The Functioning of the Socialist Economy: Strategies for Growth and Stability

Abstract

This article examines how price controls, central banking, exchange rate management, and monetary policy were used in centrally planned socialist economies to achieve the state-defined objectives of equality, stability, and economic growth. The study employs a theoretical and comparative research design based on an extensive review of the literature. It comparatively analyzes the experiences of the Soviet Union (1917–1991), China (1950–1991), Cuba, and North Korea, focusing on the interaction of pricing policies, monetary policy, and exchange rate management and their effects on economic performance. The analysis shows that although these policy instruments were effective in supporting distributive objectives and macroeconomic stability, their long-term interaction generated chronic shortages, monetary overhang, exchange-rate distortions, and the expansion of black markets. In particular, persistent price controls combined with excess liquidity weakened resource allocation and reduced economic efficiency, highlighting the structural trade-offs among equity, stability, and efficiency. The findings suggest that centrally planned socialist economies require selective market-oriented reforms that improve flexibility and efficiency while preserving their core social objectives. The proposed policy framework demonstrates that balancing pricing, monetary, and exchange-rate policies is essential for achieving long-term economic sustainability.