Material balance planning

Material balances are a method of economic planning where material supplies are accounted for in natural units (as opposed to using monetary accounting) and used to balance the supply of available inputs with targeted outputs. Material balancing involves taking a survey of the available inputs and raw materials in an economy and then using a balance sheet to balance the inputs with output targets specified by industry to achieve a balance between supply and demand. This balance is used to formulate a plan for resource allocation and investment in a national economy. The method of material balances is contrasted with the method of input-output planning developed by Wassily Leontief. Material balance planning was the principal tool of planning employed by Soviet-type planned economies and was Gosplan's major function in the Soviet Union. This system emerged in a haphazard manner during the collectivisation era. It prioritized rapid growth and industrialization over efficiency. Although material balances became an established part of Soviet planning, it never completely replaced the role of financial calculation in the economy. In the economy of the Soviet Union, Gosplan's major function was the formulation of material balances and national plans for the economy. In 1973, supplies for 70% of all industrial production representing 1,943 of the economy's most important items had their balances worked out by Gosplan. Gossnab and the various economic ministries were responsible for the determination of the suppliers and recipients of supplies in the Soviet economy. Material balance planning encompassed non-labor inputs (the distribution of consumer goods and allocation of labor was left to market mechanisms). In a material balance sheet, the major sources of supply and demand are drawn up in a table that achieves a rough balance between the two through an iterative process. Successive iterations corrected imbalances with previous iterations - for example, deficits signaled the need for extra output in the successive iteration of the balance.