Wall St. And Business Wednesdays: Cuba Searches For "Price"

A recent article in the excellent Cuban news source, Granma Internacional, "5,600 price violations detected in country" presents a good opportunity to look at the issue of price, which we will cover at great length at the
Black Electorate Economics University,which begins classes this month. The article, which appeared in November details that a recent government check of the country's state agencies and economy revealed 5,600 price violations. The problem which manifests itself in the form of fraud, misquotes and off-the-book sales is of great concern to the Cuban government which views the problem in terms of the lack of trust and inequality it creates in society.

But the problem is much deeper and endemic than even the government supposes. And that is because the root of today's problem lies not in the dishonesty of those who run state enterprises and businesses in Cuba today. Rather, the beginning of Cuba's pricing crisis can be found in its political leadership's misunderstandings and incomplete application of what Karl Marx taught, and the context in which the Cuban revolution was born. Without question, Fidel Castro and Che Guevera, in many ways, brilliantly interpreted Marx, even surpassing him in ways. The result is a society that develops its human capital better than most, in the areas of education and health. But, in the arena of financial capital, the country, since independence, has woefully languished in a mediocrity that has it dependent, to one degree or another, on foreign currency, namely the U.S. dollar. How ironic that a country that prides itself on fending off imperialism and the capitalist philosophy of the United States, has always privately sought U.S. dollars in great quantities to lubricate its struggling economy? Historians should remember the ironic situation, particularly in the 1960s, which found Cuba vainly pleading with the Soviet Union to make its purchases of Cuban sugar in U.S. dollars.

How did this scenario develop where Cubans - in government and among the masses - covet the U.S. dollar more than their own currency, the peso?

In a real sense it could be explained that the U.S. refusal to purchase sugar from the country, as a result of the revolution, and Cuba's poor central planning in the aftermath, is largely to blame for the country's monetary challenges. There is no reasonable dispute that the United States' embargo on Cuba hurt the country. Cuba lost a valuable trading partner for its chief commodity crop and a source of hard foreign currency that it needed to purchase and maintain machinery and equipment that it did not manufacture at home. The Cuban peso was inconvertible and the dollar was the most valuable convertible country in the world. One can find the most diplomatic of statements coming from Fidel Castro, in 1959, and soon thereafter relative to the relationship that he desired with the United States. He never wanted the economic rupture.

But an excessive preoccupation with the U.S. embargo masks the fact that Cuba was able to more than make up for the loss in income it had received from the U.S. with increased trade with its communist bloc partners. While Cuba did in fact suffer a dramatic fall in sugar trade - its sugar production fell to 3.8 million tons in 1963 as opposed 6 million tons in 1961 - by 1964, Cuba had negotiated international long-term delivery contracts for 6 million tons of sugar at prices that rivaled those it earned from America. The rebound so emboldened Cuba's hopes that Fidel Castro pledged that his country would be at 10 million tons by the year 1970. So, the argument that sugar trade losses spelled the deathknell of the economy are inaccurate. A much more subtle but lethal cause can be blamed for over four decades of problems in the Cuban economy – problems that contribute to the country's price violations and challenges today.

Like many of the countries that claim to be socialist or communist, Cuba has ignored its ideological patriarch's guidance on monetary matters. It is this oversight that may be as responsible for the fall of the communist-socialist world as any other. While socialist nations have been quick to claim Karl Marx's criticisms of capitalism, they have been slow or inert when it comes to gravitating towards a fundamental and egalitarian principle of building the economy that he envisioned. Marx identified a key to building a fair, equal and just economy, as he saw it, in the unique ability of money to function as the measure of the ultimate value in a society, labour. Marx identified gold as best suited to serve in this capacity which in itself would produce equality among all laborers, regardless of industry, in society. Marx, in Capital wrote:

The first function of gold is to provide the world of commodities with the material for the expression of their value, or to represent the values of commodities as magnitudes of the same denomination, qualitatively and quantitatively comparable. Thus it functions as the general measure of values; and only in virtue of this function does gold, being the specific equivalent commodity, become money.

It is not money that renders commodities commensurable. The very opposite is true. Because all commodities, in so far as they are values, are embodied human labour and are therefore commensurable, their values can all be measured in one and the same specific commodity; and this latter can therefore be transformed into the common measure of their values, into money. Money as the measure of value is the necessary phenomenal form of the immanent measure of the value of commodities, namely labour time.

In a commodity-driven economy and one where equality is an essential rallying point; Cuba and the entire communist-bloc of nations were well-suited to establish gold as the monetary commodity around which they built and merged their economic activity. It is with gold as the measure of value that all labor time becomes "equal". But there is another function that gold as money fulfills, a function that gives economic planners the ability to give all industries and markets a compass by which to plan trade and grow. Marx explained:

Money fulfills two entirely different functions, as the measure of value, and as the standard of price. It is the measure of value, because it is the social incarnation of human labour; it is the standard of price, in so far as it exists in the form of a fixed weight of metal. As the measure of value, it serves to transform the values of the manifold commodities into prices, it measures these quantities of gold. The measure of values measures commodities considered as values; the standard of prices measures, on the contrary, quantities of gold by a unit quantity of gold, not the value of one quantity of gold by the weight of another. If gold is to function as the standard of prices, a definite weight of gold must be fixed upon as the unit. Here, as whenever quantities of the same denomination are measured, it is of the importance that there should be an unvarying unit of measurement. Consequently, the standard of prices will fulfill its function better in proportion to the degree to which one and the same quantity of gold can unalterably serve as the unit of measurement. But gold can only serve as the measure of values because it is itself a product of labour, and therefore potentially variable in value.

With no standard of price; with no unit of account; and with no measure of value that embodies labor time, a centrally planned economy cannot work. It lacks the polaris, compass and magnet by which all labor can be measured and arranged.

Without a standard of price there is no firm foundation upon which other prices can rest or revolve around. While an inconvertible currency may not fall victim to external exchange rates as quickly as a convertible currency, in a general sense, its supply by government can more easily result in inflation and deflation depending upon the transaction demand for that currency. How do the mangers of the Cuban economy know the demand for money or the velocity of money? In every case in central planning, the economic managers have been woefully inept at determining how much currency should be supplied in order to satisfy goals of satisfactory income levels, production and consumption. The result is inflation and deflation as more or less money chases more or less goods.

Once the issue of the impact that the supply and demand for money and a monetary commodity as the standard of prices has been adequately addressed, it is at this point that the issue of "price" comes fully to the forefront, and can be considered in the context of monetary policy and markets. This can be a complex undertaking because the price of products and services have the potential to embody wants, desires, expectations, valuations - in the present and future tense; serve as part of a product or service's image; the relationship between quantities, in the classical essence of the cardinal and ordinal nature of numbers; and of course the cost of production and profit.

The complexity and inability to resolve these issues and consider them in the light of the real effects of monetary policy has troubled economists for the last several years. John Maynard Keynes accurately identified this difficulty and even contradiction when he wrote in The General Theory Of Employment, Interest, And Money, "So long as economists are concerned with what is called the Theory of Value, they have been accustomed to teach that prices are governed by the conditions of supply and demand; and, in particular, changes in marginal cost and the elasticity of short-period supply have played a prominent part. But when they pass in volume II, or more often in a separate treatise, to the Theory of Money and Prices, we hear no more of these homely but intelligible concepts and move into a world where prices are governed by the quantity of money, by its income-velocity, by the velocity of circulation relatively to the volume of transactions, by hoarding, by forced savings, by inflation and deflation et hoc genus omne; and little or no attempt is made to relate these vaguer phrases to our former notions of the elasticities of supply and demand."

Cuban planners and the Czech economists that were advising them weren't able to reconcile this dichotomy and contradiction described by John Maynard Keynes. Not only did these managers not know the supply, demand or velocity of money necessary to lubricate and power the economy they were planning; they also did not know the supply or demand for goods and services, nor could they control it. These shortcomings prevented any accurate planning or making of markets. The rationing of goods and produce to the people of Cuba while, providing for a valuable form of investment in the Cuban people also resulted in reducing the role of money - a problem that was compounded by artificially low fixed prices on goods and everyday expenses like transportation and food. In addition the planners' inability to supply what it did produce, in ample quantities, made holding and using money, at times, a fruitless and pointless endeavor. It was a nightmare scenario - scarce goods, including food, and an economy with a limited role for money. Money neither served as a measure of value or standard of prices, as Marx advised, and the state controlled physical capital sectors (land and agriculture) that could have served as the basis of economic activity had the people of Cuba been permitted to engage in its cultivation and development.

A classic example of this was visible in the country's agricultural sector in the 1960s. Instead of forming cooperatives, the state maintained control of tracts of land and the process of farming activity. Fidel Castro rejected advice that he should work to establish autonomous and relatively small cooperatives specializing in agricultural development. Some of the intellectual capital for these cooperatives could have been supplied by some of the former managers of the lands that had been "nationalized" and these individuals could have shared that knowledge with the young and new farmers and laborers through education and training. For the very good that Fidel Castro did in ending destructive practices and foreign dominance of key sectors, he subtracted from that by not retaining more of the middle and professional class of Cuba that left the country during the revolution or who were denied access to their former holdings and management positions under the new regime. Earnings could have been directly tied to crop production, rent would be paid to the landlord (the state of Cuba), and taxes could be applied lightly to earnings, giving Cuba revenue it would not otherwise have. This would have been consistent with the teachings of Karl Mark in the Communist Manifesto and would have reflected the reality that the state-dominated agricultural strategy does not work. In 1963, Russia was producing the majority of its crops through cooperatives, exceeding the state-run farms by 20% in output. Many of its advisers and leading economists shared this information with the Cuban government.

The mistake that Cuba made early on is that it did not appreciate how the profit-motive was essential to the development of key sectors that it did not, as yet, have operating productively. The state managers ruled against cooperatives, seeking to maintain what some economists described as a stratified economy rather than a socialized economy. The government sought to win over the remaining "middle-class" with improved work conditions and higher wages. What took place? Salaries rose by a whopping 60% while agricultural production rose by around only 10%, from 1959-1962. The standing anecdote of the time was that for each peso of wealth created, a Cuban received two pesos in wages, in return - an eventually losing proposition by any metric. It was estimated by economist Renee Dumont that from 1958 to 1963 agricultural productivity was reduced by 50%. He found that the 1963 harvests were three-fourths of those in 1960, even though the overall working days had been increased. Sure, unemployment was gone but production decreased. This scenario points to a massive mismatch of capital in the marketplace, that does exist. This problem is usually compounded by statism:

Economist Reuven Brenner isolated this principle in his book, Force Of Finance:

Put simply, prosperity is the consequence of one thing and one only: matching talent with capital, and holding both sides accountable. In countries with open, democratized capital markets, such matches are made by a wide variety of financial institutions, each employing an assortment of screening devices and contractual agreements, and they and other institutions ensure accountability. When capital markets are closed, government employees make the matches. Even if these people were highly skilled in making investment decisions as their private-market counterparts in other countries - which is not the case - the level of accountability is not the same. Bureaucrats and politicians do not personally go bankrupt if they make disastrous matches. Often, they are also not held accountable.

Of course, this is not to say that venture capital firms, banks, and other financial institutions never make mismatches when allocating capital. They do. But they cannot afford to make very many mistakes, and they do not have the luxury of correcting their mistakes slowly. Governments, on the other hand, can make many more and greater mistakes, and they can also fail to correct them. They can cover mistakes by taxing, inflating, and debasing their currency. These methods of financing government spending - none of which is available to private financial institutions - allow mismatches made by governments to persist.

Who was in a position to correct the mistakes being made by the Cuban government in those early years?

Reflection over Reuven Brenner's words should cause the subject of market-making capacity in Cuba to arise in some minds. How does the government ensure an efficient and successful matching process with its monopoly on underdeveloped financial capital; a monopoly on physical capital; and a prohibition on allowing an astounding human capital base, to participate in trade and commerce - market-making? The Cuban peso was a pathetic medium of exchange by which the healthy and educated Cubans had to engage in trade. Furthermore, the decision of the economic planners to continue to rely on sugar rather than develop other physical capital industries and markets denied further wealth creation and potential "market capitalization", if you will. Cuba was unable to answer the fundamental questions that every economy - whether Islamic, socialist, capitalist, or fascist - must answer. It was articulated succinctly by Nobel laureate economist Paul Samuelson, when he wrote in 1948:

What commodities will be produced, and in what quantities? That is, of the numerous goods and services that can be offered, which ones will be selected? How will they be produced? That is, who will make them, and what methods, resources, and technology will be used? For whom will they be produced? Who will enjoy and benefit from the rendered goods and services? To put it another way: through what means will the nation's output be distributed among its population?

These fundamental 7 questions take us closer to the root of Cuba's pricing problem. The Cuban managers, under the influence of Czech advisers; all under the influence of their respective interpretations of Karl Marx's writings have not properly understood human nature or, even denied its existence, and have confused the principle of incentive, embodied by the concept of "profit" with rhetoric and an analysis that deems the reward for risk-taking and economic undertaking as greedy with an inherently exploitative nature. Markets are frequently made, when human beings (in government or not) can seek a reward for the risk that they invest, and can include a nominal value for that risk, as part of the "price" of a final good or service. Smith understood this well, distinguishing between a "natural" and "market" price for commodities. He wrote in the classic, Wealth Of Nations:

There is in every society or neighbourhood an ordinary or average rate both of wages and profit in every different employment of labour and stock. This rate is naturally regulated, as I shall show hereafter, partly by the general circumstances of the society, their riches or poverty, their advancing, stationary, or declining condition; and partly by the nature of each employment.

There is likewise in every society or neighbourhood an ordinary or average rate of rent, which is regulated too, as I shall show hereafter, partly by the general circumstances of the society or neighbourhood in which the land is situated, and partly by the natural or improved fertility of the land.

These ordinary or average rates may be called the natural rates of wages, profit, and rent, at the time and place in which they commonly prevail.

When the price of any commodity is neither more nor less than what is sufficient to pay the rent of the land, the wages of the labour, and the profits of the stock employed in raising, preparing, and bringing it to market, according to their natural rates, the commodity is then sold for what may be called its natural price.

The commodity is then sold precisely for what it is worth, or for what it really costs the person who brings it to market; for though in common language what is called the prime cost of any commodity does not comprehend the profit of the person who is to sell it again, yet if he sells it at a price which does not allow him the ordinary rate of profit in his neighbourhood, he is evidently a loser by the trade; since by employing his stock in some other way he might have made that profit. His profit, besides, is his revenue, the proper fund of his subsistence. As, while he is preparing and bringing the goods to market, he advances to his workmen their wages, or their subsistence; so he advances to himself, in the same manner, his own subsistence, which is generally suitable to the profit which he may reasonably expect from the sale of his goods. Unless they yield him this profit, therefore, they do not repay him what they may very properly be said to have really cost him.

Though the price, therefore, which leaves him this profit, is not always the lowest at which a dealer may sometimes sell his goods, it is the lowest at which he is likely to sell them for any considerable time; at least where there is perfect liberty, or where he may change his trade as often as he pleases.

The actual price at which any commodity is commonly sold is called its market price. It may either be above, or below, or exactly the same with its natural price.

The market price of every particular commodity is regulated by the proportion between the quantity which is actually brought to market, and the demand of those who are willing to pay the natural price of the commodity, or the whole value of the rent, labour, and profit, which must be paid in order to bring it tither. Such people may be called effectual demanders, and their demand the effectual demand; since it may be sufficient to effectuate the bringing of the commodity to market. It is different from the absolute demand. A very poor man may be said in some sense to have a demand for a coach and six; he might like to have it; but his demand is not an effectual demand, as the commodity can never be brought to market in order to satisfy it.

When the quantity of any commodity which is brought to market falls short of the effectual demand, all those who are willing to pay the whole value of the rent, wages, and profit, which must be paid in order to bring tither, cannot be supplied with the quantity which they want. Rather than want it altogether, some of them will be willing to give more. A competition will immediately begin among them, and the market price will rise more or less above the natural price, according as either the greatness of the deficiency, or the wealth of wanton luxury of the competitors, happen to animate more or less the eagerness of the competition, according to as the acquisition of the commodity happens to be of more or less importance to them. Hence, the exorbitant price of the necessaries of life during the blockade of a town or in a famine.

These exorbitant prices were seen and felt in Cuba in 1961 due to the pronounced scarcity of agricultural products and consumer goods. But these scarcity prices if properly interpreted could have been seen as opportunity, if the Cuban people were allowed to assume the state-dominated function of market-maker . Had Fidel Castro accepted the cooperative concept early, the peasants, laborers and managers could have assumed the freedom to produce and market the consumer goods and perishables that were scarce. The high prices were an incentive and the eventual supply of the goods would have driven prices down as production was increased by the initial market-maker and by subsequent entry into said markets by other cooperatives and individuals or firms. The statist model made too many mismatches. In 1963, the Cuban government, through state-run farms, granjas del pueblo attempted to control and produce 35 different crops.

Unfortunately, its expertise in sugar did not transfer into skill with other crops like cotton. In order to foster market-making and broader commodity production the Cuban government could have granted the cooperatives sub-surface mineral rights that would have provided a reward and form of capital (as a claim on assets) that local communities could have used to obtain more financial capital - if adequate liquidity were provided - or goods and services from other Cubans, or foreigners.

Cuban socialist solidarity remains a strong and beautiful force. And it is responsible for the country's ability to survive the economic hardships, attacks, blunders, mistakes and errors that have marked the last 40 years. That Cuba has such developed human capital is both a blessing and a potential curse, if the matching process is not improved between such awesome talent, a firm unit of account and medium of exchange, and emerging physical capital industries. At this point, Cuba must look to its students and experts on human behavior and those abroad. Cuba is in danger of producing the rising dissatisfaction that down the road leads to revolutions. Human beings are grateful for their basic needs being satisfied but they are never satisfied with only their basic needs having been met. Upon the fulfillment of each graded need, the human being generally desires higher levels of fulfillment. Noted psychologist Abraham Maslow - who of course did not invent or definitively articulate the roots and schematic of human motivation - did provide us with a useful outline to consider human motive and with which to review Cuba's economy. Maslow's hierarchy of needs read as follows:

1. Physiological (hunger, thirst, shelter, sex, etc.)
2. Safety (security, protection from physical and emotional harm)
3. Social (affection, belonging, acceptance, friendship)
4. Esteem (also called ego). The internal ones are self respect, autonomy, achievement and the external ones are status, recognition, attention.
5. Self actualization (doing things)

Cubans, of course, like any other people, in a cultural context touch upon all levels of the hierarchy, simulateneously and at different times (Che Guevera was very concerned with the holisitc development of the Cuban people, along these lines - the "new" man and woman), but the changes in Cuba that are taking place today do grow out of an emerging dissatisfaction among the nation's electorate that stems from an imbalanced statist concern for the physiological needs of people that does not permit the fullest freedom of self-actualization and the highest arrangement of Cuban talents, skills and interests with financial and physical capital. Thus, as an economist friend of mine says, you have Cuban doctors who are driving cabs.

Nonetheless Cuba deserves a great deal of credit and respect for its achievement. Here is an article from last year which makes that abundantly clear:

Learn from Cuba, Says World Bank
By Jim Lobe

WASHINGTON, Apr 30 (IPS) - World Bank President James Wolfensohn Monday extolled the Communist government of President Fidel Castro for doing "a great job" in providing for the social welfare of the Cuban people. His remarks followed Sunday's publication of the Bank's 2001 edition of 'World Development Indicators' (WDI), which showed Cuba as topping virtually all other poor countries in health and education statistics. It also showed that Havana has actually improved its performance in both areas despite the continuation of the US trade embargo against it and the end of Soviet aid and subsidies for the Caribbean island more than ten years ago.

"Cuba has done a great job on education and health," Wolfensohn told reporters at the conclusion of the annual spring meetings of the Bank and the International Monetary Fund (IMF).

"They have done a good job, and it does not embarrass me to admit it." His remarks reflect a growing appreciation in the Bank for Cuba's social record, despite recognition that Havana's economic policies are virtually the antithesis of the "Washington Consensus", the neo-liberal orthodoxy that has dominated the Bank's policy advice and its controversial structural adjustment programmes (SAPs) for most of the last 20 years.

Some senior Bank officers, however, go so far as to suggest that other developing countries should take a very close look at Cuba's performance. "It is in some sense almost an anti-model," according to Eric Swanson, the programme manager for the Bank's Development Data Group, which compiled the WDI, a tome of almost 400 pages covering scores of economic, social, and environmental indicators. Indeed, Cuba is living proof in many ways that the Bank's dictum that economic growth is a precondition for improving the lives of the poor is over-stated, if not downright wrong.

The Bank has insisted for the past decade that improving the lives of the poor was its core mission. Besides North Korea, Cuba is the one developing country which, since 1960, has never received the slightest assistance, either in advice or in aid, from the Bank. It is not even a member, which means that Bank officers cannot travel to the island on official business. The island's economy, which suffered devastating losses in production after the Soviet Union withdrew its aid, especially its oil supplies, a decade ago, has yet to fully recover. Annual economic growth, fuelled in part by a growing tourism industry and limited foreign investment, has been halting and, for the most part, anaemic.

Moreover, its economic policies are generally anathema to the Bank. The government controls virtually the entire economy, permitting private entrepreneurs the tiniest of spaces. It heavily subsidises virtually all staples and commodities; its currency is not convertible to anything. It retains tight control over all foreign investment, and often changes the rules abruptly and for political reasons.

At the same time, however, its record of social achievement has not only been sustained; it's been enhanced, according to the WDI. It has reduced its infant mortality rate from 11 per 1,000 births in 1990 to seven in 1999, which places it firmly in the ranks of the western industrialised nations. It now stands at six, according to Jo Ritzen, the Bank's Vice President for Development Policy who visited Cuba privately several months ago to see for himself.

By comparison, the infant mortality rate for Argentina stood at 18 in 1999; Chile's was down to ten; and Costa Rica, 12. For the entire Latin American and Caribbean region as a whole, the average was 30 in 1999.

Similarly, the mortality rate for children under five in Cuba has fallen from 13 to eight per thousand over the decade. That figure is 50 percent lower than the rate in Chile, the Latin American country closest to Cuba's achievement. For the region as a whole, the average was 38 in 1999. "Six for every 1,000 in infant mortality - the same level as Spain - is just unbelievable," according to Ritzen, a former education minister in the Netherlands. "You observe it, and so you see that Cuba has done exceedingly well in the human development area."

Indeed, in Ritzen's own field the figures tell much the same story. Net primary enrolment for both girls and boys reached 100 percent in 1997, up from 92 percent in 1990. That was as high as most developed nations, higher even than the US rate and well above 80-90 percent rates achieved by the most advanced Latin American countries. "Even in education performance, Cuba's is very much in tune with the developed world, and much higher than schools in, say, Argentina, Brazil, or Chile."

It is no wonder, in some ways. Public spending on education in Cuba amounts to about 6.7 percent of gross national income, twice the proportion in other Latin America and Caribbean countries and even Singapore. There were 12 primary pupils for every Cuban teacher in 1997, a ratio that ranked with Sweden, rather than any other developing country. The Latin American and East Asian average was twice as high at 25 to one. The average youth (ages 15-24) illiteracy rate in Latin America and the Caribbean stands at seven percent. In Cuba, the rate is zero. In Latin America, where the average is seven percent, only Uruguay approaches that achievement, with one percent youth illiteracy. "Cuba managed to reduce illiteracy from 40 percent to zero within ten years," said Ritzen. "If Cuba shows that it is possible, it shifts the burden of proof to those who say it's not possible."

Similarly, Cuba devoted 9.1 percent of its gross domestic product (GDP) during the 1990s to health care, roughly equivalent to Canada's rate. Its ratio of 5.3 doctors per 1,000 people was the highest in the world. The question that these statistics pose, of course, is whether the Cuban experience can be replicated. The answer given here is probably not. "What does it is the incredible dedication," according to Wayne Smith, who was head of the US Interests Section in Havana in the late 1970s and early 1980s and has travelled to the island many times since. "Doctors in Cuba can make more driving cabs and working in hotels, but they don't. They're just very dedicated," he said. Ritzen agreed that the Cuban experience probably cannot be applied wholesale to another poor country, but insisted that developing countries can learn a great deal by going to the island.

"Is the experience of Cuba useful in other countries? The answer is clearly yes, and one is hopeful that political barriers would not prevent the use of the Cuban experience in other countries. "Here, I am pretty hopeful, in that I see many developing countries taking the Cuban experience well into account."

But the Cuban experience may not be replicable, he went on, because its ability to provide so much social support "may not be easy to sustain in the long run".

"It's not so much that the economy may collapse and be unable to support such a system, as it is that any transition after Castro passes from the scene would permit more freedom for people to pursue their desires for a higher standard of living." The trade-off, according to Ritzen, may work against the welfare system which exists now.

"It is a system which on the one hand is extremely productive in social areas and which, on the other, does not give people opportunities for more prosperity."

This analysis began with money and it shall end there. If Cuba were able to establish a firm unit of account it would, more rapidly than the vast majority of nations, be primed for rapid growth and development. Gold would provide the hardest of possible units of account, followed by a currency board regime. A final option, with strong supporting arguments would be the option of dollarization. Already, the U.S. dollar is the preferred currency within Cuba's borders. The United Nations Economic Commission on Latin America estimated in 1998 that Cuba receives $800 million in remittances, annually. $1 billion as of 2000.

The best and most exciting scenario would be for several of the nations in Central and South America to form a monetary union. If, for example Cuba, Venezuela, Brazil, Mexico and Argentina decided to utilize a single currency, backed by gold, Cuba would be part of that which would ensure that money fulfills both the measure of value and standard of price functions that Marx envisioned. With a standard of prices, embodied in a gold standard with full convertibility among the people, Cuba and the other nations of the region would have the polaris by which all other prices could freely revolve, provided the state relinquishes its role as the dominant market-maker. Without Marx's standard of prices; the hindrances to market-making; and the failures of government in guiding the matching process of talent with capital; the result is an economy marred by duplicity, hidden transactions, and fraud. The problem that today, manifests in over 5,000 pricing violations, in a single review. One of the most glaring indicators of how seriously Cuba has been hindered from measuring its capital base due to the lack of a unit of account shows in the condition of the country's accounting sector. The Lexington Institute wrote in a July 2001 paper on Cuba,

Cuban officials say that accounting is the largest obstacle to progress in state enterprise reform. Cuba lost the art and custom of accounting thirty years ago," a business consultant explains. "Under a system of material planning, accounts were kept by quantities of materials, and it was no longer a custom to measure results by profits or financial results. Accountants went to other professions." Cuban media reports cite numbers of enterprises that are suspended from the process because their books are not accurate.

It is all about price.


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Cedric Muhammad

Wednesday, January 8, 2003

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