A comment on Alec Nove, ‘a note on growth, investment and price indexes’

Abstract

decline rather than the claimed increase. He bases his conclusion upon comparison of budgetary investment estimates with those of investment plans, upon analogy with the machinery production index, and upon evidence provided by two perceptive Soviet economists with regard to investment estimate price escalation and rising real costs per unit of productive capacity. Let us examine each of his points in turn. Nove asserts that the index of investment expenditures reported in current prices in the Minister of Finance's budget message exceeded the original planned growth and was nearly identical to the claimed increase in investment growth, both in unchanged prices. He then concludes that the real volume of investment declined if the investment growth index in unchanged prices exceeded that in current prices. Soviet accounting practice refutes this argument because the valuation of investment, both in the budget document and in the plan and the official investment index are all in the same unit of measurement-estimate prices. This assertion is supported by evidence from Soviet sources which indicate that the centralized portion of investment which is financed by the state budget is disbursed and monitored by Stroibank and Gosbank. These two disbursing institutions use estimate prices in the various official forms used to implement their responsibilities. It is not legitimate to leap from the demonstrated and generally accepted inflation in the official machinery production indexes to a similar propensity in the machinery and equipment portion of official investment indexes because the prices entering into the two indexes are dissimilar. While the production index uses 'comparable' production prices, the investment index uses 'comparable' estimate prices.2 Unlike production prices, which are based upon an unchanging product sample, estimate prices reflect projected costs of particular investment projects, which combine bundles of machinery and construction. Many of these projects are unique in their composition. Therefore, the investment volume index does not allow for the possibility of using an unchanging, unrepresentative sample, as in the case of the machinery production index. The validity of the investment index must be evaluated in terms of the estimate prices and deflators