The Terms of Trade between East Germany and the USSR Were Established by Using Average World Market Prices

Soviet Russia would not be able to function at all, if she could not refer to prices outside her borders. She has no other way of knowing which is the cheapest material to use to make anything. Without a domestic market, she must look beyond her borders to see whether tin, iron, steel, aluminum, or what not is the cheapest metal for a particular use. She must first find out their relative values in the world markets; and it should be remembered that these prices cannot reflect the demand and supply conditions within her country. So the Soviet Union is steering her economy down a road without any helpful signposts. She lacks the price signs that guide all production in a market economy.

Let me refer to a news item in the New York Times of April 19, 1966. It reports on an East German trade treaty with the Union of Soviet Socialist Republics. At that time, about 50 percent of East Germany's foreign trade was with the Soviet Union, and only 10 percent with West Germany, which had refused to give her long-term credits. East Germany got 90 percent of its steel and 100 percent of its crude oil and iron ore from Soviet Russia. The gentleman who negotiated this trade treaty for East Germany, a Dr. Erik Apel, committed suicide because of complaints that this trade treaty was not fair to his country. It had been alleged that the treaty was too favorable to the Soviets and too costly to the people of East Germany.

After Dr. Apel had committed suicide, he was succeeded by a Mrs. Elsa Bauer. She defended the trade treaty by saying: "There is no unfairness in the terms of trade with the Soviet Union. The terms are considered correct. Prices have been based on the average world market prices over the last three years."

How would you like to buy goods at the average prices of the last three years? How would you like to sell goods at the average prices of the last three years? This is how a socialist society has to operate. If the whole world were socialist, there would not be any market prices of either the present or "the last three years" to use in calculating production costs of different things and processes. Without prices, all decisions on what and how to produce must be completely arbitrary.

--Percy L. Greaves, Understanding the Dollar Crisis (Boston: Western Islands Publishers, 1973), 155-156.