether artificial or ‘ conscious ’ 
control, as a normal method of economic organisation for the supply of staple raw 
materials, is likely to achieve a better average approximation to the theoretical 
equilibrium of supply and demand than is at present achieved under the ‘ unconscious ’ 
control of laissez-faire. 
The failure of unconscious control in the long period, that is in securing a correct 
adjustment of productive capacity, appears at first sight almost as complete as it is 
lamentable. Fluctuating prices, nevertheless, have certain merits in practice as 
compared with the relative stability of the theoretical equilibrium price ; but a closer 
approximation to theoretical stability would in most cases be desirable. Analysis 
of the existing instability, however, suggests that conscious control cannot remedy 
the root causes. These considerations limit the potential superiority of conscious 
control, which, in addition, has to face difficulties of its own, some of which in practice 
and in the world of to-day seem almost insurmountable. The chances that in the 
long period, conscious control will be superior to the present system at the moment 
appear small. 
In the short period the primary problem on the supply side is that of variations 
in yield from a productive capacity which in practice will probably not be exactly 
EE 2 
