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Material balances are a method of
economic planning Economic planning is a resource allocation mechanism based on a computational procedure for solving a constrained maximization problem with an iterative process for obtaining its solution. Planning is a mechanism for the allocation of resources ...
where material supplies are accounted for in natural units (as opposed to using monetary accounting) and used to balance the supply of available inputs with targeted outputs. Material balancing involves taking a survey of the available inputs and
raw material A raw material, also known as a feedstock, unprocessed material, or primary commodity, is a basic material that is used to produce goods, finished goods, energy, or intermediate materials that are feedstock for future finished products. As feeds ...
s in an economy and then using a
balance sheet In financial accounting, a balance sheet (also known as statement of financial position or statement of financial condition) is a summary of the financial balances of an individual or organization, whether it be a sole proprietorship, a business ...
to balance the inputs with output targets specified by industry to achieve a balance between
supply and demand In microeconomics, supply and demand is an economic model of price determination in a Market (economics), market. It postulates that, Ceteris paribus, holding all else equal, in a perfect competition, competitive market, the unit price for a ...
. This balance is used to formulate a plan for
resource allocation In economics, resource allocation is the assignment of available resources to various uses. In the context of an entire economy, resources can be allocated by various means, such as markets, or planning. In project management, resource allocatio ...
and investment in a national economy. The method of material balances is contrasted with the method of input-output planning developed by
Wassily Leontief Wassily Wassilyevich Leontief (russian: Васи́лий Васи́льевич Лео́нтьев; August 5, 1905 – February 5, 1999), was a Soviet-American economist known for his research on input–output analysis and how changes in one ec ...
.


Role in Soviet-type planning

Material balance planning was the principal tool of planning employed by Soviet-type planned economies and was
Gosplan The State Planning Committee, commonly known as Gosplan ( rus, Госплан, , ɡosˈpɫan), was the agency responsible for central economic planning in the Soviet Union. Established in 1921 and remaining in existence until the dissolution of ...
's major function in the
Soviet Union The Soviet Union,. officially the Union of Soviet Socialist Republics. (USSR),. was a transcontinental country that spanned much of Eurasia from 1922 to 1991. A flagship communist state, it was nominally a federal union of fifteen nationa ...
. This system emerged in a haphazard manner during the collectivisation era. It prioritized rapid growth and industrialization over efficiency. Although material balances became an established part of Soviet planning, it never completely replaced the role of financial calculation in the economy.''Planning with Material Balances in Soviet-Type Economies'', by Montias, J.M. 1959. The American Economic Review. Vol. 49, No. 5 (Dec., 1959), pp. 963-985. In the
economy of the Soviet Union The economy of the Soviet Union was based on state ownership of the means of production, collective farming, and industrial manufacturing. An administrative-command system managed a distinctive form of central planning. The Soviet economy was ...
, Gosplan's major function was the formulation of material balances and national plans for the economy. In 1973, supplies for 70% of all industrial production representing 1,943 of the economy's most important items had their balances worked out by Gosplan.
Gossnab State Supplies of the USSR, known as the Gossnab of USSR (russian: Госснаб СССР) was active from 1948 to 1953, and 1965 to 1991. It was the state committee for material technical supply in the Soviet Union. It was charged with the prim ...
and the various economic ministries were responsible for the determination of the suppliers and recipients of supplies in the Soviet economy.''How the Soviet Union is Governed'', 1979, by Jerry F. Hough. Harvard University Press. 978-0674410305. (P.390) Material balance planning encompassed non-labor inputs (the distribution of consumer goods and allocation of labor was left to market mechanisms). In a material balance sheet, the major sources of supply and demand are drawn up in a table that achieves a rough balance between the two through an iterative process. Successive iterations corrected imbalances with previous iterations - for example, deficits signaled the need for extra output in the successive iteration of the balance. The Soviet economy suffered endemic supply problems stemming from the crudity of the material balance technique, where balances were highly aggregated and thus imprecise. Beginning in the early 1960s, the
USSR The Soviet Union,. officially the Union of Soviet Socialist Republics. (USSR),. was a transcontinental country that spanned much of Eurasia from 1922 to 1991. A flagship communist state, it was nominally a federal union of fifteen nati ...
considered moving away from material balance planning in favor of developing an interlinked computerized system of resource allocation based on the principles of
cybernetics Cybernetics is a wide-ranging field concerned with circular causality, such as feedback, in regulatory and purposive systems. Cybernetics is named after an example of circular causal feedback, that of steering a ship, where the helmsperson ma ...
using the proposed
OGAS OGAS (russian: Общегосударственная автоматизированная система учёта и обработки информации, "ОГАС", "National Automated System for Computation and Information Processing") was ...
plan drawn up by
Victor Glushkov Victor Mikhailovich Glushkov ( rus, Виктор Миха́йлович Глушко́в; August 24, 1923 – January 30, 1982) was a Soviet mathematician, the founding father of information technology in the Soviet Union and one of the foun ...
. This development was seen as the basis for moving toward optimal planning that could form the basis of a more highly developed form of
socialist economy Socialist economics comprises the economic theories, practices and norms of hypothetical and existing socialist economic systems. A socialist economic system is characterized by social ownership and operation of the means of production that may ...
based on informational innovation. This was seen as a logical progression given that the material balances system was geared toward rapid industrialization, which the Soviet Union had already achieved in the preceding decades. But by the early 1970s the idea of transcending the status quo was abandoned by the Soviet leadership.''InterNyet: why the Soviet Union did not build a nationwide computer network'', by Gerovitch, Slava. December 2008. History and Technology. Vol. 24, No. 4 (Dec 2008), pp. 335-350.


See also

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Calculation in kind __NOTOC__ Calculation in kind or calculation in-natura is a way of valuating resources and a system of accounting that uses disaggregated physical magnitudes as opposed to a common unit of calculation. As the basis for a socialist economy, it wa ...
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Economic planning Economic planning is a resource allocation mechanism based on a computational procedure for solving a constrained maximization problem with an iterative process for obtaining its solution. Planning is a mechanism for the allocation of resources ...
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Gosplan The State Planning Committee, commonly known as Gosplan ( rus, Госплан, , ɡosˈpɫan), was the agency responsible for central economic planning in the Soviet Union. Established in 1921 and remaining in existence until the dissolution of ...
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Input-output model In computing, input/output (I/O, or informally io or IO) is the communication between an information processing system, such as a computer, and the outside world, possibly a human or another information processing system. Inputs are the signal ...
* Material Product System *
Planned economy A planned economy is a type of economic system where investment, production and the allocation of capital goods takes place according to economy-wide economic plans and production plans. A planned economy may use centralized, decentralized, ...
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Socialist economics Socialist economics comprises the economic theories, practices and norms of hypothetical and existing socialist economic systems. A socialist economic system is characterized by social ownership and operation of the means of production that may ...
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Soviet-type economic planning Soviet-type economic planning (STP) is the specific model of centralized planning employed by Marxist–Leninist socialist states modeled on the economy of the Soviet Union (USSR). The post-''perestroika'' analysis of the system of the Soviet ...
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Supply-side economics Supply-side economics is a Macroeconomics, macroeconomic theory that postulates economic growth can be most effectively fostered by Tax cuts, lowering taxes, Deregulation, decreasing regulation, and allowing free trade. According to supply-sid ...


References

{{reflist Economic planning Economic systems Economy of the Soviet Union Socialism