ABSTRACT
This chapter examines the law of value, the institutional framework for price determination, the two-tier prices, price stability and flexibility. The problem of pricing in a Socialist economy is of a different order of magnitude from that under capitalism. The law of value is the Socialist doctrine of prices. The majority of Socialist economists believe that pricing should be based not on 'value' but on the 'production price', because only the latter reflects social cost, and is thus more conducive to efficiency. An important peculiarity of a planned economy of the Socialist type is the existence of a two-tier price system—the prices paid to the producers by the State and the prices paid by consumers for retail goods. Owing to the public ownership of the means of production and the absence of the free market mechanism, Socialist economies have no automatic or simple mechanism for determining rational prices.
