Domar, the West and Russian economics: a historical perspective

Domar, o Ocidente e o pensamento econômico russo: uma perspectiva histórica

MAURO BOIANOVSKY About the author

ABSTRACT

The paper discusses Evsey Domar’s role as a link between economics in the West and in Russia, including his influence on some Brazilian economists. The Russian heritage he brought with him from Harbin (Manchuria) to the US consisted of an interest in socialism and Russian history. He paid close attention to the 1947 Varga controversy in the USSR. Domar’s rediscovery of Feldman’s (1928Feldman, G.A. (1928). K teorii tempov narodnogo dokhoda. Planovoe Khozyaistvo. # 11 : 146-170; # 12: 151-178. ) growth model in 1957 brought it to the attention of Western and Soviet economists alike. Soviet economic development was also discussed in his interpretation of Preobrazhensky’s (1926Preobrazhensky, E. ([1926] 1965). Novaia ekonomika. Moscow. Translated as The New Economics by B. Pearce. Oxford: Clarendon Press.) approach to the interaction between agricultural and industrial sectors. Domar’s 1966 seminal article on producer cooperatives called attention to Tugan-Baranovsky’s 1915 book on the topic. Domar’s interest in history resulted in his 1970 hypothesis about the origins of Russian serfdom and of North and South American slavery. Soviet economists paid some attention to Domar’s growth models, especially those involving depreciation and the time structure of capital goods.

KEYWORDS:
Domar; Russia; West; economic growth; socialism; economic history

RESUMO

O artigo discute o papel de Evsey Domar como elo entre o pensamento econômico no Ocidente e na Rússia, incluindo sua influência sobre alguns economistas brasileiros. A herança russa que ele trouxe de Harbin (Manchúria) para os Estados Unidos consistia em um interesse pelo socialismo e pela história russa. Ele prestou muita atenção à controvérsia de Varga em 1947 na URSS. A redescoberta do modelo de crescimento de Feldman (1928Feldman, G.A. (1928). K teorii tempov narodnogo dokhoda. Planovoe Khozyaistvo. # 11 : 146-170; # 12: 151-178. ) por Domar em 1957 chamou a atenção de economistas ocidentais e soviéticos. O desenvolvimento econômico soviético também foi discutido em sua interpretação da abordagem de Preobrazhensky (1926Preobrazhensky, E. ([1926] 1965). Novaia ekonomika. Moscow. Translated as The New Economics by B. Pearce. Oxford: Clarendon Press.) sobre a interação entre os setores agrícola e industrial. O artigo seminal de Domar de 1966 sobre cooperativas de produtores chamou a atenção para o livro de Tugan-Baranovsky de 1915 sobre o assunto. O interesse de Domar pela história resultou em sua hipótese de 1970 sobre as origens da servidão russa e da escravidão nas Américas do Norte e do Sul. Os economistas soviéticos prestaram alguma atenção aos modelos de crescimento de Domar, especialmente aqueles que envolvem depreciação e a estrutura temporal dos bens de capital.

PALAVRAS-CHAVE:
Domar; Rússia; Ocidente; crescimento econômico; socialismo; história econômica

DOMAR’S RUSSIAN BACKGROUND

Between Keynesian economics and Sovietology

In August 1936 Joshua Domashevitsky arrived at the port of Los Angeles to study economics in the U.S., after crossing the Pacific Ocean on a Japanese vessel that had left from Kobe. The point of departure of his journey was the city of Harbin in Manchuria, where his family had settled in 1916 coming from Lodz (now a Polish city, then Russian), where he was born in 1914 to Sarah and David Domashevitsky - a small-scale businessman (importer) who regarded himself a social democrat Menshevik (Domar 1992Domar, E.D. (1992). How I tried to become an economist. In Eminent economists - their life philosophies, pp. 115-27, ed. by M. Szenberg. Cambridge: Cambridge University Press .; Johnson and Ley 2013Johnson, L.E. and R.D. Ley (2013). Domar, Evsey D. In An Encyclopedia of Keynesian Economics, Second Edition, ed. by T. Cates, pp. 149-153. Cheltenham: Elgar . ). Joshua would change his name to Evsey David Domar upon migrating to America, where he received a B.A. in economics at the University of California at Los Angeles (1939), followed by an M.A. in mathematical statistics from Michigan University (1941) and a Ph.D. in economics from Harvard University in 1947.

By that time, under the influence of Alvin Hansen, his Ph.D. advisor and a leading Keynesian economist, Domar was already well known due to his seminal contributions - together with, but independently from, Roy Harrod (1939Harrod, R. F. (1939). An essay in dynamic theory. Economic Journal. 49: 14-33., 1948) - to the founding of growth economics as a new research field in Keynesian macroeconomics, expressed in the so-called “Harrod-Domar growth model” (Domar [1946] 1957Domar, E.D. ([1946] 1957). Capital expansion, rate of growth, and employment. Econometrica. 14: 137-47. As reproduced in Domar (1957a), pp. 70-82., [1947] 1957Domar, E.D. ([1947] 1957). Expansion and employment. American Economic Review. 37: 34-55. As reproduced in Domar (1957a), pp. 83-108.; see Boianovsky 2017Boianovsky, M. (2017). Modeling economic growth: Domar on moving equilibrium. History of Political Economy. 49: 405-36., 2021aBoianovsky, M. (2021a). Domar, expectations, and growth stabilization. Cambridge Journal of Economics. 45: 723-50.). Domar became an American citizen in 1942; he lived in that country until his ultimate death in Massachusetts in 1997. Domar’s main appointments throughout his professional lifetime were held at the departments of economics of Johns Hopkins University from 1948-58 and of the Massachusetts Institute of Technology (MIT) from 1958 until retirement in 1984, with shorter periods at the Federal Reserve System (1943-46), the department of economics and the Cowles Commission at the University of Chicago (1947-48), and as Visiting Professor at Brandeis University (1986-1990).

Evsey Domar was among interwar period émigrés who “took readily to the American scene” and made key contributions to the creation of a “single international ‘mainstream’ economics” increasingly dominated by American economic research (see Craver and Leijonhufvud 1987Craver, E. and A. Leijonhufvud. (1987). Economics in America: the continental influence. History of Political Economy. 19: 172-182.: 175). Indeed, Domar was one of the protagonists of the Keynesian avalanche that took the economic profession by the storm in the U.S. and other countries from 1930s-50s (Domar 1996Domar, E.D. (1996). Evsey Domar (Domashevitsky) (b. 1914). Interview. In Colander and Landreth, pp. 179-191.; Colander and Landreth 1996Colander, D. C. and H. Landreth. (1996). The coming of Keynesianism to America. Cheltenham: Elgar.). Most of his essays on Keynesian growth economics - including one drafted in 1944 on the dynamics of public debt - were collected in Domar (1957).

Nevertheless, that does not mean that Domar did not address Russian or Soviet topics, especially after the early 1950s. In fact, from 1949-51 he served as Director of Russian Studies, Operations Research Office, at Johns Hopkins University (1949-51), and from 1951-55 lectured as Visiting Professor at the Russian Institute of Columbia University. As put by Domar (1950bDomar, E.D. (1950b). Review of The development of the Soviet economic system by A. Baykov, and of Soviet economic development since 1917 by M. Dobb. Journal of Economic History. 10: 73-75.: 75), “the study of the Soviet Union is a most fascinating task, because it challenges our established set of ideas and gives rise to new ones.” In 1956 Robert Solow invited Domar to come to MIT as Visiting Professor.

We would love to have you teach a graduate course in Russian Economics. It’s something we can’t offer ourselves, and I think there would be a lively interest. It could fit in our Economic Development sequence, or almost anywhere else, depending on what you decide to cover (Solow 1956Solow, R.M. (1956). Letter to Evsey Domar. 21 March. Robert Solow Papers, Box 53. David M. Rubenstein Rare Book and Manuscript Library, Duke University.).

That was also the year Solow published his neoclassical growth model, which would soon dominate growth economics, a topic he and Paul Samuelson taught MIT graduate students at the time. Domar accepted the invitation and eventually took up a permanent position at MIT. He kept his interest in growth and development economics (which he lectured at MIT at undergraduate level in the 1960s), but it was above all Russian and Soviet economic performances and history that attracted his attention. The shift in Domar’s research agenda is clearly displayed in his second and last collection of essays, which featured papers on comparative economic systems, socialism and Russian 19th century history, written from 1960s-80s (Domar 1989Domar, E.D. (1989). Capitalism, socialism, and serfdom. Cambridge: Cambridge University Press.).

The Cold War context goes a long way explaining the Western demand for economic expertise about the Soviet Union in the post-war period (or even during World War II), which became known as Sovietology (see e.g. Engerman 2010Engerman, D. (2010). The price of success: economic Sovietology, development, and the costs of interdisciplinarity. History of Political Economy. 42 (annual supplement): 235-260. ; apart from economists, Sovietology engaged several political scientists). Many economists involved were Russian (or Ukrainian) émigrés, including Alexander Gerschenkron (1904-78), Gregory Grossman (1921-2014) and Alexander Erlich (1913-85). Of course, a number of important Sovietologists were not émigrés (e.g. Abram Bergson), and some prominent émigrés did not produce much about the Soviet Union or Russia throughout their careers (e.g. Jacob Marschak, Simon Kuznets and Wassily Leontief). Gregory Grossman (born in Kiev) spent part of his youth in Manchuria, like Domar, before emigrating to the U.S. in 1937.

Harvard economic historian Gerschenkron was particularly influential as a leading Sovietologist and economic historian of Russia, partly through the Russian Research Centre at Harvard University, which funded the research that resulted in Domar’s (1950aDomar, E.D. (1950a). The Varga controversy. American Economic Review. 40: 132-151.) article on the sometime leading Stalinist Hungarian-Soviet economist Eugen (Jenö) Varga. Domar was a member of that network, even if he did not regard himself a Sovietologist (Domar 1989Domar, E.D. (1989). Capitalism, socialism, and serfdom. Cambridge: Cambridge University Press.: xi). Indeed, it was G. Grossman (then Gerschenkron’s student) who first called Domar’s attention in the early 1950s to Soviet engineer and economist Gregorii A. Feldman’s (1884-1958) mathematical growth model of 1928, based on Marx’s reproduction schemes and intended as a theoretical foundation for the long-range planning of the Soviet economy (Domar 1952Domar, E.D. (1952). Economic growth: an econometric approach. American Economic Review. 42: 479-95.: 480, n. 3; 1957bDomar, E.D. (1957b). A Soviet model of growth. In Domar 1957a: 223-261.: 223, n. 1). Feldman and his model had fallen into oblivion in the USSR and the West after the early 1930s and throughout the Stalinist era, until Domar (1957bDomar, E.D. (1957b). A Soviet model of growth. In Domar 1957a: 223-261.) rediscovered and formally restated it.

Likewise, it was through another member of the Russian studies and Sovietology networks - Steven Rosefielde (then Bergson’s student at Harvard) - that Domar (1966aDomar, E.D. (1966a). The Soviet collective farm as a producer cooperative. American Economic Review. 56: 734-757.: 735, n.3) heard about the Ukrainian/Russian economist M. Tugan Baranovsky’s ([1915] 1921Tugan-Baranovsky, M. ([1915] 1921). Sotsialnyia Osnovy Kooperatsii. Berlin: Slowo Verlagsgesellschaft. ) pioneer theoretical and empirical study of producer cooperatives - currently called “Labour-Managed Firms” - a topic Domar (1966aDomar, E.D. (1966a). The Soviet collective farm as a producer cooperative. American Economic Review. 56: 734-757.) discussed in detail in his path-breaking article on Soviet collective farms (kolkhozes). Moreover, Erlich’s (1950Erlich, A. (1950). Preobrazhenski and the economics of Soviet industrialization. Quarterly Journal of Economics. 64: 57-88. ) article about Evgeni Preobrazhensky (1886-1937) and the seminal 1920s Soviet industrialization debates brought out the work of that Russian economist - which Domar (1966bDomar, E.D. (1966b). Preobrazhensky’s New Economics revisited. Soviet Studies. 18: 252-255.) found even more interesting than Feldman’s in some respects - to Domar’s attention.

From Manchuria to the U.S.

The search for Domar’s Russian heritage has focused so far on some formal similarities between Feldman’s (1928Feldman, G.A. (1928). K teorii tempov narodnogo dokhoda. Planovoe Khozyaistvo. # 11 : 146-170; # 12: 151-178. ) and the Harrod-Domar growth models. From the fact that Domar was born in the Russian Empire and lived in a Russian town until 1936, some authors have inferred that the similarities were not a coincidence, but the result of Domar’s familiarity with the Russian 1920s economic literature on growth, supposedly acquired in Manchuria before he emigrated, and elaborated in his 1940s growth models. Hence, Barnett (2008aBarnett, V. (2008a). Soviet Union, economics in. The New Palgrave Dictionary of Economics, 2nd edition, ed. by S. Durlauf and L. Blume. London: Palgrave Macmillan.: 4) has suggested that “Domar’s [1940s] growth theory […] owed an important debt to [its] Russian origins.” According to Easterly (2001Easterly, W. (2001). The elusive quest for growth. Cambridge (Mass.): MIT Press.: 31), “the Soviet experience inspired the Harrod-Domar model.” Similarly, Boettke (1990Boettke, P. (1990). The political economy of Soviet socialism: the formative years, 1918-1928. New York: Springer.: 147) has stated that the formulation of the Harrod-Domar model was “directly influenced by the Soviet [1920s] discussion and later experience.” Screpanti and Zamagni (2005Screpanti, E. and S. Zamagni (2005). An outline of the history of economic thought. New York: Oxford University Press .: 315) went as far as asserting that “Domar was one of the few contemporaries of Feldman who appreciated his work, from which he was inspired to construct his own model” in the 1940s.

Such claims, however, are historically inaccurate and make no sense whatsoever. They disregard the fact that Domar only got to know about Feldman’s model (and the 1920s Soviet industrialization debates in general) around 1952, which led to his 1957b essay with its central point that Feldman (1928Feldman, G.A. (1928). K teorii tempov narodnogo dokhoda. Planovoe Khozyaistvo. # 11 : 146-170; # 12: 151-178. ) differed from Domar’s (1946, 1947) and Harrod’s (1939Harrod, R. F. (1939). An essay in dynamic theory. Economic Journal. 49: 14-33.) models in some key aspects. Domar was a teenager when the industrialization debates took place in Moscow. He did attend for a semester lectures at the Economics Department of Harbin’s State Faculty of Law in 1930-31, when he learned basic statistics, and notions of European history, accounting and law, but no economic theory (Domar 1992Domar, E.D. (1992). How I tried to become an economist. In Eminent economists - their life philosophies, pp. 115-27, ed. by M. Szenberg. Cambridge: Cambridge University Press ., 1996Domar, E.D. (1996). Evsey Domar (Domashevitsky) (b. 1914). Interview. In Colander and Landreth, pp. 179-191.). Domar’s (1946, 1947) and Harrod’s (1939Harrod, R. F. (1939). An essay in dynamic theory. Economic Journal. 49: 14-33.) growth models tackled dynamic issues of capitalist economies from a Keynesian perspective, with no influence of or inspiration from Soviet theoretical debates and planning experiences. Whereas Domar, due to his Russian background, would later become attracted to those 1920s debates in the context of the 1950s/60s development economics, Harrod never showed interest on Feldman and the Soviet literature on growth planning (see Boianovsky 2018Boianovsky, M. (2018). Beyond capital fundamentalism: Harrod, Domar and the history of development economics. Cambridge Journal of Economics. 42: 477-504.).

The Russian heritage that Domar brought with him to America in 1936 should be sought elsewhere, not in some alleged Soviet influences on his 1940s growth models. As Domar (1992Domar, E.D. (1992). How I tried to become an economist. In Eminent economists - their life philosophies, pp. 115-27, ed. by M. Szenberg. Cambridge: Cambridge University Press ., 1996Domar, E.D. (1996). Evsey Domar (Domashevitsky) (b. 1914). Interview. In Colander and Landreth, pp. 179-191.) recollected, during his youth in Manchuria - in the cities of Harbin and Dairen, where he moved to in 1934 to work as an accountant - he became attracted to history as a subject and to socialism as a political-economic system. The “first love of my youth was, and now of my old age is, history” (Domar 1992Domar, E.D. (1992). How I tried to become an economist. In Eminent economists - their life philosophies, pp. 115-27, ed. by M. Szenberg. Cambridge: Cambridge University Press .: 118). Domar’s interest in history, upon reading Russian novelists such as Leo Tolstoy, would take him to economics as a key to understanding society and its history. As for socialism, Domar explained how

To a person of Russian background, socialism has a significance that an American reader may not appreciate. In tsarist Russia, being a socialist made one an automatic opponent of autocracy; it was almost required for maintaining a minimum degree of self-respect […] To my relatives, as to many millions of others, socialism was a secular religion, the great hope for a better world. Harbin was too close to the Soviet Union to escape its influences. After my graduation from high school, I made good use of the socialist collection that our modern library possessed. My interest in socialism never disappeared, but my serious work dates back to the fifties (Domar 1992Domar, E.D. (1992). How I tried to become an economist. In Eminent economists - their life philosophies, pp. 115-27, ed. by M. Szenberg. Cambridge: Cambridge University Press .: 126).

Harbin Central Library was directed by Nikolai Ustrialov, a professor at the Faculty of Law, regarded by Domar (1992Domar, E.D. (1992). How I tried to become an economist. In Eminent economists - their life philosophies, pp. 115-27, ed. by M. Szenberg. Cambridge: Cambridge University Press .: 120) as one of his three “great teachers” (the others were J.A. Schumpeter and J. Viner). Ustrialov (1890-1937) was a leading pioneer of National Bolshevism who, after a period of exile in Harbin, returned to the Soviet Union in 1935. In 1937, during Stalin’s Great Purge, he was sentenced to death. Harbin was founded by Russians in 1898, a couple of years after the Russian government obtained permission from the Chinese to build, across Northern Manchuria, a continuation of the Trans-Siberian Railroad to Vladivostok (Domar 1996Domar, E.D. (1996). Evsey Domar (Domashevitsky) (b. 1914). Interview. In Colander and Landreth, pp. 179-191.: 180). It soon became a boomtown that attracted many immigrants, comparable in its growth to St Petersburg or San Francisco during the Gold Rush. By the time of the 1917 October Revolution, its Russian-speaking population reached around 127,000 people (Karlinsky 1989Karlinsky, S. (1989). Memoirs of Harbin. Slavic Review. 48: 284-290.: 284-85). Around 1920, the Chinese took over the administration of Harbin, but it remained well into the 1940s essentially a Russian town from both cultural and economic perspectives, with a high, cosmopolitan standard of living.

The young Domar and his émigré family found in Harbin in 1916 an “almost totally Russian city, populated mainly by people with roots in the south of European Russia” (Karlinsky 1989Karlinsky, S. (1989). Memoirs of Harbin. Slavic Review. 48: 284-290.: 285). Distinguished Russian, Swiss and Italian architects planned its urban landscape. The Domachevitsky family’s expectations when they fled Lodz were confirmed as Harbin escaped such turbulent events as the October Revolution, the civil war and Stalin’s collectivization. Opera and theatre attracted renowned international artists, which, together with a large number of high-quality Russian schools, periodicals, art galleries and libraries, attested to the “outstanding intellectual level of the multinational Harbin community” (Karlinsky 1989Karlinsky, S. (1989). Memoirs of Harbin. Slavic Review. 48: 284-290.: 286) in which Evsey Domar grew up.

Barnett (2008bBarnett, V. (2008b). Russian émigré economists in the USA. In Economics in Russia - Studies in intellectual history, pp. 107-122, ed. by V. Barnett and J. Zweynert. London: Routledge.) has examined a small group of prominent Russian émigré economists who came to the U.S. (J. Marschak, S. Kuznets and W. Leontief) to argue that their intellectual Russian “baggage” and influences played significant roles in the initial stages of their American careers, but not later. In the case of Domar (who, like Gerschenkron, is not mentioned by Barnett 2008bBarnett, V. (2008b). Russian émigré economists in the USA. In Economics in Russia - Studies in intellectual history, pp. 107-122, ed. by V. Barnett and J. Zweynert. London: Routledge.), on the other hand, his Russian heritage became increasingly relevant as he progressed through the mature stages of his work as an economist. The themes of the working of the Soviet socialist economy and of the origins and role of serfdom in pre-socialist Russia became dominant in his agenda since the mid 1950s (Domar 1957bDomar, E.D. (1957b). A Soviet model of growth. In Domar 1957a: 223-261., 1966aDomar, E.D. (1966a). The Soviet collective farm as a producer cooperative. American Economic Review. 56: 734-757., 1970Domar, E.D. (1970). The causes of slavery or serfdom: a hypothesis. Journal of Economic History. 30: 18-32.; 1974Domar, E.D. (1974). On the optimal compensation of a socialist manager. Quarterly Journal of Economics. 88: 1-18.; Domar and Machina 1984Domar, E.D. and M.J. Machina. (1984). On the profitability of Russian serfdom. Journal of Economic History. 44: 919-955.). As one of the representatives of the new generation of economic model builders in the 1940s (see Boianovsky 2017Boianovsky, M. (2017). Modeling economic growth: Domar on moving equilibrium. History of Political Economy. 49: 405-36.), Domar would produce some of his most mathematically sophisticated models as part of his treatment of economic growth and efficient allocation under socialism (Domar 1957bDomar, E.D. (1957b). A Soviet model of growth. In Domar 1957a: 223-261., 1966aDomar, E.D. (1966a). The Soviet collective farm as a producer cooperative. American Economic Review. 56: 734-757., 1974Domar, E.D. (1974). On the optimal compensation of a socialist manager. Quarterly Journal of Economics. 88: 1-18.).

Domar would return to the Soviet Union for the first time, for an academic visit, in October-November 1959, when he met a group of economists at the Academy of Sciences in Moscow, among other appointments and travels to some other main Soviet cities. His travel impressions were recorded in a lecture delivered at Amherst University (Mass.) shortly after. “For one time”, he reported, “I talked to a man who did not throw Marxism at me” (Domar 1959aDomar, E.D. (1959a). Lecture by Evsey Domar on the Soviet Union, 11 November 1959. University of Massachusetts at Amherst. https://credo.library.umass.edu/view/full/mums741-b085-i004
https://credo.library.umass.edu/view/ful...
).

He noticed some positive signs of change, as compared to the poverty of Soviet economics in the Stalinist era (Stalin had died in 1953). “It’s only now that Soviet economists have become interested on linear programming and input-output matters, invented in the USSR.” Domar probably had in mind recent works by L. Kantorovich and V. Novozhilov, among other prominent Soviet mathematical economists. Leontief (1960Leontief, W. (1960). The decline and rise of Soviet economic science. Foreign Affairs. 38: 261-272.), who visited the USSR earlier that same year, shared that opinion (see Campbell 1961Campbell, R.W. (1961). Marx, Kantorovich, and Novozhilov: Stoimost’ versus reality. Slavic Review. 20: 402-418. for a contemporary assessment, and Wagener 1998Wagener, H.-J. (1998). Between conformity and reform: economics under state socialism and its transformation. In Economic thought in communist and post-communist Europe, ed. by H.-J. Wagener. London: Routledge . on the general poverty of Soviet socialist economics). A few years later, Domar attended a conference on Mathematical Techniques and Soviet Planning, held at the University of Rochester in May 1965, which gathered a select group of American - but not Soviet - economists (see Hardt 1965Hardt, J.P. (1965) Rochester Meeting on Mathematical Techniques and Soviet Planning. Association for the Study of Soviet-Type Economies Bulletin. 7: 14-17.).

Domar played a significant role as a link between Russian (or Soviet) and West economics. Those were especially the cases of Domar’s (1957bDomar, E.D. (1957b). A Soviet model of growth. In Domar 1957a: 223-261.) restatement of Feldman’s (1928Feldman, G.A. (1928). K teorii tempov narodnogo dokhoda. Planovoe Khozyaistvo. # 11 : 146-170; # 12: 151-178. ) two-sector growth model with non-shiftable capital, and of his 1970 well-known thesis that the economic basis for the introduction of coerced labour - serfdom or slavery - was a low land-to-labour cost. Domar (1970Domar, E.D. (1970). The causes of slavery or serfdom: a hypothesis. Journal of Economic History. 30: 18-32.) formally elaborated a hypothesis advanced by Russian historian Vasily Kliuchevsky (1841-1911) in his classic [1906] 1937 account of Russian serfdom in the 16th and 17th centuries. Domar was also instrumental in bringing to the attention of Western economists the “Varga controversy” of 1947-49 as an illustration of the overall poverty of Stalinist economics (Domar 1950).

Together with the Feldman essay (Domar 1957Domar, E.D. ([1953] 1957). Depreciation, replacement, and growth. Economic Journal 63: 1-32. As reproduced in Domar (1957a), pp. 154-194.b), Domar’s (1966aDomar, E.D. (1966a). The Soviet collective farm as a producer cooperative. American Economic Review. 56: 734-757.; 1974Domar, E.D. (1974). On the optimal compensation of a socialist manager. Quarterly Journal of Economics. 88: 1-18.) articles on self-management and incentives mechanisms constituted key contributions to the theory of the working of socialist economies (Wagener 1998Wagener, H.-J. (1998). Between conformity and reform: economics under state socialism and its transformation. In Economic thought in communist and post-communist Europe, ed. by H.-J. Wagener. London: Routledge . ). Domar (1966aDomar, E.D. (1966a). The Soviet collective farm as a producer cooperative. American Economic Review. 56: 734-757.) noticed some important similarities between his analysis and Tugan-Baranovsky’s ([1915] 1921Tugan-Baranovsky, M. ([1915] 1921). Sotsialnyia Osnovy Kooperatsii. Berlin: Slowo Verlagsgesellschaft. ) work on cooperatives. The starting-point of Domar’s 1974Domar, E.D. (1974). On the optimal compensation of a socialist manager. Quarterly Journal of Economics. 88: 1-18. article was Premier Alexey Kosygin’s famous announcement on 27 September 1965 of Soviet Economic Reforms, including an emphasis on efficiency and profits by socialist firms. As discussed below, the consumption of Domar’s economic ideas by Soviet economists was generally restricted to aspects of his growth models - particularly Domar’s ([1953] 1957Domar, E.D. ([1953] 1957). Depreciation, replacement, and growth. Economic Journal 63: 1-32. As reproduced in Domar (1957a), pp. 154-194.) analysis of depreciation in growing economies and his 1957b “Soviet model”, which eventually brought Feldman’s model to light in the USSR in the late 1960s after decades of silence.

THE VARGA CONTROVERSY AND UNDERCONSUMPTION

Problems with Marxian economics

Domar’s (1950aDomar, E.D. (1950a). The Varga controversy. American Economic Review. 40: 132-151.) detailed account of the “Varga controversy” was his first foray into Soviet economics, written when he was Director of Russian Studies at Johns Hopkins. Varga - Director of the Moscow Institute of World Economy and World Politics from 1927-47, a prominent Marxian economist and the Soviet Union’s most influential analyst of the capitalist world economy during that period - has been described as the 1930s-40s “Stalin’s economist” (Mommen 2011Mommen, A. (2011). Stalin’s economist - the economic contributions of Jenö Varga. London: Routledge .). Varga’s 1946Varga, E. (1946). Izmeneia e ekonomike kapitalizma v itoge vtoroi mirovoi voiny. Moscow: Gospolitizdat. book on Changes in the economy of capitalism resulting from the Second World War was subjected to public discussion and criticism in May 1947 in Moscow. The book was charged as anti-Marxist and revisionist. That was followed by several critical articles in the Soviet economic journal Voprosy Ekonomiki - founded in 1929 as Problemy Ekonomiki and renamed in 1948 - and on Soviet press, together with discussions in international newspapers and journals.

The controversy turned into a cause celebre, as put by Domar (1950: 132). After some resistance and attempts to defend himself, Varga eventually recanted in 1949 his views of post-war capitalism. Domar’s 1950 AER article became the main contemporary economic source about the Varga affair. Domar (1950aDomar, E.D. (1950a). The Varga controversy. American Economic Review. 40: 132-151.: 133) focused on parts of Varga’s 1946Varga, E. (1946). Izmeneia e ekonomike kapitalizma v itoge vtoroi mirovoi voiny. Moscow: Gospolitizdat. book, on some other writings by Varga and on aspects of the debate that “may be of particular interest to American economists.”

Varga made two main predictions in his 1946 book and in the public debates that followed its publication. He argued that world capitalism would last for at least another decade, when it would be hit by a major overproduction crisis caused by excessive capital accumulation in relation to consumption demand. His second prediction - which partly contradicted the former one - was that the war had brought about significant changes in the ability of capitalist states to engage in economic planning. Both predictions raised criticism from other Soviet economists, who complained about the low theoretical standards, not just of Varga’s book, but of Soviet economics in general (Domar 1950aDomar, E.D. (1950a). The Varga controversy. American Economic Review. 40: 132-151.: 143, 150). However, no analysis was provided during the debates about the causes of that “strange intellectual timidity among a people who in other fields, such as mathematics, have achieved most admirable results” (150). According to Domar, the problem came mostly from the requirements imposed on economic theoretical work in the USSR at the time.

It must conform to a theoretical structure whose creator died in 1883, and to the interpretation of this structure by Lenin, now gone some twenty-five years. Further, no statement may challenge any article or pronouncement by Stalin […] These three sets of restrictions do not result in many [degrees of freedom] left (Domar 1950: 143).

As discussed by Domar (1950aDomar, E.D. (1950a). The Varga controversy. American Economic Review. 40: 132-151.: 136-139), Varga based his thesis that capitalism was moving towards its end on two Marxist laws: the effect of the (relative) impoverishment of the proletariat on underconsumption, and the declining rate of profit. However, Domar contended, Varga did not maintain those “laws” consistently. Domar wrote the definition of the rate of profit as π=P/K, where P and K are total profit and capital stock. P is a fraction γ of national income Y, so that:

π = P / K = γ K / Y

A decline in π would result from either a lower γ, a higher K/Y or both. However, γ was supposed to rise because of the “impoverishment” of workers. Hence, a falling π must depend on a rising K/Y due to marginal diminishing returns (or to increasing organic composition of capital for a Marxist economist). However, due to technical progress, Varga denied the relevance of the law of diminishing returns to capital accumulation. Domar agreed that capital deepening had not been an observed feature of the American economy. But, then, if K/Y is stable, a rising γ should bring about an increasing π, against Varga’s hypothesis. Again, American data indicated that γ had remained stable in the long run - and, consistently with Domar’s accounting identity, so had the rate of profit (Domar 1952Domar, E.D. (1952). Economic growth: an econometric approach. American Economic Review. 42: 479-95.: 492).

The shadow of Tugan-Baranovsky

Varga’s notion of over-accumulation of capital in relation to consumption was close to Paul Sweezy’s (1942Sweezy, P.M. (1942). The Theory of Capitalist Development. New York: Monthly Review. , chapter X) theory of underconsumption as the cause of the upper turning point, as Domar (1950aDomar, E.D. (1950a). The Varga controversy. American Economic Review. 40: 132-151.: 136) noticed. Domar probably had attended Sweezy’s lectures on Marxian economics at Harvard in the early 1940s. He would discuss Sweezy’s Marxian underconsumptionist model in some detail a few years later (Domar [1948] 1957Domar, E.D. ([1948] 1957). The problem of capital accumulation. American Economic Review. 38: 777-94. As reproduced in Domar (1957a), pp. 109-128., section IV).

Sweezy’s (1942Sweezy, P.M. (1942). The Theory of Capitalist Development. New York: Monthly Review. ) model was an attempted demonstration of the flaws of Mikhail Tugan-Baranovsky’s well-known argument - developed in the first chapter of his 1901 Studien, a revised German version of the first Russian edition of 1894 - about the logical impossibility of underconsumption crises. Curiously enough, Domar did not refer to Tugan-Baranovsky (1901Tugan-Baranovsky, M. (1901). Studien zur Theorie und Geschichte der Handelskrisen in England. Jena: Gustav Fischer.), although he was certainly aware of it from Sweezy’s (1942, chapter X) long quotations and critical assessment, and probably from Sweezy’s Harvard classes as well. Nevertheless, one may surmise that Domar ([1948] 1957Domar, E.D. ([1948] 1957). The problem of capital accumulation. American Economic Review. 38: 777-94. As reproduced in Domar (1957a), pp. 109-128.: 109-10) was implicitly addressing Tugan’s point when rejecting Frank Knight’s (1944Knight, F.H. (1944). Diminishing returns from investment. Journal of Political Economy. 52: 26-47.) similar assumption that the possibilities of capital deepening were unlimited and its corollary that profitable capital accumulation was unbounded.

Tugan-Baranovsky (1901Tugan-Baranovsky, M. (1901). Studien zur Theorie und Geschichte der Handelskrisen in England. Jena: Gustav Fischer.) deployed, for the first time after Karl Marx, the expanded reproduction schemes in order to argue that “capitalist production creates its own market” - in the sense that, no matter how low consumption is, the supply of goods cannot exceed demand, provided correct “proportions” are kept among the various sectors of the economy. Hence, crises can only arise from partial overproduction, not from general excess supply (Tugan-Baranovsky [1901] 2002Tugan-Baranovsky, M. ([1901] 2002). The causes of crises in the capitalist economy. Translation by V. Homolka of chapter 1 of Tugan-Baranovsky (1901). In Business Cycle Theory - Selected Texts 1860-1939, vol. II, pp. 1-28, ed. by H. Hagemann. London: Pickering & Chatto. : 26). Domar did not have time for Tugan’s “anarchy of the market”. He probably agreed with his Harvard professor J.A. Schumpeter’s (1954Schumpeter, J.A. (1954). History of Economic Analysis. New York: Oxford University Press .: 1126, n. 9) assessment that the first chapter of Tugan-Baranovsky’s Studien was a “distinctly poor performance.”

However, Domar did share with Tugan-Baranovsky (1865-1919) the rejection of the notion that the purpose of all production is consumption. In a growing economy, investment for further investment is the rule (Domar [1948] 1957Domar, E.D. ([1948] 1957). The problem of capital accumulation. American Economic Review. 38: 777-94. As reproduced in Domar (1957a), pp. 109-128.: 123, 1957bDomar, E.D. (1957b). A Soviet model of growth. In Domar 1957a: 223-261.: 235). Hence, the capital-output ratio - instead of the capital-consumption ratio as in many accelerator models and in Sweezy’s (1942Sweezy, P.M. (1942). The Theory of Capitalist Development. New York: Monthly Review. : 182) formulation - should be the relevant variable. Domar parted company with Tugan (and Knight), however, by assuming that capital deepening was limited and that the “capital coefficient” between output and capital was relatively stable. If that coefficient could be “anything”, there could be no over-accumulation of capital, as in Knight and Tugan, Domar [1948] 1957Domar, E.D. ([1948] 1957). The problem of capital accumulation. American Economic Review. 38: 777-94. As reproduced in Domar (1957a), pp. 109-128.: 111) maintained.

Domar’s ([1948] 1957Domar, E.D. ([1948] 1957). The problem of capital accumulation. American Economic Review. 38: 777-94. As reproduced in Domar (1957a), pp. 109-128.: 122-28) correction and reformulation of Sweezy’s (1942Sweezy, P.M. (1942). The Theory of Capitalist Development. New York: Monthly Review. , appendix to chapter X) model “salvaged” underconsumption theory from Tugan’s previous attack (Howard and King 1992Howard, M.C. and J.E. King. (1992). A History of Marxian Economics, volume II, 1929-1990. Princeton: Princeton University Press.: 121). Domar achieved that by deploying a stable capital-output ratio and applying the general framework of his 1946-47 growth model to show that a rising propensity to save (as assumed by Sweezy) was not necessary to produce excess increase of capacity in relation to the path of aggregate demand, which was Domar’s sense of “underconsumption”. Excess capacity resulted from an actual growth rate below the required equilibrium growth rate given by the output-capital ratio (σ) times the saving ratio (α), as expressed by Domar’s famous formula r = σ α (Boianovsky 2017Boianovsky, M. (2017). Modeling economic growth: Domar on moving equilibrium. History of Political Economy. 49: 405-36., 2021aBoianovsky, M. (2021a). Domar, expectations, and growth stabilization. Cambridge Journal of Economics. 45: 723-50.). Hence, from Domar’s standpoint, underconsumption provided an important link in the history of macroeconomics, despite its often-imprecise formulation (see Boianovsky 2021bBoianovsky, M. (2021b). Domar and underconsumption. Unpublished typescript.).

FELDMAN, PREOBRAZHENSKY AND ALTERNATIVE VIEWS OF DEVELOPMENT

The rediscovery of a pioneer Marxian growth model

Domar ([1946] 1957Domar, E.D. ([1946] 1957). Capital expansion, rate of growth, and employment. Econometrica. 14: 137-47. As reproduced in Domar (1957a), pp. 70-82.: 70, 1950bDomar, E.D. (1950b). Review of The development of the Soviet economic system by A. Baykov, and of Soviet economic development since 1917 by M. Dobb. Journal of Economic History. 10: 73-75.: 74, 1952Domar, E.D. (1952). Economic growth: an econometric approach. American Economic Review. 42: 479-95.: 480) often praised Marx and Marxian economists for their concern with economic growth and the relation between capital accumulation and employment. However, the development of a “substantial theory of economic growth” along Marxian lines had been delayed by the “time and effort” wasted by Marxian economists in “defending their master’s virtue” (Domar 1952Domar, E.D. (1952). Economic growth: an econometric approach. American Economic Review. 42: 479-95.: 480). Domar (1957aDomar, E.D. (1957a). Essays in the theory of economic growth. New York: Oxford University Press.: 12), in the foreword to his 1957 collection, described Marx as a “great sage” but a “poor theorist” and model-builder. That situation would change - at least temporarily - by the appearance of some “highly elaborate and interesting models” in the 1920s Soviet economic literature, especially by Feldman (1928Feldman, G.A. (1928). K teorii tempov narodnogo dokhoda. Planovoe Khozyaistvo. # 11 : 146-170; # 12: 151-178. ). Such multi-sector growth models (based on Marxian reproduction schemes), Domar (1952Domar, E.D. (1952). Economic growth: an econometric approach. American Economic Review. 42: 479-95.: 480, n. 1) pointed out, were “more fully developed than similar attempts made in the West, with the exception of Leontief’s works.”

Before he got to know about Feldman’s 1928Feldman, G.A. (1928). K teorii tempov narodnogo dokhoda. Planovoe Khozyaistvo. # 11 : 146-170; # 12: 151-178. model around 1952, Domar (1950aDomar, E.D. (1950a). The Varga controversy. American Economic Review. 40: 132-151.: 140) had described Marx’s reproduction schemes, with their division of total output into producer goods (Department I) and consumption goods (Department II), as a “logical monstrosity” and a “stone axe”. The main problem, from Domar’s perspective, was the confusion between variable capital (a stock) and the payroll (a flow), and between constant capital (a stock) and gross investment and depreciation (flows). Sweezy (1950Sweezy, P.M. (1950). The Varga controversy: comment. American Economic Review. 40: 405-406.) reacted by pointing out that no stocks are involved in Marx’s schemes; all items are flows. Domar (1950cDomar, E.D. (1950c). Rejoinder. American Economic Review. 40: 406-407. ) accepted Sweezy’s point but insisted that the results obtained from the schemes - such as the equilibrium condition that the demand for consumption goods coming from Department I must equal the demand for capital goods by Department II - may had been significant in 19th century economics but were “hardly so” in the 1950s. Moreover, once the apparatus was applied to the theory of value and profit rate, the stock-flow issue came back, as witnessed by difficulties involving rates of turnover and production periods.

Domar (1950cDomar, E.D. (1950c). Rejoinder. American Economic Review. 40: 406-407. : 407) claimed that problems with the Marxian schemes had prevented their general use. E. Preobrazhensky’s 1931Preobrazhensky, E. (1931). Zakat kapitalizma. Moscow. Translated 1985 as The decline of capitalism. New York: M.E. Sharpe. attempt was an exception, but he got lost in “hopelessly involved numerical examples” as he tried to incorporate into the schemes the corresponding allocation of output by expenditures (investment and consumption) in a growing economy (see also Domar 1957bDomar, E.D. (1957b). A Soviet model of growth. In Domar 1957a: 223-261.: 225, n. 5). Surprisingly, Domar did not mention Tugan-Baranovsky’s (1901Tugan-Baranovsky, M. (1901). Studien zur Theorie und Geschichte der Handelskrisen in England. Jena: Gustav Fischer.) early numerical exercises with the schemes, even though Tugan’s results were not much better. Domar’s low opinion should dispel any notions that he was influenced by the Marxian scheme of expanded reproduction of capital when formulating his own 1946-47 growth models.

Nevertheless, upon carefully studying Feldman’s 1928Feldman, G.A. (1928). K teorii tempov narodnogo dokhoda. Planovoe Khozyaistvo. # 11 : 146-170; # 12: 151-178. Soviet growth model in the mid 1950s, Domar changed his mind about the usefulness of the Marxian schemes. Stock-flow problems persisted in computations of the rate of profit, but that was not a matter of concern for Feldman (1928Feldman, G.A. (1928). K teorii tempov narodnogo dokhoda. Planovoe Khozyaistvo. # 11 : 146-170; # 12: 151-178. ) or Domar (1957bDomar, E.D. (1957b). A Soviet model of growth. In Domar 1957a: 223-261.: 226, n. 5). For the first time, according to Domar, mathematics was applied to the reproduction schemes, which resulted in the first Marxian growth model ever. The Soviet engineer-economist modified the schema so that Department I included all activities that enlarged productive capacity, while Department II encompassed all activities that sustained the level of output, a division not always feasible to implement (Domar 1957bDomar, E.D. (1957b). A Soviet model of growth. In Domar 1957a: 223-261.: 225-27). Moreover, along Marx’s original schema, the existing capital stock could not be shifted from one sector to another, although the division of the investment flow between the two sectors was flexible. Therefore, the proportion of consumption and investment in total output was determined not by the propensity to save, but by the respective capital stocks and capital coefficients in each category. The choice of the current composition of output was dependent on the inherited structure of capital. The key variable determining economic growth was the capacity to produce capital goods in Department I, as determined by the fraction of total investment retained by that sector. If such capacity is low, the potential propensity to save cannot be turned into investment and is wasted.

Domar was attracted to the ability of Feldman’s model to illuminate the planning of capital accumulation as part of the economic development process. Unlike Domar’s (and Harrod’s) growth model, Feldman assumed a perfectly elastic labour supply, and absence of effective demand constraints and business cycles in a planned socialist economy with two sectors. Again, differently from Domar and Harrod, that model was designed for the formulation of development policy. It led naturally, especially through Domar’s (1957bDomar, E.D. (1957b). A Soviet model of growth. In Domar 1957a: 223-261.) reconstruction, to the study of optimal growth paths. Feldman’s (1928Feldman, G.A. (1928). K teorii tempov narodnogo dokhoda. Planovoe Khozyaistvo. # 11 : 146-170; # 12: 151-178. ) formulation was long and often hard to follow. Domar (1957bDomar, E.D. (1957b). A Soviet model of growth. In Domar 1957a: 223-261.) demonstrated rigorously Feldman’s point that an increase of investment in Department I at the expense of investing in Department II will generate a permanently higher level and growth rate of consumption in the long run (= rate of growth of investment), after a gradual increase of the rate of growth of consumption in the transition. Feldman’s model was discussed and mentioned in Russia for the last time by N.A. Kovalevskii (1930Kovalevskii, N.A. (1930). K postroeniiu general’nogo plana. Planovoe Khozyaistvo. # 3: 117-209.), Feldman’s colleague at Gosplan, the Soviet State Planning Commission (Domar 1957bDomar, E.D. (1957b). A Soviet model of growth. In Domar 1957a: 223-261., section V).

Domar’s thorough restatement of Feldman’s two-sector growth model with non-shiftable capital became quite influential, especially at MIT, the main centre of research of growth economics in the 1950s and 1960s. Ronald Findlay (1962Findlay, R. (1962). Capital theory and development planning. Review of Economic Studies. 29: 85-98.: 85), for instance, thanked Domar for his MIT lectures on Soviet economics, which brought Feldman and Preoabrazhensky to Findlay’s attention. Domar (1957bDomar, E.D. (1957b). A Soviet model of growth. In Domar 1957a: 223-261.) would soon be combined with new mathematical techniques - such as the Soviet mathematician Pontryagin’s (1962Pontryagin, L.S. et al (1962). Mathematical theory of optimal processes. Tr. by K. Trirogoff. New York: Interscience.) maximum principle - in the then new literature on optimal growth. That is well illustrated by highly formal articles on optimal growth in multi-sector economies with non-shiftable capital, based on MIT Ph.D. theses, such as Weitzman (1971Weitzman, M. (1971). Shiftable versus non-shiftable capital: a synthesis. Econometrica. 39: 511-529.) and Bose (1968Bose, S. (1968). Optimal growth and investment allocation. Review of Economic Studies. : 465-480. ), with references to Domar (1957bDomar, E.D. (1957b). A Soviet model of growth. In Domar 1957a: 223-261.) and to Feldman’s model. Surely, the Marxian origins of Feldman’s original model all but disappeared in those optimal growth approaches. The Marxian flavour was kept by a distinct group of authors influenced by Domar’s (1957bDomar, E.D. (1957b). A Soviet model of growth. In Domar 1957a: 223-261.) rediscovery, such as Maurice Dobb (1967Dobb, M. (1967). The question of investment priority for heavy industry. Chapter 4 in M. Dobb. Papers on capitalism, development and planning. New York: International.).

It helped to spread the model the fact that the Indian planner P. Mahalanobis (1953Mahalanobis, P.C. (1953). Some observations on the process of growth of national income. Sankhya. 12: 307-312.) had independently developed a brief discrete-time version featuring some similarities with the Domar-Feldman continuous-time version, as Domar (1957bDomar, E.D. (1957b). A Soviet model of growth. In Domar 1957a: 223-261.: 230, n. 16) noticed. References have sometimes been made to a “Domar-Feldman-Mahalanobis model” (e.g. Findlay 1966). The eventual translation of Feldman’s original article (Feldman [1928] 1964Feldman, G.A. ([1928] 1964). On the theory of the rates of growth of the national income. Translation of Feldman 1928. In Foundations of Soviet strategy for economic growth, pp. 174-199 and 3013-331, ed. by N. Spulber. Bloomington (Ind.): Indiana University Press.) made it better known in the West, but that did not diminish interest in Domar’s (1957bDomar, E.D. (1957b). A Soviet model of growth. In Domar 1957a: 223-261.) restatement. Indeed, Nove and Nuti (1972Nove, A. and D. Nuti (eds.). (1972). Socialist economics: selected readings. Baltimore: Penguin.) chose to reproduce Domar (1957bDomar, E.D. (1957b). A Soviet model of growth. In Domar 1957a: 223-261.) in their collection of readings about socialism, instead of Feldman ([1928] 1964Feldman, G.A. ([1928] 1964). On the theory of the rates of growth of the national income. Translation of Feldman 1928. In Foundations of Soviet strategy for economic growth, pp. 174-199 and 3013-331, ed. by N. Spulber. Bloomington (Ind.): Indiana University Press.). Likewise, Jones’ (1975Jones, H.G. (1975). An introduction to modern theories of economic growth. London: Nelson & Sons., chapter 5) careful textbook rendition of Feldman’s growth model was based on Domar (1957bDomar, E.D. (1957b). A Soviet model of growth. In Domar 1957a: 223-261.).

Russian two-sector models and their influence in the U.S. and Brazil

As Engerman (2010Engerman, D. (2010). The price of success: economic Sovietology, development, and the costs of interdisciplinarity. History of Political Economy. 42 (annual supplement): 235-260. ) has pointed out, Domar’s 1957Domar, E.D. ([1953] 1957). Depreciation, replacement, and growth. Economic Journal 63: 1-32. As reproduced in Domar (1957a), pp. 154-194. essay on Feldman, as well as Sovietology in general, should be read in the context of the intense interest in development economics and economic development at the time. Domar (1967Domar, E.D. (1967). Discussion. American Economic Review. 57: 636-641.: 636), as part of a discussion on the occasion of the centenary of Marx’s Capital, praised the reproduction schemes, as modified by Feldman, as a main contribution to development planning of countries beset by limited capacity of the capital goods industry, such as the USSR in the 1920s-30s and developing countries in general. Besides Feldman (1928Feldman, G.A. (1928). K teorii tempov narodnogo dokhoda. Planovoe Khozyaistvo. # 11 : 146-170; # 12: 151-178. ), there was yet another contemporary Soviet development model of Marxian extraction, articulated but not formalized by Preobrazhensky ([1926] 1965Preobrazhensky, E. ([1926] 1965). Novaia ekonomika. Moscow. Translated as The New Economics by B. Pearce. Oxford: Clarendon Press.). It was also a two-sector model, but of a different sort: a socialist industrial sector drawing on the surplus of the peasant-owned agriculture, a situation Preobrazhensky called “primitive socialist accumulation” after Marx’s “primitive capitalist accumulation”. Domar (1967Domar, E.D. (1967). Discussion. American Economic Review. 57: 636-641.: 636) found Preobrazhensky’s 1926 implicit model even “more interesting” than Feldman’s formulation.

Preobrazhensky’s ideas on development had been introduced into Western economics by Erlich (1950Erlich, A. (1950). Preobrazhenski and the economics of Soviet industrialization. Quarterly Journal of Economics. 64: 57-88. ) and - at MIT in particular - by Domar’s classes. The 1965Domar, D.D. (1965). Special features of industrialization in planned economies: a comparison between the Soviet Union and the United States. In Second International Conference of Economic History, pp. 529-560. Paris: Mouton & Co. translation of his 1926 book added to the interest. In an insightful review-essay, Domar (1966bDomar, E.D. (1966b). Preobrazhensky’s New Economics revisited. Soviet Studies. 18: 252-255.: 252) remarked that “for all its virtues”, Feldman’s model had “one basic defect: it was concerned with capital only and completely excluded labour”, as Feldman did not regard labour as a scarce limiting factor. Even under the assumption of unlimited supply of labour - a concept later turned into the backbone of development economics by W.A. Lewis (1954Lewis, A.W. (1954). Economic development with unlimited supplies of labour. Manchester School. 22: 139-191.); see Boianovsky 2019Boianovsky, M. (2019). Arthur Lewis and the classical foundations of development economics. Research in the History of Economic Thought and Methodology. 37A: 103-143. - “workers had to be fed, clothed and housed” (Domar 1966bDomar, E.D. (1966b). Preobrazhensky’s New Economics revisited. Soviet Studies. 18: 252-255.: 253).

Like many other developing countries, modern industry in 1920s Soviet Union was “but an island in a peasant sea”. The inter-relations between the industrial and agricultural sectors comprised a main economic issue that could be tackled in ways analogous to the terms-of-trade problem between a domestic (industry sector) and a foreign (agriculture sector) country (Domar 1966bDomar, E.D. (1966b). Preobrazhensky’s New Economics revisited. Soviet Studies. 18: 252-255.: 255). Every extra ruble obtained from peasants, in exchange for manufactured goods, could be used to feed a larger industrial labour force and speed up capital accumulation. The essence of Preobrazhensky’s problem was, according to Domar (1966bDomar, E.D. (1966b). Preobrazhensky’s New Economics revisited. Soviet Studies. 18: 252-255.: 253), to decide how the Soviet government should deal with the peasants in order to maximize industrial output.

Domar (1957Domar, E.D. ([1953] 1957). Depreciation, replacement, and growth. Economic Journal 63: 1-32. As reproduced in Domar (1957a), pp. 154-194.b: 229, 245) had already observed that “production is independent of consumption” in Feldman (1928Feldman, G.A. (1928). K teorii tempov narodnogo dokhoda. Planovoe Khozyaistvo. # 11 : 146-170; # 12: 151-178. ), who excluded the effect of consumption standards on the “ability and incentive” of people to work and on their “willingness to obey”. Analytically, whereas the Domar-Feldman model was an “open” model - in the sense that consumer goods only play a role as component of final demand - Preobrazhensky’s formulation pointed to a “closed” model - meaning that consumer wage goods are treated as inputs that determine labour supply, as in classical economics. Rigorous “closed” multi-sector models, such as von Neumann’s well-known general equilibrium growth model, do not feature primary production factors. Arthur Lewis (1954Lewis, A.W. (1954). Economic development with unlimited supplies of labour. Manchester School. 22: 139-191.) shared that notion, although only implicitly (see Feldman 1966Feldman, G.A. ([1928] 1964). On the theory of the rates of growth of the national income. Translation of Feldman 1928. In Foundations of Soviet strategy for economic growth, pp. 174-199 and 3013-331, ed. by N. Spulber. Bloomington (Ind.): Indiana University Press.; Boianovsky 2019Boianovsky, M. (2019). Arthur Lewis and the classical foundations of development economics. Research in the History of Economic Thought and Methodology. 37A: 103-143.). Preobrazhensky did not develop a formal model; Domar (1966bDomar, E.D. (1966b). Preobrazhensky’s New Economics revisited. Soviet Studies. 18: 252-255.: 253) indicated how such a model should be built, referring to Findlay (1966).

Models incorporating Feldman’s and/or Preobrazhensky’s assumptions were “popular” among Domar’s MIT graduate students in the 1960s (Domar 1967Domar, E.D. (1967). Discussion. American Economic Review. 57: 636-641.: 636). Dixit (1969) provided a first formalization of the problem of the marketable surplus and growth in dual economies, partly under Preobrazhensky’s inspiration. Domar’s lectures and writings on the 1924-28 Soviet industrialization debates continued to bear fruits later on. Another former MIT student from the 1960s would take up the issue again in the 1980s: in articles with R.K. Sah, Joseph Stiglitz discussed in detail under what conditions Preobrazhensky’s proposition, that the socialist state should increase its surplus and capital accumulation by turning the terms of trade against the peasants, was valid (Sah and Stiglitz 1984Sah, R.K. and J.E. Stiglitz. (1984). The economics of price scissors. American Economic Review. 74: 125-138., 1986Sah, R.K. and J.E. Stiglitz. (1986). The economics of price scissors: reply. American Economic Review. 76: 1155-1199.).

Two-sector growth models were also developed by Brazilian economists, as economic planning became increasingly influential in the country in the 1960s and later. Inspired by Domar’s restatement of Feldman’s model, Delfim Netto (1966Delfim Netto, A. 1966. Planejamento para o desenvolvimento econômico. S. Paulo: Livraria Pioneira and Editora da Universidade de S. Paulo., chapter 3) provided a careful analysis of growth planning, with attention to the inflationary effects of disequilibrium between aggregate supply and demand throughout the growth process. J. Vianna Monteiro’s (1970Monteiro, J.V. 1970. A predecessor of decision models: the Feldman model. Revista Brasileira de Economia. 24: 98-108. ) article, published both in Portuguese and English, referred to Domar’s 1957 reformulation, but was mostly based on the 1964 translation of Feldman’s model, approached as a “decision model” for planning. A few years later, Tacca and Teixeira (1980Tacca, L, Jr. and J.R. Teixeira. (1980). Crescimento econômico, planejamento e a família de modelos Feldman-Domar-Mahalanobis. Revista Brasileira de Pesquisa Operacional. 4: 1-11.) put forward a restatement of the Feldman-Domar-Mahalanobis “family of models”.

COOPERATIVES, TUGAN-BARANOVSKY AND INCENTIVES

Socialism and efficiency

The Soviet policy of fast industrialization through intense capital accumulation and transfer of peasants into industry, suggested by Feldman and Preobrazhensky, could be deduced from Marx. After the end of the stage of “primary socialist accumulation”, however, further economic growth of the USSR depended on the planning of efficient resource allocation. But here, Domar (1967Domar, E.D. (1967). Discussion. American Economic Review. 57: 636-641.: 637) pointed out, “there is practically nothing that the Russians can take from Marx”. He anticipated that Russian economists would continue to “venerate [Marx] in word and disregard him in deed”, a process that had already begun in the mid 1960s as they increasingly managed the Soviet economy by means of prices and profit. Domar was implicitly referring to Premier A. Kosygin’s announcement of the 1965 economic reforms, a process that featured E.G Liberman (1965Liberman, E.G. (1965). Plans, profits, bonuses. Problems in Economics. 8:3-8.) and other Russian economists.

The central issue, according to Domar, was the incentives mechanism to induce managers of socialist quasi-monopolistic companies to achieve efficiency. Inspired by the Soviet reforms, Domar (1974Domar, E.D. (1974). On the optimal compensation of a socialist manager. Quarterly Journal of Economics. 88: 1-18.) would put forward a bonus plan formalized in a detailed mathematical model. He did not mention Liberman or other Russian economists, but instead referred readers to Felker’s (1966Felker, J.L. (1966). Soviet economic controversies. Cambridge (Mass.): MIT Press . ) overview of the economic discussions preceding the reforms. From Domar’s standpoint, the main theoretical reference was Oscar Lange’s (1936-37Lange, O. (1936-1937). On the economic theory of socialism. Review of Economic Studies. 4: 53-71, 123-142.) classic essay on socialist planning. Domar (1949Domar, E.D. (1949). The practice of economic planning and the optimal allocation of resources: discussion. Econometrica. 17: 172-178.) had been long attracted to that topic. He accepted Lange’s result that socialist managers should be instructed to equate marginal costs to prices in order to produce optimal quantities of goods. But “what incentives will society offer to make them behave in this manner? And what method will be used to determine that they so behave?” asked Domar (1949Domar, E.D. (1949). The practice of economic planning and the optimal allocation of resources: discussion. Econometrica. 17: 172-178.: 174). Lange and economic theory in general did not provide an answer to that question. It took Domar (1974Domar, E.D. (1974). On the optimal compensation of a socialist manager. Quarterly Journal of Economics. 88: 1-18.) some time to provide - as provoked by the Soviet reforms - a first full-fledged model showing that the dependence of price-setting managers’ bonuses on a weighted sum of profits and revenue pushes monopolies towards marginal cost pricing through an iterative process (see Persky 1991Persky, J. (1991). Retrospectives - Lange and von Mises, large-scale enterprises, and the economic case for socialism. Journal of Economic Perspectives. 5: 229-236.; Tam 1981Tam, M.-Y. (1980). Reward structures in a planned economy: the problem of incentives and efficient allocation of resources. Quarterly Journal of Economics. 96: 11-128.).

The economics of collective farms

Apart from his 1974 piece, Domar produced yet another microeconomic paper related to allocative efficiency under socialism. Instead of monopolistic behaviour as in 1974, Domar (1966aDomar, E.D. (1966a). The Soviet collective farm as a producer cooperative. American Economic Review. 56: 734-757.) tackled the economics of producer cooperatives in a competitive environment. His mathematical model was supposed to apply, under ideal conditions, to the working of Soviet collective farms, which he had visited in 1959 (Domar 1959). He was inspired by Benjamin Ward’s (1958Ward, B. (1958). The firm in Illirya: market syndicalism. American Economic Review. 48: 566-589.) pioneer essay on theoretical aspects of the Yugoslavian experience with cooperatives (based on Ward’s Ph.D. thesis supervised by G. Grossman). Apart from Ward, Tugan-Baranovsky ([1915] 1921Tugan-Baranovsky, M. ([1915] 1921). Sotsialnyia Osnovy Kooperatsii. Berlin: Slowo Verlagsgesellschaft. ) was the only theoretical work on the topic mentioned by Domar (1966aDomar, E.D. (1966a). The Soviet collective farm as a producer cooperative. American Economic Review. 56: 734-757.). Tugan’s long book on the Social basis of cooperation, although a classic, has never been discussed in any detail in the literature, probably because it is only available in Russian (Rapoport’s 1918Rapoport, S. (1918). The Social Basis of Co-operation. By Prof. M. Tugan-Baranovsky. Published by the University of Shaniavsky. Economic Journal. 28: 423-428. review is informative but not strong on the analytical side).

Domar (1966aDomar, E.D. (1966a). The Soviet collective farm as a producer cooperative. American Economic Review. 56: 734-757.: 735, n. 3) informed that a “very interesting book on cooperatives was published by Tugan-Baranovsky. His conclusions were very similar to mine…” Apparently, Domar had a better opinion of Tugan as an expert on cooperatives than as a macroeconomist (see second section above). Domar’s (1966aDomar, E.D. (1966a). The Soviet collective farm as a producer cooperative. American Economic Review. 56: 734-757.) article - an influential contribution to the economics of property rights in general - effectively launched the new field of “Labour-Managed Firms” (LMF) (see Bonin and Putterman 1987Bonin, J.F. and L. Putterman. (1987). Economics of cooperation and the labour-managed economy. New York: Harwood.; Putterman 2008Putterman, L. (2008). Labour-managed firms. The New Palgrave Dictionary of Economics, 2nd edition, ed. by S. Durlauf and L. Blume. London: Palgrave Macmillan .). Domar followed Ward in assuming that the objective of LMF was to maximize revenue per worker net of other charges. Ward (1958Ward, B. (1958). The firm in Illirya: market syndicalism. American Economic Review. 48: 566-589.) had established the surprising result that, with labour as the only variable input, the LMF would respond to a price increase by reducing optimal employment and output level. Domar (1966aDomar, E.D. (1966a). The Soviet collective farm as a producer cooperative. American Economic Review. 56: 734-757.) generalized Ward’s analysis for any number of inputs and outputs but proved that a perverse reaction by a cooperative to higher prices was unlikely. Domar’s results followed from his investigation of the effects of the incorporation of labour supply in the model, together with the presence of other variables inputs besides labour, and the reallocation of labour among different outputs of the LMF.

However, if Domar’s analysis solved the problem of Ward’s paradoxical conclusions, it reaffirmed the puzzle of why, if cooperatives were democratic efficient arrangements, were they relatively rare. Tugan-Baranovsky ([1915] 1921Tugan-Baranovsky, M. ([1915] 1921). Sotsialnyia Osnovy Kooperatsii. Berlin: Slowo Verlagsgesellschaft. ) had anticipated as much. “Has Tugan-Baranovsky’s pessimistic prognosis (of 1921) been vindicated? Does co-op democracy interfere with efficient management?” asked Domar (1989Domar, E.D. (1989). Capitalism, socialism, and serfdom. Cambridge: Cambridge University Press.: xvi) when his 1966 article was reprinted. According to Tugan-Baranovsky ([1915] 1921Tugan-Baranovsky, M. ([1915] 1921). Sotsialnyia Osnovy Kooperatsii. Berlin: Slowo Verlagsgesellschaft. : 249-50), successful cooperatives have an incentive to substitute non-members hired workers for retiring members, leading to a concentration of profits by a reduced member group, until it collapses to a capitalist firm with just one member (the owner):

The better the business of the producer cooperative, the more numerous becomes the group of hired wage labourers. This process comes to its conclusion when the members of the cooperative […] stop working themselves and become shareholders of the enterprise. Absolutely nothing remains of the producer cooperative - in its place grows a capitalist enterprise (Tugan-Baranovsky [1915] 1921Tugan-Baranovsky, M. ([1915] 1921). Sotsialnyia Osnovy Kooperatsii. Berlin: Slowo Verlagsgesellschaft. : 249; quoted from Ben-Ner 1984Ben-Ner, A. (1984). On the stability of the cooperative type of organization. Journal of Comparative Economics. 8: 247-260.: 249).

Domar brought Tugan’s analysis and forecast to the attention of Ben-Ner (1984Ben-Ner, A. (1984). On the stability of the cooperative type of organization. Journal of Comparative Economics. 8: 247-260.: 249), who formalized the cooperatives instability process. After that, references to Tugan-Baranovsky ([1915] 1921Tugan-Baranovsky, M. ([1915] 1921). Sotsialnyia Osnovy Kooperatsii. Berlin: Slowo Verlagsgesellschaft. ) have become common in the LMF literature, although his book, due to linguistic barriers, has remained largely unread in the West.

SERFDOM, SLAVERY AND FACTOR ENDOWMENTS

Economic history and Russian serfdom

The central institution in the history of pre-socialist Russia was agricultural serfdom. Although serfs were emancipated in 1861, serfdom continued to influence the Russian economy and society until much later. In 1970 Domar put forward a path-breaking model of coerced labour, applicable not just to serfdom but to American slavery as well. “The causes of slavery or serfdom: a hypothesis” became one of Domar’s most influential papers, second only to his 1946-47 pieces on growth economics. That paper represented the culmination of Domar’s passion for history, born during his days in Harbin. Domar (1970Domar, E.D. (1970). The causes of slavery or serfdom: a hypothesis. Journal of Economic History. 30: 18-32.) resulted from reading Kliuchevsky’s ([1906] 1937Kliuchevsky, V. ([1906] 1937). Kurs russkoi storii. Moscow: Gosudarstvennoe sotsialno-ekonomicheskoe izdatelstvo. (Translated in 1960 as A History of Russia, by C. Hogarth. New York: Russel & Russel)) analytical historical account of Russian serfdom. He started working on the ideas for the paper and teaching on the topic shortly after his wife presented him in the 1950s with the 5 volumes of Kliuchevsky’s Course of Russian History. Domar (1970Domar, E.D. (1970). The causes of slavery or serfdom: a hypothesis. Journal of Economic History. 30: 18-32.) brought Kliuchevsky - whom he regarded as “the greatest Russian historian” - to the attention of economic historians worldwide (Domar 1992Domar, E.D. (1992). How I tried to become an economist. In Eminent economists - their life philosophies, pp. 115-27, ed. by M. Szenberg. Cambridge: Cambridge University Press .: 125).

As brilliant and suggestive as Kliuchevsky’s description of serfdom was, the Russian historian (“being a historian and not an economist”, as put by Domar 1992Domar, E.D. (1992). How I tried to become an economist. In Eminent economists - their life philosophies, pp. 115-27, ed. by M. Szenberg. Cambridge: Cambridge University Press .: 125) did not elaborate a model to explain its causes, which Domar (1970Domar, E.D. (1970). The causes of slavery or serfdom: a hypothesis. Journal of Economic History. 30: 18-32.) set out to do. From a broad perspective, Domar’s 1970Domar, E.D. (1970). The causes of slavery or serfdom: a hypothesis. Journal of Economic History. 30: 18-32. paper shared with his 1966a and 1974 analytical pieces on socialism a concern with general aspects of property rights. Summing up Kliuchevsky’s account, Domar (1970Domar, E.D. (1970). The causes of slavery or serfdom: a hypothesis. Journal of Economic History. 30: 18-32.: 18-19) noted that after mid 16th century, “as the central areas of the [Russian] state became depopulated because of peasant migration into the newly conquered areas in the east and southwest […] under the pressure of the serving class […] the government gradually restricted the freedom of the peasants […] to move […] [until] they became enserfed by the middle of the 17th century.”

That was the starting point of Domar’s well-known hypothesis that both serfdom and slavery alike are caused by an abundance of land relatively to labour. The scarce factor of production in Russia (or in the American South) was not land but labour. If non-working landowners were to obtain a rent, it had to come from the ownership of a scarce factor, that is, labour, with its relatively high marginal productivity. Hence, the assumption was that the net return of enslaving a fraction of the population rises with the land-to-labour ratio. As put by Domar (1970Domar, E.D. (1970). The causes of slavery or serfdom: a hypothesis. Journal of Economic History. 30: 18-32.: 21), one could not have simultaneously free land, free peasants and an aristocracy of landowners - only two elements, but never all three, could be found together in reality. Domar’s (1970Domar, E.D. (1970). The causes of slavery or serfdom: a hypothesis. Journal of Economic History. 30: 18-32.: 23) model predicted that, as population increases and the economy turns Malthusian, labour becomes abundant with a falling marginal product toward subsistence level, which brings about the end of coerced labour. Interestingly enough, both Domar (1970Domar, E.D. (1970). The causes of slavery or serfdom: a hypothesis. Journal of Economic History. 30: 18-32.) and Lewis (1954Lewis, A.W. (1954). Economic development with unlimited supplies of labour. Manchester School. 22: 139-191.) were concerned with the implications of factor endowments for underdeveloped economies. However, they focused on symmetric cases: labour scarcity and land abundance by Domar, and labour surplus and land scarcity by Lewis (see Engerman and Sokoloff 2012Engerman, S. and K. Sokoloff. (2002). Economic development in the Americas since 1500: endowments and institutions. Cambridge: Cambridge University Press .: 50).

Domar’s Brazilian students

Domar’s (1970Domar, E.D. (1970). The causes of slavery or serfdom: a hypothesis. Journal of Economic History. 30: 18-32.) verbal model about the origins of serfdom has been formalized (e.g. Conning 2004Conning, J. (2004). On the causes of slavery or serfdom and the road to agrarian capitalism: Domar’s hypothesis revisited. Unpublished typescript, Hunter College.; Acemoglu and Wolitzky 2011Acemoglu, D. and A. Wolitzky. (2011). The economics of labour coercion. Econometrica. 79: 555-600.). Moreover, it was an important element of Domar’s course on Russian economic history at MIT over the years - see Temin 2014Temin, P. (2014). The rise and fall of economic history at MIT. Mit and the transformation of American economics, pp. 337-350, edited by E.R. Weintraub. History of Political Economy. Annual supplement to volume 46., who was Domar’s graduate student in the mid 1960s and colleague from 1970s-80s at MIT.

Domar’s graduate students in the 1970s (some of them from neighbour Harvard) included a number of Brazilian researchers who wrote papers and Ph.D. theses about Brazil’s long, deep experience with slavery - the most important one globally, together with the U.S. South - partly based on Domar’s (1970Domar, E.D. (1970). The causes of slavery or serfdom: a hypothesis. Journal of Economic History. 30: 18-32.) theoretical framework (see Reis 1974Reis, E. (1974) The political economy of abolition of slavery in Brazil. Term paper, Harvard University.; Camargo 1977Camargo, J.M. (1977). The role of labor in the transition to capitalism: the case of the coffee plantations in São Paulo, Brazil (1880-1925). Ph.D. Thesis, MIT.; Lago 1978Lago, L.A.C. (1978) The transition from slave to free labour in agriculture in the Southern and coffee regions of Brazil: a global and theoretical approach and regional case studies. Ph.D. thesis, Harvard University.; and Martins 1983Martins, R.B. 1982. Growing in silence: the slave economy of nineteenth-century Minas Gerais, Brazil [dissertation summary]. Journal of Economic History. 42: 222-23., who wrote his thesis under Samuel Morley’s supervision at Vanderbilt University under the influence of Domar; see also Versiani 1994Versiani, F. 1994. Brazilian slavery: toward an economic analysis. Revista Brasileira de Economia. 48: 463-77. and references cited therein). Of course, Domar’s model has been extensively deployed in the study of American slavery, even if critically at times (e.g. Fogel and Engerman 1974Fogel, R. and S. Engerman (1974). Time on the cross. Boston: Brown Little. ).

In December 1982 Domar was a keynote speaker at the meetings of the Sociedade Brasileira de Econometria (Brazilian Econometric Society) in the state of São Paulo, Brazil, invited by Mauricio Barata Pinto and Joanilio Teixeira. He delivered on that occasion a first version of his 1984 article with Machina on the profitability of Russian serfdom. According to recollections by Joanilio Teixeira and Flavio Versiani, the audience attending Domar’s 1982 lecture was not as large as expected, due to the fact that a football (soccer) match involving the Brazilian national team was showing on television around the same time - to Domar’s disappointment.

Domar’s 1970Domar, E.D. (1970). The causes of slavery or serfdom: a hypothesis. Journal of Economic History. 30: 18-32. hypothesis about serfdom, inspired by Kliuchevsky, became fruitful as a building block of historical studies about slavery in the West. Domar’s last venture into the theme was a joint paper with Mark Machina (Domar and Machina 1984Domar, E.D. and M.J. Machina. (1984). On the profitability of Russian serfdom. Journal of Economic History. 44: 919-955.) about the end of Russian serfdom, discussed in Brazil in preliminary version in 1982. Again, a Russian historian (Mikhail Pokrovskii 1934Pokrovskii, M.N. (1934). Russkaia istoriia s drevneishihk vremen. Moscow: Mir. ) was at the centre of the argument, but this time critically. Domar and Machina disputed theoretically and empirically Pokrovskii’s claim - endorsed by Soviet Marxian historians and some Russian-American economic historians as well, such as Gerschenkron 1965Gerschenkron, A. (1965). Agrarian policies and industrialization: Russia 1861- 1917. Cambridge Economic History of Europe, vol.6, pp. 706-800. Cambridge: Cambridge University Press . - that Russian serfdom became unprofitable for landowners before the emancipation of serfs in 1860s. Domar’s attempt to understand Russia centred on what he regarded as key aspects of its economic history, taking Russian historians as reference points.

READING DOMAR IN THE SOVIET UNION

Harrod-Domar and the rehabilitation of Feldman

Whereas Domar’s Russian background affected his research agenda on socialism and economic history, the readership of his papers in the Soviet Union was restricted to some reactions to his 1940s growth papers, 1953 depreciation model and a delayed interest on his 1957 restatement of Feldman (1928Feldman, G.A. (1928). K teorii tempov narodnogo dokhoda. Planovoe Khozyaistvo. # 11 : 146-170; # 12: 151-178. ). Google Scholar search indicates that his papers on socialist efficiency (Domar 1966aDomar, E.D. (1966a). The Soviet collective farm as a producer cooperative. American Economic Review. 56: 734-757., 1974Domar, E.D. (1974). On the optimal compensation of a socialist manager. Quarterly Journal of Economics. 88: 1-18.) and Russian serfdom (1970) did not elicit reactions in the USSR. Unlike Harrod’s 1948Harrod, R. F. (1948). Towards a Dynamic Economics. London: Macmillan.Dynamics (see Harrod 1959Harrod, R.F. (1959). K teorii ekonomicheskoi Dinamiki. Translation of Harrod (1948). Moscow: Foreign Literature Publishing House.), Domar’s 1957 collection of essays was never translated into Russian. The reason probably was the inconvenient (for Soviet authorities) chapter on Feldman, whose 1928 growth model, although available in Russian libraries, practically vanished from Soviet economics until about 1968.

Indeed, by 1966 Domar (1966bDomar, E.D. (1966b). Preobrazhensky’s New Economics revisited. Soviet Studies. 18: 252-255.: 252, n. 3) still complained that Feldman’s work “has been recognized in many countries […] but not in the Soviet Union.” Despite Kovalevskii’s (1930Kovalevskii, N.A. (1930). K postroeniiu general’nogo plana. Planovoe Khozyaistvo. # 3: 117-209.) report on the planned long-run development of the USSR, Feldman’s model did not influence Soviet planning, even though the observed acceleration of the production of machinery was consistent with that model (Domar 1957bDomar, E.D. (1957b). A Soviet model of growth. In Domar 1957a: 223-261., section V; Domar 1965Domar, D.D. (1965). Special features of industrialization in planned economies: a comparison between the Soviet Union and the United States. In Second International Conference of Economic History, pp. 529-560. Paris: Mouton & Co. ; Spulber 1964Spulber, N. (1964). Soviet strategy for economic growth. Bloomington (Ind.): Indiana University Press ., chapter 2).

Due to Domar’s (1957Domar, E.D. ([1953] 1957). Depreciation, replacement, and growth. Economic Journal 63: 1-32. As reproduced in Domar (1957a), pp. 154-194.b) rediscovery, Soviet economists eventually acknowledged Feldman’s growth model as a landmark contribution (see e.g. Vainshtein and Khanin 1968Vainshtein, A.L. and G.I. Khanin. (1968). Pamyati vidayushchego sovetskogo ekonomista-matematika G.A. Fel’dman. Eknomika e Matematicheskie Metodi. 4: 296-299.). Feldman had left Gosplan in 1931. He was presumably in prison or labour camp in the 1940s-50s. It was only in 1953 that he was released and allowed to return to Moscow. He died in 1958, most likely with no knowledge of Domar’s (1957bDomar, E.D. (1957b). A Soviet model of growth. In Domar 1957a: 223-261.) essay about him.

During his 1959 visit to the USSR, Domar, unaware of Feldman’s death, enquired some Russian economists about him. They did not know either that he had passed away the year before. In Moscow, Domar approached an academic economist (“Professor Koch”) who had met Feldman in the late 1920s but had never seen him again since. Domar (1959: 11) gathered from the conversation that “Feldman is now in his 70’s, if not more, and of course it is entirely possible that he had died.”

Around 1968-69 a couple of articles on Feldman came out in the Soviet journal Problems in Economics, formed by English translations of articles by Soviet economists, started in the late 1950s. Belianova (1969Belianova, A.M. (1969). The problem of the rates of economic development in the USSR as treated in the Soviet economic literature of the 1920s. Problems in Economics. 11: 47-55.: 53), as part of an overview of Soviet growth planning models of the 1920s, pointed out that Feldman’s models “did not gain the acceptance they deserved and were forgotten for a long time.” Belianova did not refer to Domar (1957bDomar, E.D. ([1953] 1957). Depreciation, replacement, and growth. Economic Journal 63: 1-32. As reproduced in Domar (1957a), pp. 154-194.), but another article in that same journal, by Al’ter and Pochkin (1969Al’ter, L. and P. Pochkin. (1968). The first Soviet model of economic growth. Problems in Economics. 11: 3-13.), did. After discussing Feldman (1928Feldman, G.A. (1928). K teorii tempov narodnogo dokhoda. Planovoe Khozyaistvo. # 11 : 146-170; # 12: 151-178. ) in some detail, Al’ter and Pochkin (1969Al’ter, L. and P. Pochkin. (1968). The first Soviet model of economic growth. Problems in Economics. 11: 3-13.: 12) observed that the “most complete evaluation of the model by a bourgeois economist has been made by E. Domar.” However, they regarded Domar’s assessment of the model “frequently prejudiced and superficial”, as indicated particularly by Domar’s (1957bDomar, E.D. (1957b). A Soviet model of growth. In Domar 1957a: 223-261.: 236) side remark that Feldman’s model exaggerated “the rigidities of the real world.” Al’ter and Pochkin’s charge was unwarranted, as they did not engage with Domar’s (1957bDomar, E.D. (1957b). A Soviet model of growth. In Domar 1957a: 223-261.) restatement as a whole.

Al’ter (1962Al’ter, L. (1962). The latest bourgeois theory of “economic growth”. Problems in Economics. 4: 31-42.) provided a first detailed critical discussion of the Harrod-Domar growth model by a Soviet economist, with emphasis on Domar’s version. Al’ter (31) quoted from Domar’s (1952Domar, E.D. (1952). Economic growth: an econometric approach. American Economic Review. 42: 479-95.: 481) assertion that the post-war interest in economic growth was explained to a large extent by “the present international conflict which makes growth a condition of survival.” Al’ter could have also quoted from Domar’s (1957: 15) statement that “when an aggressive part of the world is strongly and quite successfully committed to rapid growth the other can disregard this objective only if it is tired of its own existence as a society.” From Al’ter’s (1962Al’ter, L. (1962). The latest bourgeois theory of “economic growth”. Problems in Economics. 4: 31-42.: 38) perspective, Harrod-Domar growth theory failed in its “main function, in its attempt to strengthen the position of capitalism in the competition with socialism.” Soviet Union’s high growth rates were perceived as indication that it was ahead in the Cold War against the US. The Harrod-Domar conditions for sustained equilibrium growth could only be achieved in a planned economy, according to Al’ter. From a Marxian standpoint, a main flaw of Domar’s model was the analysis of capital accumulation “in isolation from the production and distribution of surplus value” (Al’ter 1962Al’ter, L. (1962). The latest bourgeois theory of “economic growth”. Problems in Economics. 4: 31-42.: 34).

Depreciation and capital structure

The misgivings about Domar’s growth model were all gone as Soviet economists approached the depreciation problem, building explicitly on Domar ([1953] 1957Domar, E.D. ([1953] 1957). Depreciation, replacement, and growth. Economic Journal 63: 1-32. As reproduced in Domar (1957a), pp. 154-194.). Domar’s pioneer mathematical discussion of depreciation, replacement and growth brought to the fore the links between the life span of capital goods, factor ratios, propensity to save and economic growth. That study, funded by the RAND Corporation as part of its research agenda on the Soviet economy, included comparisons between the practice and theory of depreciation of real assets in the U.S. and the USSR - one of many Domar’s incursions into comparative economic systems, a field he helped to create. Among other results, Domar ([1953] 1957Domar, E.D. ([1953] 1957). Depreciation, replacement, and growth. Economic Journal 63: 1-32. As reproduced in Domar (1957a), pp. 154-194.) established that in a growing economy replacement falls short of depreciation.

The topic attracted the attention of Soviet planners from 1960s-80s as part of their concern with the time structure of production. The Soviet interest in Domar’s 1953 model, especially during the 1980s, came from the attempt by Soviet theoretical economists to use it as a starting point for the development of a new concept: the notion that a reduction in investment does not necessarily cause a decline in economic growth rates, since the excess of depreciation allowances over annual requirements to replace fixed capital assets can offset the fall in the growth of investment (see Rumer 1984Rumer, B. (1984). Some investment patterns engendered by the renovation of Soviet industry. Soviet Studies. 36: 257-266.: 261-62 for detailed treatment and references to the Soviet literature).

The publication in the USSR of Irina Osadchaya’s 1974Osadchaya, I. (1974). From Keynes to neoclassical synthesis: a critical analysis. Translated by Y. Sdobnikov from Ot Kenysa k neocklacheskomen sintezu. Moscow: Progress Publishers. book in English, about the history of macroeconomics since Keynes - with comparisons drawn to Marxian economics - was a key moment in the assessment of Domar’s growth economics by Soviet economists. Osadchaya (1974Osadchaya, I. (1974). From Keynes to neoclassical synthesis: a critical analysis. Translated by Y. Sdobnikov from Ot Kenysa k neocklacheskomen sintezu. Moscow: Progress Publishers. , chapter 2) stressed the significance of Domar’s ([1946] 1957Domar, E.D. ([1946] 1957). Capital expansion, rate of growth, and employment. Econometrica. 14: 137-47. As reproduced in Domar (1957a), pp. 70-82.) conclusion that dynamic equilibrium required steady growth rate of income. Moreover, she carefully discussed aspects of Domar’s ([1953] 1957Domar, E.D. ([1953] 1957). Depreciation, replacement, and growth. Economic Journal 63: 1-32. As reproduced in Domar (1957a), pp. 154-194.) model of what she called “the reproductive structure of investment”, with references to the Soviet economic literature of the 1960s on depreciation, prompted by that model. In chapter 7, section 3, Osadchaya provided a Marxian view of Feldman’s growth model along the lines of the original 1928 articles. She acknowledged that Domar had “discovered” the model, but did not deal with Domar’s (1957bDomar, E.D. (1957b). A Soviet model of growth. In Domar 1957a: 223-261.) restatement.

In a previous paper, Osadchaya (1959Osadchaya, I. (1959). Concerning contemporary bourgeois theories of economic dynamics. Problems in Economics. 1: 49-55.: 51) had described Domar as an “American economist”, with no mention of his Russian background or his status as émigré. That generally applied as well to portrayals in the Soviet literature of other prominent Russian émigrés who had moved to the United States to study and/or work as economists. Domar certainly was an “American economist”, but the links he established between economics in the West (including Brazil) and Russia were an important element of his American career. His life span largely overlapped with the period between the beginning and fall of the Soviet Union, whereas his professional life coincided with the Cold War time duration, with significant impacts on his research agenda. Together with Domar’s Russian background, that helps to explain his interest on Soviet and Russian economic development, as well as his investigation of analytical aspects of the working of socialist economies.

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  • 1
    JEL classification. B22; B24; N00.
  • **
    Research funding from CNPq (Brazilian Research Council) is gratefully acknowledged. Comments from Joaquim Andrade, Rogerio Arthmar, Vladimir Avtonomov, Andre Calixtre, Mauricio Coutinho, Bruna Ingrao, Carol Leonard, Denis Melnik, Edward Nelson, Eustaquio Reis, Gerardo Serra and Joanilio Teixeira on a different version are gratefully acknowledged. I would like to thank Elizabeth Dunn and Guido Erreygers for bibliographical support and the David M. Rubenstein Rare Book and Manuscript Library (Duke University) for permission to quote from the Domar Papers.

Publication Dates

  • Publication in this collection
    04 May 2022
  • Date of issue
    Apr-Jun 2022

History

  • Received
    26 Apr 2021
  • Accepted
    12 May 2021
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