Russias economic system after the end of war communism The restoration of agriculture in Russia in the first decade

of NEP

IN THE period of so-called War Communism, which lasted until the spring of 1921, the economic structure of Soviet Russia was simpler than it became subsequently. If we leave out of account the nomads (Kirghiz, Kalmucks, Buryats, etc.), there were two different types of economy existing in the country socialist large-scale industry, orientated towards planned production and planned distribution of products, and the petty production of the peasants and craftsmen, with a system of distribution through the market. The Soviet states attempt to establish a system of compulsory distribution of agricultural produce without changing the petty-bourgeois production system itself ended in failure. Instead of the compulsory removal of surplus agricultural produce from the countryside and its planned distribution along with the products of urban industry, that is, instead of the adaptation of petty-bourgeois production to the system of large-scale socialist production, it was now necessary, on the contrary, to adapt large-scale state production to the market distribution of petty commodity economy. Socialist production now faced the task of subordinating petty peasant and craft production to itself on the basis of market distribution, that is, first and foremost, by the methods of large-scale capitalist economy. This inevitably entailed the appearance of a great variety of forms in the entire economic organism of the country. Large-scale state industry to a considerable extent began to work for the market. But the state economy as a whole did not cease, nevertheless, to be to a certain extent a planned economy. Only planning now had to take place in conformity to the market, and all planning drafts were inevitably very approximate. This was what led to the diversity in the economy. Alongside organs of capitalist regulation such as the state bank and the network of credit institutions subordinated to it, alongside the stock exchanges, syndicates and so on, there existed organs of planned state guidance of the economy such as the State Planning Commission, the Supreme Council of the National Economy, the Peoples Commissariat of Food, the organs of planned distribution of wages (Tsekfond, the Supreme Rate Fixing Council). The diversity was all the more enhanced because, together with purely state enterprises, mixed state-capitalist companies and enterprises began to arise, and then co-operative societies, which not only played a very big part in the sphere of distribution but also controlled many manufacturing enterprises. One after another, concessionaire enterprises began to appear, with foreign capital invested in them. Private capital developed and consolidated itself in the sphere of trade and gained control mainly over small and medium retail trade. Finally, the predominant form of economy was petty peasant economy in the countryside and petty craft economy in the towns. At the very lowest level was the patriarchal economy of the nomads in the borderlands. Some people tried unsuccessfully to give the name state capitalism to this variegated and mixed type of economy as a whole. The name was inappropriate because it completely failed to embrace the whole diversity of economic inter-relations, and was stolen from another economic form, real state capitalism, that is, a system in which the capitalist state is interlocked with private capitalist production organized in trusts and headed by the banks. The capitalism which then existed in Russia, and which grew up mainly on the soil

provided by private trade, was very little state in character, and the state had nothing in common with capitalism, as it was an organization of the proletariat for smashing capitalism. This mixed type of economy can be depicted in the form of a pyramid divided into sections, with the main section (four-fifths of the value of total annual production) consisting of two dozen million petty-bourgeois enterprises, with a stratum of patriarchaltribal economy. Above this petty-bourgeois foundation arises a very much narrower zone of small and medium capitalist enterprises in trade and industry, not regulated by the state, and then a still narrower zone of capitalist enterprises under state regulation (mixed companies, etc). Still higher, a zone of co-operative production and co-operative exchange; and, finally, the topmost section of the pyramid, a block of socialist relations, which are not predominant but which are struggling to become pre-dominant. Taken as a whole, this entire system can be called in accordance with its two fundamental links, the upper, socialist link and the lower, petty-commodity production link a commoditysocialist system of economy.

At first all these different types of economy could not be delimited one from another; they did not occupy definite positions in relation to each other and they had not established close economic Lies with each other. Later, this was achieved, and fairly quickly. Large-scale industry and transport remained almost completely in the hands of the proletarian state, while medium industry was divided into two halves, one state and the other private, mainly on the basis of the leasing of enterprises from the state by private persons, artels [1] and co-operatives. Wholesale trade was to a large degree in the hands of state trading organs, mixed trading companies and co-operatives, and only partly in those of private merchant capital. In other words, large-scale trade was to a considerable extent socialized, or subordinated to the state either directly or indirectly. Small-scale trade, on the other hand, was mainly in the hands of private capital, and partly in those of the co-operatives. Nearly the whole of agriculture and small-scale industry was in the hands of independent commodity producers.

These types of economy began to become linked up mainly through trade. In the period of war communism there was a sharp split between large-scale state industry and peasant economy. A particular factory, say a footwear factory, would surrender its entire production to the state. This production went in an overwhelming extent to the army, or was distributed among the workers as working boots, and so on: only a small part found its way into the countryside. Even then it was not distributed according to the principle that he who had given most grain to the towns should receive most of the town-produced commodities, but often on the opposite principle: he who was poor and had been exempted from the compulsory deliveries of farm-produce had a greater chance of obtaining the manufactures than the kulak who had given his surplus to the towns. This slender link between urban industry and agriculture was realized through the state. No more direct link between peasant economy and large-scale industry existed, unless one takes into consideration the sale by the workers of a small part of the products which they received as wages, and also what was embezzled and illegally sold to the rural population. Under the new economic policy, on the contrary, the same factory was connected by hundreds of threads with peasant economy and with individual enterprises both state and private. In the first place, this factory, forming a unit in a textile trust, the production programme of which was laid down by the State Planning Commission, with credit supplied by the State Bank, was incorporated in the system of socialist state economy. But at the same time it had lively connections also with the non-socialized part of the economy: it sold printed cotton cloth to the peasants through co-operatives, it bought grain or flax from them, it nourished private trade with these cottons, and through this and through the co-operatives it was linked with private enterprises of every kind; the factory obtained cotton from the indigenous peasants of Turkestan; and so on. And in just the same way an entrepreneur with a leased soap-boiling works, while constituting a unit in the non-socialized section of the economy, was nevertheless incorporated in the economic system as a whole. He sold his soap not only to peasants but also to state institutions, he bought raw material not only from peasants but also from the state wholesale depot, he transported his goods by the state railway, he borrowed money from the state bank or from a credit institution connected with the state bank. In this way, economic systems which were different and which were virtually antagonistic in their tendencies were interlocked economically. You will certainly be interested to know how the socialist form of economy, in this medley of different economic forms, became the predominant one, at first subordinating the rest to itself and then absorbing them all in itself. This predominance was obtained by long and stubborn struggle, and even in the first stage the victory did not come by the spread of the socialist economic form as such. There was a period when large-scale industrial production, having just left the stage of war communism, wallowed about rather helplessly in conditions of exchange of commodities for money. It was sometimes beaten by petty artisan production, just as sometimes a powerful bear can be reduced to exhaustion by a pack of little dogs. They robbed it and mocked it; some of the former capitalists, ensconced in positions of

industrial management, did everything they could to inflict harm on large-scale state industry and to profit by the inability of the workers to manage all aspects of the economy, and especially their inability to conduct the trading side. The workers in largescale industry sometimes earned less than the workers in craft production, not to mention the independent artisans. In those days one heard panicky and defeatist exclamations even among a certain section of the Communists true, only a very small section, and composed exclusively of intellectuals: we should give back more, if not everything, to the capitalists, in the form of leases, because we cant cope, anyway. But they did not at the time so much write about this as think it to themselves, as memoirs from this period reveal to us. However, this critical period was lived through. Large-scale production got on its feet, and bit by bit the small fry respectfully made way for it the people who up to that time had lived by predatory waste of labour-power, stealing from large-scale industry, through their almost monopolistic position on the free market. In the first years of the New Economic Policy the countrys economy was striving, in an unplanned way, to recover its pre-war positions. The proportions of pre-war economy provided the model in relation to which all economic life was built up. With, of course, the difference that now the entire summit of production, that is, large-scale industry and transport, the entire credit system and part of wholesale trade was in the hands of a new class and the mode of regulating the economy was historically higher than under capitalism. I have already told you what positions were occupied in the countrys economy by the different economic forms. Now a progressive advance from these positions began. In the first years, the changes in the economy were rather of a quantitative kind: only later did quantity pass over into quality. The economic forms I have described, which had been established in the period of War Communism, were filled with content. The forms themselves began to change only in the second period of development of the economy, when they proved to be too narrow for further advance. Already in the first economic year the dependence of industrial development on the progress of agriculture became clear. There were months when, despite the frightful goods famine and the exhaustion of all commodity reserve-stocks in the country, especially in the countryside, large-scale industry, as a result of the harvest failure, was unable to dispose of its products, a situation not to be explained merely by the inefficiency of the trading apparatus. A further development of industry was possible only on condition that its agricultural basis be enlarged. Experience showed that when the countrys entire agriculture produced two milliard poods of grain, industry could exist only with one foot in the grave. True, the most important branches of industry and transport obtained the bulk of their foodstuffs not so much by way of purchases from the peasants as from the resources provided by the tax in kind. But the amount collected by the tax in kind also depended mainly on the amount produced by agriculture as a whole. The favourable harvest of 1922 opened a period of progress by the entire economy. Essentially, elements of this advance were observed already in 1921, but the famine

disrupted the process and did not permit industry to begin turning over rapidly and without interruptions by the autumn of 1921. In 1922 800 million more poods of grain were harvested than in the previous year. This meant that industry could expand considerably beyond the limits of 1921, in so far as this expansion would not be dependent on other conditions, such as the availability of raw materials, fuel and so on. Peasant economy began to recover fairly speedily. After being reduced by nearly 30 per cent of pre-war, the sown area began to increase from year to year. In the northern regions of the country, land never before cultivated was brought under the plough. The success of the first elementary improvements in cultivation for which the Peoples Commisariat of Agriculture had agitated increased the peasants confidence in agronomic science and stimulated great interest in further improvements. Furthermore, shoots of a new agricultural way of life began to break through by fits and starts on various holdings and in various districts; this being facilitated by the transition of the peasant communities to separate settlements and individual farmsteads. The economy also progressed in those communes and artels which had not disintegrated under the influence of NEP. After the success of the first large-scale campaigns for early first-ploughing of fallow, ploughing of autumn-ploughed land, drill sowing, and sowing of drought-resistant crops, a struggle began in the South and South-East for going over on a mass scale from the three-field to the multi-field system, making use of the increasingly wide diffusion of the growing of root crops, which facilitated cattle-raising, increased the milk yield of dairy cattle and increased the amount of animal manure; and here and there, on some holdings, cultivation in beds and sowing in strips took root. In a thousand ways, new information on improving cultivation made its way into the countryside. The agricultural campaigns of the Peoples Commisariat of Agriculture, articles in the newspapers, in agricultural journals, pamphlets on farming subjects, successful experiments on the State Farms, lectures by agronomists, agricultural exhibitions organized by districts and also on an allRussia scale, the initiative of Red Army men who had attended agronomic lectures during their service, the initiative of former prisoners of war who had seen and mastered the advanced farming methods in Germany and Austria from all these sources the new knowledge which was needed percolated into the rural areas. This knowledge fell on fertile soil, which had been ploughed up by the great workers and peasants revolution. The world war, the revolution and the civil war had thrown millions of people this way and that, widening their horizons and radically changing the stagnant, conservative psychology of the Russian peasant. The villages woke up not only to political life but also to new agricultural methods. While during a century previously the way in which the overwhelming majority of the peasants worked the land had hardly changed, now a complete revolution occurred in a single decade. The peasantry were seized by desire to extend the sown area and increase crop capacity; the famine in the Volga region had a certain positive significance in the sense that it powerfully enhanced the interest among the mass of the peasants in all measures which would make drought less dangerous to their economy.

A most potent stimulus to enlarging the sown area and increasing crop capacity was the rapid development of the urban commodity market and of foreign trade. In the period of War Communism the peasant not only had no right to sell grain, because all surpluses had to be surrendered to the state, but in the majority of instances he had no special interest in selling it anyway, as the urban market could not offer him a selection of the goods he needed. Together with malnutrition due to harvest failure as a result of the disruption of the economy, the opposite phenomenon was also to be observed in the countryside: a striving by the peasants to consume everything they produced, because it was almost impossible, or unprofitable, to sell grain and buy the goods they needed. Now, however, every extra pood of grain sold for money made possible additional purchases on the market of all the things that the peasant needed. Furthermore, the turnover of foreign trade increased with every year that passed. The peasants were now in a position to buy foreign articles as well, especially agricultural machinery. Demand and prices increased together for agricultural raw materials and technical crops, especially for flax, hemp, wool, hides and so on. This demand proceeded not only from developing native industry but also from foreign industry. And this in its turn exerted a very great influence on the restoration of those crops which had begun to fall into decline, that is, in particular, technical crops. These crops had been ousted in the North and the North-West during the civil war by grain crops, because flax and hemp could not be sold even at cost price, and at the same time it was difficult to get grain. Instead of buying grain and selling technical crops, the peasants of the North and North-West went over to growing grain crops in place of technical crops. This could continue so long as industry was in a state of disintegration and the old stocks were sufficient for that part of industry which was working, and so long as there was no foreign trade, owing to the blockade. Now, however, began the restoration in their pre-war proportions of the processing of technical crops and the trade in them with foreign countries: the prices of these products increased and the peasant economy in the regions mentioned began to go back to growing technical crops. And just because during the famine years the cultivated area in these regions had generally increased in comparison with pre-war, this opened up the possibility for these districts, now that there was an adequate supply of grain, not only to attain their pre-war level of production of technical crops but to exceed it. This redistribution of crops in agriculture as compared with the period of War Communism led to the position that the Northern and North-Western regions produced economically more profitable technical crops while the Central Black-Earth Region, the South and the South-East specialized entirely in grain crops. In just the same way the cultivation of cotton was restored in Turkestan, after having been ousted by grain during the famine years. Altogether, Russias agriculture, thanks to uninterrupted expansion of the sown area and improvement in cultivation, began to increase its production by about 10 per cent annually. This successful restoration of agriculture made possible the development of industry on a firm basis, and at the same time the export of grain abroad on a large scale. The biggest obstacle to the development of agriculture in the grain-growing districts was the shortage of cattle and the repeated harvest-failure in some parts. The famine in the Volga region and in Southern Ukraine led to especially big ravages among draught animals. All this called for extraordinary efforts on the part of the Soviet power in the direction of mass-scale purchase and distribution of these animals. Horses were bought

not only in the districts where nomads carried on animal husbandry (which had also contracted owing to the dearth of fodder) but also in all the other parts of the Republic. The shortage of farm animals also had two results which were completely different from the economic standpoint. On the one hand it evoked an enormous interest among the peasants in motor traction and transport, which began to be used with great success in the fields of the South and South-East. Here arose the first large-scale agricultural concessionaire enterprises, mainly financed b\ German capita], and the colonial immigration of unemployed European workers. On the other hand, the purchase by the Soviet Government of tractors for horseless peasant households was increased. A large number of tractor squads were formed, which ploughed the peasants land on the basis of definite contracts with the Government. The shortage of motor-drivers was overcome, on the one hand, by the influx of skilled foreign workers who emigrated to Russia partly under the influence of unemployment at home and partly for class and ideological reasons; and, on the other hand, by the development of technical vocational education in Russia itself. At first the S.R. and Narodnik circles among the agronomists and economists showed an ironical and sceptical attitude to the possibility of developing motor traction and transport in Russia, all the more because success in this direction sounded the knell of all their reactionary petty-bourgeois hopes concerning the viability of individual petty economy. But the years of intense expansion of motor traction and transport proved the complete possibility of its application in Russia, especially in the South-East, which area is not only favourable to the use of the motor car owing to physical conditions but also lies along the route by which petroleum is transported from Baku up the Volga. The lack of farm animals produced another, contrasting tendency in the peasant household, which rejoiced the heart of all the petty-bourgeois utopians. Where there were neither enough draught animals nor tractors, the peasant household took a temporary turn towards the Chinese type of farming or a type of suburban market-gardening. In these areas they began to practise the cultivation of wheat in beds. The plough was often replaced, in the absence of horse-traction, by an iron spade and a mattock. On the wonderful black earth this sort of cultivation gave excellent results from the standpoint of crop-yield per desyatin [2], but on the other hand it led to a contraction in the sown area and the transformation into waste-land of the parts of land which were left uncultivated. But this system of economy could not persist for long. As soon as each household acquired a horse it gave up this system, retaining only some positive aspects of this intensive cultivation for a small part of the sown area. Thus we see that the first period in the development of agriculture, which we have described, consisted above all in the restoration of peasant farming to its pre-war positions, and in a number of elementary improvements which had not been practised in the countryside before the war. The only exception was the areas where the use of motorvehicles was developed and where the peasants succeeded in going over to the multi-field system of economy. On the whole, the technical base of petty peasant economy remained the same as before.

But all this progress demanded enormous efforts by the peasants themselves and by the Soviet Government. Most serious help was rendered by the Soviet Government to the peasant economy in the form of seed-loans, especially in the areas where the harvest failed, and in the form of long-term agricultural credit. This credit played a very big role both in reviving peasant economy, especially its weaker sections, and in establishing the closest economic ties between peasant economy and the large-scale industry and banking system of the Soviet Government. The credit was at first not large, but it increased with every passing year, especially when foreign capital was drawn into the work. Long-term credit was at first provided through a special long-term credit department of the State Bank. Later this department was transformed into a special agricultural joint-stock bank, in which the chief role, after the State Banks, was played by the Peoples Commissariat of Agriculture. Its shareholders were also those trusts whose products were supplied on the basis of long-term credit to the peasants, especially the trust grouping agricultural machinery works and artificial fertilizer factories. The agricultural bank distributed sums of money and also goods in kind for example, agricultural machinery and artificial fertilizers. When the state currency was still unstable, it was absolutely necessary for the bank, so as not to lose big sums by the fall in the value of the rouble, to have its loans repaid not in depreciated paper money but in actual agricultural products, equivalent in value to the loan advanced, plus a percentage. But this form of remuneration was reasonable not only because of the fall in the value of money it also possessed an important economic justification of a general kind. The system of loans in kind and repayments in kind led to the elimination of private commercial middlemen between the peasants and large-scale state industry. Both parties benefited from this system, since the potential profit of the private middleman remained in the pockets of the state and the peasantry. This link between the peasants, on the one hand, and state industry and the state bank, on the other, was retained even after the paper currency had been stabilized. As a result, the state began to receive, in addition to the tax in kind, without any intermediaries, an ever-increasing amount of agricultural produce, and receipt of this produce was guaranteed to it even in years when harvests were not particularly good. This was a more or less stable fund on which developing industry could rely, together with the tax in kind. The agricultural produce received by the bank did not, of course, only go to pay for the products of those factories which worked for the peasantry; it was distributed among all the industrial enterprises which had dealings with the bank, whether directly or through the bank of trade and industry. The raw material received from the peasants in accordance with loans was partly distributed among state enterprises and partly went into the foreign trade fund. From this source the state bank obtained foreign exchange which enabled it to meet its obligations abroad. The position was that the state bank which advanced credit to peasant economy itself received credit from large-scale foreign capitalist firms, especially those which marketed in Russia goods which were required by the peasants. Foreign capital, which at first endeavoured to establish direct links with the countryside, was obliged in the end to resort to a form of economic relationship with Russias peasantry which was realized through the organs of the Soviet state; in the given instance through the bank of long-term credit. The resources of the state bank, together with those of industry, plus foreign credit and special loans, made up the fund for long-term credit to the Russian countryside. The tie between the peasant economy and industry through the banking system, or the smychka (bond), as Lenin

called it, developed slowly at first and was at the beginning insignificant in comparison with the volume of ordinary trade between town and country through the co-operatives and the private trading system. Within a few years, however, this tie began to assume increasing importance and proved itself a more progressive form of distribution than all the other forms of exchange in the socialist commodity system of economy. Trade on credit and credit in general (including credit for land-improvement) was found to constitute a most advantageous means of influencing peasant production as a whole. The influence of the socialist state on the peasant economy, which had failed in the form of the confiscation of surpluses in the war communism period, proved to be more viable in this new form, which was completely comprehensible and acceptable to the peasants. The receiver of loan repayments gradually became the controller of the kind of produce received, and the customer to whose needs and requirements the peasant economy had to adapt itself. You will ask what were the intermediate links between the long-term credit bank and the peasant economy. The role of lower links was played by credit societies and also by special organizations of the receivers of credit which were formed by the state bank and its local branches, organizations which arranged for the distribution of credit and checked on the making of repayments. At the start, petty-bourgeois and reactionary Narodnik elements tried to organize credit co-operatives on unified, centralized lines, and to counterpose them to the state organs. Very soon, however, practical experience revealed that the leading organs of these organizations, and also those of the agricultural co-operatives, were quite useless ballast between the state, as producer, and the peasantry, as purchaser, of agricultural machinery, fertilizers and other industrial products. Furthermore it became apparent that these leading organs were engaged in political intrigue, and served to facilitate not unity but disunity between the country and the town. The existence of these leading organs clashed with the basic principle of cooperation itself, namely, to do without any superfluous middlemen between producers and consumers. In this particular instance, moreover, the credit co-operatives themselves had utterly insignificant resources of their own and could not sur-vive without the credit offered by the state-producer and by foreign capital, especially in the period when the currency was unstable. Credit societies, peasant associations of receivers of credit and other kinds of co-operative constituted the organizational intermediary mechanism which joined the peasant economy to large-scale socialist production. Thanks to this apparatus, and also to the ramified system of the banking inspectorate, the risk undertaken by the agricultural bank in its credit operations in the rural areas was reduced to a minimum. In concluding my description of agriculture in this period, I must say a little more about the social grouping in the countryside which were then to be observed. With the transition to the New Economic Policy, class contradictions in the countryside naturally began to sharpen. That section of the kulaks which had not been finally destroyed by the

policy of the Committees of the Poor in 1918 began to revive. In addition, a stratum of well-to-do elements emerged from among the middle peasants. The economically stronger section of the middle peasantry took this road those who possessed sufficient animals and implements and who at the start benefited by all the advantages of the New Economic Policy. With the opportunities now opened for trade in agricultural produce, the kulaks and this section of the middle peasantry were the first to throw themselves into extending the sown area and they formed the first cadres of agricultural production for the market, which had almost disappeared after the October revolution. [Translators note: Here a line is missing from the text, which continues, after repetition of an earlier line] of high prices for grain, it was precisely these strata that most successfully utilized the favourable situation on the grain market. At the time when the entire peasantry was filled with desire to extend the sown area, only this section of the rural population had the maximum material possibilities of carrying out such an extension. At first a tendency to favour isolated farmsteads was observed in this group, an aspiration to have their land separately and along with this a strong endeavour to improve methods of cultivation. The weak or quite impoverished part of the peasantry, most of whom had no horses, were in a different situation. Wishing to retain their holdings at all costs, the weak section of the peasantry had to hire horses, obtain loans of seed, and so on, from the first group, and in this way they fell into serious economic dependence on the well-to-do elements in the countryside. That section of the poorest peasantry which was unable to work its strips of land leased these strips to the neighbouring peasants. These poor peasants were in part transformed into workers employed for wages by the kulaks, or else they went to the towns [sic] to find some kind of work for the state, such as timber-felling, floating timber, repairing railway tracks, and so on. With the support of the agricultural bank, a considerable section of the weaker peasants got on to their feet and turned into middle peasants. Another section, however, tumbled down into the ranks of the poor, and began to recover economically only in the next period, when the mass development of complete agricultural producers co-operatives began. Middle-peasant holdings constituted the main feature of the countryside. The economy of this fundamental stratum of the rural population had been extremely badly shaken during the civil war and the period of repeated harvest failures, but now, in years of good harvest, it began to recover. The middle peasants also benefited to some extent from high grain prices, though they sold very little, owing to the insignificant amount of their surpluses. This stratum showed great interest in Co-operation, but as regards improving methods of cultivation it proved on the whole more conservative and less lively than the first group, that of the well-to-do. This stratification of the rural population and the marked separation from the rest of the economically strong and well-to-do elements, and also the development of wage-labour in the countryside, could not, however, assume such a scale and such forms as might have led to the emergence, if not of large then at any rate of medium capitalist enterprises (we are not talking, of course, about the large-scale capitalist agricultural enterprises of the foreign concessionaires). The reasons were these. First, the political rule of the proletariat in the towns, which gave support to the poor strata of the rural population against the rich and mitigated the exploitation of the former by the latter. The state organs restricted by legislative means the exploitation of the poorest rural sections, annulled enslaving contracts and thereby obstructed the process of capitalist accumulation. Then the state

imposed progressive income taxation not only in the towns but in the countryside as well, thereby making use of capitalist accumulation at one of the poles of rural life for what was called primitive socialist accumulation. Finally, the third reason was the slowness of this whole process; even in conditions favourable to agricultural capitalism it usually dragged out over many decades. In the case we are considering, history did not allow a long time for this process, because in the second part of the period we are studying there began the organic influence of large-scale urban production and of electrification upon petty peasant economy, as a result of which a process began of transformation of the entire technical basis of the peasant economy as a whole. Under these conditions, the process of capitalization was driven into a blind alley, as a result of mass organization of the agricultural producers into co-operatives. But we are getting a bit ahead of ourselves, and so let us turn back to the period under examination and see what happened with the state farms and collective farms. State farms, organized on a business basis, after a few years of development under normal conditions, very soon established themselves soundly and began to play a very big role, especially in helping and improving peasant economy generally. Nearly all of them produced improved seed, and by exchanging their grain for that produced by the peasants they made possible to a very great extent an improvement in the crop-capacity of the peasant holdings. They acquired nurseries of improved breeds of animals, and by means of an extensive network of breeding centres they greatly helped to improve the peasants animal husbandry. At the same time, in a period of high grain prices both in the country and on the world market it was very advantageous for state capital to be invested in the development of large-scale grain farms. Proletarian farming also achieved great success, many state farms which the Peoples Commissariat of Agriculture regarded as unprofitable beginning to produce a profit when they were transferred to management by factories. True, the spontaneous striving by factories to acquire their own farms at all costs became less intense when the general grain shortage in the country was ended, and when the ratio between the prices of the products of large-scale industry and grain prices reached something approaching the pre-war position. The workers state farms thereafter possessed not so much an economic as a hygienic significance, serving as points of contact between industry and agriculture and centres for summer holidays for urban workers and their children. Of great importance were the new state farms set up in the borderlands, where the state brought under cultivation a large area of land hitherto waste, and where several very large animal-raising enterprises were established, which served as sources of improvement of the horses of the peasant economy and also produced raw material for foreign trade on a large scale. This construction of large-scale enterprises was especially intensified when the success of the first large-scale concessionaire enterprises of foreign capital in South and South-East Russia became apparent; these enterprises, after assigning, in accordance with their contracts, from 10 to 15 per cent of their produce to the state, still brought in a very substantial income to their owners.

Out of 15,000 communes and artels which were counted at the beginning of the period being studied, one section broke up, with some of the former commune members becoming very industrious and progressive farmers of the well-to-do type. Another section of these collectives survived until the stage when, in connection with the influence of large-scale industry and electrification, the mass turn to co-operation began throughout the peasant economy. Thus, during the first half of the period under examination, Russias peasant economy not only attained the pre-war level of production but even exceeded it. However, during this first decade, large-scale proletarian industry subordinated peasant economy to itself chiefly by means of exchange (trade, long-term credit), and only to a small extent on a production basis, through the State farms. More substantial changes began only in the second decade; how this happened we shall relate after we have seen what had happened in the sphere of state industry.

Footnotes
1. An artel is an independent team of workers, self-employed and self-organized, working jointly and sharing the proceeds. [Trans.] 2. A desyatin is equivalent to 2.7 acres. [Trans.]

The industry of Soviet Russia in the decade of NEP

In the lecture we shall study the development of industry in Soviet Russia during the first decade of what was called the New Economic Policy. After the transition from War Communism to NEP the fortunate enterprises were found to be those state enterprises which were able somehow or other to trade with the free market. The Soviet States heavy industry, however, remained in a very difficult situation, as it sold only a small part of its products on the free market the bulk of its production being handed over, or, if you like, sold, to the state and to state enterprises which were extremely unpunctual payers. Transport in particular was in a bad way, with receipts falling substantially short of expenditure. The deficit in transport was not completely covered, owing to the deficit in the state budget as a whole, and the restoration of the fixed capital of transport proceeded very slowly indeed. However, even the branches of industry which were beginning to trade, on the basis of the wretchedly small purchasing power of the population, again began to ask for the breast of state

supply, that is, in plain words, to ask for a share in the resources which the state received by way of the tax in kind, taxes paid in money, and the issue of paper money. To this period belong the howls of the industrial executives about what was called the sales crisis. The harvest of 1922 altered the picture. As a result of the harvest, demand increased in the countryside for manufactured products, and the trading part, that is, in fact, the greater part, of state industry, increased its resources from the springs of the free market. No sales crisis occurred. On the contrary, shrieks now began to be heard regarding a goods famine: it was said that the countryside would readily buy anything offered and that industry was short of raw material. At the same time, the tax in kind was coming in better, and the state, having to maintain only a reduced army and bureaucracy, was in a position to satisfy fully the demands of industry for agricultural produce, now it sometimes came up against a sort of sales crisis of its own. In this period the nationalization of large-scale industry and transport played a colossal role in the development of the countrys economy generally, because the government supported with state resources such socially-necessary branches as transport and the fuel and metal-working industries which, if they had been subjected to the destiny of the market, not only would have been utterly ruined but would have dragged down with themselves into the abyss all the rest of industry. Of very great importance also was the subsidizing of the electrical industry and the building of new electric power stations. The state industry of this period received the raw material, fuel and foodstuffs it needed from two sources: from purchases on the free market and from purchases from state enterprises and the state itself, since the latter disposed of large resources through the tax in kind. The products of industry were also distributed through two channels: sale on the free market and sale to the state and state enterprises. These relationships of buying and selling among enterprises of the state-owned group, though outwardly they bore a capitalist appearance, were in essence only a special way of distributing values within the circle of socialist economy. What is necessary in order to understand both this period and the subsequent evolution of socialist industry is always to distinguish the two sides: the linking of large-scale industry through the market with the non-socialized part of the economy, and the linking of state enterprises with each other on the basis of buying and selling. State enterprises were divided, in accordance with this distinction, into two groups: those which obtained the greater part of the elements of production they needed through exchange with the non-nationalized part of the economy, on the basis of the private market, and those which kept the greater part of their production within the socialist circle, whether through non-paying transactions with the state or through transactions for payment with other state enterprises. Extreme examples of the two types were: a factory which sold all or nearly all of its products on the free market and which bought all its raw material there, as also did its workers all their food; and a works making military equipment, or a shipbuilding enterprise, whose production remained almost entirely within the state circle and which bought or sold only a very small amount on the free market. In order to define the degree of connection with the free market of socialist industry as a whole, it would be necessary to add up all the purchases and sales by state enterprises in the non-socialized part of the

economy, and to compare them with the total of mutual exchanges between state enterprises and between them and the state. An analysis like this would reveal the very great difference in the situation of enterprises of the first and second types and the duality in the position of those enterprises which were connected to approximately the same extent with the state and with the circle of private economy. Those enterprises which existed mainly by exchange with private economy were, of course, completely dependent on their market for sales and their source of raw material, that is, on the condition of the peasant economy, that is, on the harvest. The second group depended above all on the amount raised by the tax in kind and on the resources of the state which were free to be made available to subsidize heavy industry and transport, the market for which was the state itself or state enterprises working for the market. The state functioned here as the main source from which deficits were covered, just as in the case of transport; either it was the only market for sales, as with the war industry, or it was the collector of capital for new construction, as was the case with the building of new electric power stations. True, the amount raised by the tax in kind also depended, in the last analysis, on the harvest, but not so directly as in the first case, because the tax in kind was collected in years of bad harvest, too, when the peasants were left with very little to spend on buying the products of industry working for the market. In any event, in the 1920s the position of industry was such that the burden of heavy industry and transport was too great to be borne by that section of industry which worked for the market. This burden would have knocked over and crushed light industry too with its great weight, if the state had not brought to the aid of heavy industry the resources which it received by way of taxes both in kind and in money from the non-socialized part of the economy, that is, above all from petty production. In this period industry was turning out only about one-fifth of its pre-war production, while the profitability of peasant and artisan economy had been reduced only to half of its pre-war level. Political power in the hands of the proletariat was thus a powerful factor working for the redistribution of the total national income, a factor working to subsidize large-scale industry from the resources of less-disrupted petty economy. In this period they also finished building such very large electric power stations as the Kashira, Kizel, Utka and Volkhov hydrostations and a number of smaller ones. This restoration of the fixed capital of heavy industry would, of course, have been quite impossible without state support. Thus, with state aid, heavy industry was enabled to hold out until better days arrived. At the same time, light industry working for the peasant market, thanks to good harvests and the increase in the purchasing power of the peasantry, itself became more solvent. It was now able to pay in full for freight to the transport organization, for fuel to the coal trust, for machines and equipment to the engineering works, for electric power to the power stations, and in this way it rendered support to heavy industry. But industry in the first years still developed more slowly than might have been expected given this great stimulus provided by the advance of agriculture. If, thanks to successful collection of the tax in kind, on the one hand, and, on the other, intensified commodityexchange with the countryside, industry was in a position to process 200-300 million gold roubles worth of raw material more than in previous years, this meant that it was possible to expand industry not only by this but by a much greater amount, since this

figure was doubled and trebled in the process of working-up and augmentation of the raw material (for example: a raw hide would be bought for, say, 10 gold roubles. but the leather articles made from it would be worth, say, 50 roubles; and so on). The progress of industry was hindered, however, by the fact that, after creating its circulating capital, it had to restore its fixed capital and also to increase wages considerably, year by year. As regards the increase in the number of working enterprises, here the expansion was even slower, as the industry of this period, owing to the fact that some enterprises were not work ing at full capacity, produced very expensive goods, in spite of the low level of wages. The task of the economic organs consisted not so much in getting going as many enterprises as possible as in compelling those working to work to their full capacity. This concentration of production led to a reduction in the prices of industrial products and greatly intensified exchange between town and country. The rapid expansion in the number of working enterprises set in only when grain prices began relatively to fall. Let us now see how particular branches of industry developed over that decade from the standpoint of the quantitative aspect of production. Those branches began to recover more quickly, of course, which worked in the main for the peasant market and which did not require especially large outlays for the restoration of their fixed capital. The textile industry recovered fairly rapidly, and likewise that part of the iron-working industry which worked for the rural market. But manufacturing industry very soon carne up against another obstacle the shortage of cotton. Cotton production in Turkestan was re-established much more slowly than manufacturing industry. The state had to buy large consignments of cotton abroad, and a considerable part of the republics gold reserve went to pay for these purchases. Subsequently the fate of the textile industry was found to be compietely dependent on the success of our foreign trade. The difficulty was made all the worse by the circumstance that for several years our petroleum industry had a very small surplus for export, and the principal export commodities were timber, furs, platinum, and an ever-growing quantity of grain. As regards flax, hemp and raw material of animal origin, foreign trade in these goods began to develop only after peasant production of them had begun to exceed the demands of home industry. As regards the fuel industry, the Donets basin reached its pre-war volume of production in five years, while the Ural, Siberian and Moscow mines considerably exceeded it. The output of peat was in excess of pre-war already at the beginning of this period, and in connection with a number of inventions in the field of the extraction and burning of peat this branch of industry was soon on the upgrade. The petroleum crisis of 1923 and 1924 was overcome, partly through an increase in production achieved by our own resources and partly by the help of foreign concessionaires. The output of petroleum in the Emba district was considerably increased. The metal-working industry was restored at the same time as the coal industry went forward. Metal-working in the South reached the pre-war level sooner than the Urals area, which found itself in a blind alley owing to the predatory extermination of timber carried out in the preceding period. The Urals began to develop only as a result of the joining of this area with the Kuznetsk area by a main railway line, and on the basis of Kuznetsk coke. In this first decade they began to work the newly

discovered copper deposits in Bogoslovsk district and the iron ore in the area of the Kursk magnetic anomaly. The engineering industry developed in two directions: in the field of agricultural engineering and in that of the production of instruments of production for industry and transport. As the chief weakness of the agricultural implement works was that they produced machines of a variety of types, the basic task here was to unify production. To attain this was all the barder because special works for making agricultural machinery were few in Russia, and the making of this machinery was carried on by most engineering works, as a sideline. To build new works would have required special resources which the state did not possess. At the same time the production of tractors began to return to normal. The other section of the engineering industry, which worked for industry and transport, developed in the first place mainly at the expense of the state, from which it received constant subsidies. Its chief centres, apart from the South, were Petrograd and the Urals; the fuel problem was solved for Petrograd by the building of the Volkhov hydro-station. The transport industry attained its pre-war level already in the first decade. Shipbuilding for internal waterways was also restored, with the aid of British capital. As regards sea transport, owing to the cheapness of British freight-charges and the possibility of obtaining the necessary vessels abroad, it proved unnecessary to provide Soviet Russia with a merchant fleet of its own. The aircraft industry made great progress in Russia, developing with the collaboration of German capital. Especially worthy of mention in the field of the chemical industry in this period was the rapid growth in the production of artificial fertilizers. The phosphorus deposits in Vyatka, Kostroma, Tula, Orel and Chernigov provinces were worked on a large scale. These workings, which were at first carried on by semi-handicraft methods, were gradually transformed into one of the most important branches of our industry, producing not only for home demand but also for export. Also to be mentioned are the oil-mills which were built in Siberia to process cedar-nuts on a large scale. The transport situation at the beginning of this period was indeed tragic. Transport is a branch of the economy which can function and progress only if the entire economic organism is in adequate health and there is a lively process of exchange going on within it. It exists and develops on the basis of excess accumulation of capital in the rest of the economy. At the beginning of the period under examination the whole of industry in general was hardly ticking over. All the worse was the state of the transport system. Having begun to fall to pieces already in the second year of the world war, it survived through the revolutionary years by wasting its fixed capital and savagely exploiting its labour power. Furthermore it was, in terms of mileage of track, disproportionately large for the level of the economy as a whole one-fifth of pre-war for industry, one-half for agriculture. The improvement in the receipts from the tax in kind, and also in the financial resources of the state, together with the increase in the profits of light industry working for the market, the expansion of trade generally, and of paid freights, all increased the resources of the transport system. Some help was also rendered to transport by small railway loans from abroad, chiefly taking the form of the railway material needed. It proved impossible to revive transport as a whole in the first years. First of all the most important main lines, leading to the ports and connecting the capital with the

South, the Caucasus and Siberia, had to be restored. The rest of the network began to revive only subsequently, and then rather slowly. Fresh railway construction began only in the fifth year of NEP, and mainly took the form of completing lines and spur-tracks which had been begun previously. At the same time motor and air transport began gradually to develop. At the start of NEP travel by car was available only to a very narrow circle of people, above all to the so-called commissars, about whom you now read so much in historical writing about the great revolution. The motorcar was beyond the reach of the ordinary worker. But already half-way through the decade every factory possessed motor vehicles, not only for carrying goods and for administrative journeys but also to serve the factorys workers and their children. The motor-car also began gradually to oust the horse-drawn cab; at the end of the decade, travel by horse-transport in the big centres of population was undertaken only as either a luxury or a joke. It now remains for me to say a few words about the progress of electrification in this period. If you realized, comrades, how poor the country was at the time of the revolution, if I were to describe to you the daily menu of an average worker and his family in those days, you would appreciate what heroism, what reckless bravery in the struggle against devastation, the republic showed in embarking already at this period on carrying out a plan for electrification. Any new piece of construction which will give a result in terms of production only after the passage of several years can be realized only in a society where accumulation is proceeding adequately, where part of the surplus value (if it is a capitalist society) or of the surplus product (if it is a socialist society) can be withdrawn from current expenditure to maintain labour power, and reproduction on the old scale, on the new construction works. In the Soviet Russia of the 1920s there was, of course, no such surplus available. On the contrary, the most elementary requirements of the countrys population, and in particular those of the working-class population, went unsatisfied. Under such conditions the building of new district electric stations meant a deduction from the already miserable budget of the worker and the peasant for the sake of the future; it was a great, mass act of sacrifice by the people in their striving for progress. Soviet Russias electrification plan was conceived for a ten-year period. In its original form, however, it was not realized in this period, though on the other hand something was achieved in this field which had not been foreseen by the plan. Actually, after the building of the power stations at Shatura, Kashira, Utka, Kizel, and the Volkhov hydrostation near Petrograd, they then went on to build district power stations in the Donets, Nizhny-Novgorod and Chelyabinsk areas, newly electrified the Baku district, built a station on the Dnieper rapids, and so on. In addition, a specially-formed Russo-German transport company began surveying for the laying of an electrified super-trunk-line to extend from Berlin through Moscow and Irkutsk to Vladivostok, which necessitated the establishment of a number of new hydro-electric stations along the track. Furthermore, small power stations were put up on a wide scale. Every county [1] town regarded it as a matter of honour to have a small power station to serve the neighbouring countryside, if it could not be linked to the nearest district [2] power station. All these new power stations began to exert an enormous influence both on economic life and on social and everyday relations in the republic. The electrification of that period,

even though on a scale which now seems to us infinitesimal compared with what we have achieved, led 1. to a very great saving of fuel in all enterprises which went over to electric power; 2. to a very great saving for the transport system, relieved of millions of poods of wood, coal and petroleum (most of the power stations worked on local fuel, that is, local coal, peat, shale, and so on); 3. to a very great saving of labour-power in the enterprises where, after electrification, mechanization of labour took place and crude physical labour was replaced by the work of machines (chopping and sawing of wood, loading and unloading and so on). At an approximate calculation, already in this period electrification resulted in an annual saving equivalent to the work of more than a million men in one year. Here I shall conclude for the present my account of the state of industry, and in the next lecture I will deal with the position of the working class and the system of distribution in that period.

Footnotes
1. uyezdny 2. rations

The The training Red engineers

wages of

skilled

system workers

THE position of the working class under NEP improved in proportion as industry and agriculture were restored. Already in the first year of NEP, when the number of workers in the factories was reduced and most of them were put on piece-work, the workers wages rose and their position was somewhat bettered in comparison with previous years. The yardstick I use means nothing to you if I say that the average wage at the beginning of this period was from ten to 15 gold roubles. (They calculated in those days in gold roubles at pre-war prices, translating the value of paper money and rations into pre-war

gold roubles.) But this wage was paid irregularly. When the transport system proved unable to cope with freights, and the distributory apparatus of the Food Commissariat made mistakes, when paper money did not reach the outlying areas in time, or was insufficient, the worker did not receive even this wretched wage when he should have received it. True, at the beginning of NEP the worker was provided with a number of services gratis (accommodation, water, light, travel, education for his children, newspapers and books, and to some extent entertainment). But later, payment was introduced for all these services, except childrens education, and wages were raised accordingly, though in most cases not to an adequate extent. After the harvest of 1922 the position of the workers improved a little more, and this was not a mere seasonal improvement. I must tell you that in the civil war period the workers position improved seasonally, in connection with the collection of the tax in kind in the autumn and winter, and worsened in the spring and summer, when the agricultural produce collected by way of the confiscation of surpluses proved insufficient. Now a certain evenness in the distribution of state resources over the whole year had already been achieved. At the same time, the most important products which the workers had to buy, that is, mainly, foodstuffs (except fats), fell in price from the famine levels of the civil war period. The following years were years of uninterrupted improvement in the workers position. Every new step forward by industry meant not only an increase in circulating capital in the enterprises, with the possibility of extending activities and repairing equipment, but also provided certain resources for raising wages. In general, real wages increased by 10 to 15 per cent each year. At the same time a characteristic difference in the method of distribution of the commodity-socialist system of economy, as compared with a purely capitalist system, was to be observed in this period. Under the capitalist system overproduction usually resulted in the suspension or contraction of production until the goods lying unsold in the warehouses had been dispersed in circulation. With the nationalization of large-scale industry this method of distribution did not always have to be followed. Besides the effective free market and the effective market of state industry there was the market offered by the workers as consumers. And, for example, when overproduction occurred, say, in manufacturing industry, the state could distribute whatever could not be sold on the free market among the working class as a whole, crediting these goods to wages. In the same way as there was a system of credit whereby resources were spent at the expense of the future income of an enterprise, so in this case the state gave an advance to the worker-consumer at the expense of the future income of the economy as a whole. Leaning now on its socialist leg and now on its bourgeois one, and manoeuvring in this way, the state solved the problem of a sales crisis in the following fashion. The production of enterprises which manufactured consumer goods was divided into a portion which encountered effective demand on the free market and a portion which was made available to the state to increase the real wages fund. Those enterprises which produced this surplus (from the capitalist standpoint) were paid by the state in accordance with its resources, either receiving the full value of this surplus or else merely a subsidy to enable them to continue production on the same scale. The state made these purchases of surpluses and gave these subsidies out of the resources which it obtained by cutting down expenditure on the bureaucratic apparatus. Economically such a solution of the

problem was facilitated by the fact that the states payments to its own enterprises which were engaged in processing work mainly took the form of supplying them with raw material. And this portion, as I have already mentioned, was always less in value than the product which was manufactured from this material. The chief difficulty here was not to solve the sales crisis in a socialist way by reselling the surplus to the state, but to ensure that the state always had an adequate reserve fund to subsidize expanding industry. This problem was solved in proportion as the states share in the national income increased, at the expense of petty production. Thus our grandfathers learnt gradually to make use at one and the same time of socialist economic relations and of those capitalist forms for the abolition of which the time had not yet come. The problem of overproduction of instruments of production was solved in approximately the same way. In the period we are studying, one section of the state enterprises regularly manufactured more machinery and metal than the other section could purchase, owing to the shortage of fixed and circulating capital The state economy became, so to speak, entangled in the snares of capitalist forms of calculation. But since circulating and fixed capital does not drop from the sky but is created in the process of production in industry itself, the states task here too was to cut through this contradiction between capitalist forms of calculation and the real possibilities of developing production, by drawing on the reserves of the states own funds. The state in this case too gave the necessary subsidies for the purchase of instruments of production by these factories which lacked resources for this purchase, or else gave subsidies to the enterprises producing instruments of production, in accordance with what they produced. At this point we are touching on the question of how the central management of the entire state economy was organized at this time. We shall speak in more detail about this later. Thus, already at that time, large-scale socialist industry began directly to serve the purpose of improving the position of the workers and enlarging their consumption. True, it was still extremely difficult to strike the balance between what could and should be assigned to the workers consumption fund and what must be capitalized, for expanding fixed and, in part, circulating capital. The state economy in this period struggled with the same sort of Hamlet-like problems as a man who has neither boots nor breeches and the money to buy only the one or the other but not both. While the workers of Soviet Russia in the second half of the first decade of NEP began to eat and dress no worse than before the war, and their real wages equalled and sometimes exceeded the wages of workers in other European countries, in the field of housing their situation was very much worse. The increase in the urban population now outstripped the process of restoring ruined houses and building new ones. In capitalist society a definite part of capital was always devoted to the repair and new construction of houses. This was the case in our country before the war. During the war and the revolution not only did all new building cease but the means were lacking even for current and ordinary repairs. The destruction of dwellings was so extensive that in spite of the great reduction in the urban population, especially in the urban working class during the famine years, the buildings available and fit for living in were inadequate even for this much reduced number. In the first years restoration in the housing field began mainly with the repair of existing

structures, and there was little new building. What new building there was began chiefly in Moscow, where for the first time a few huge new blocks of workers flats, constructed according to the last word in housing technique, were put up amid great celebrations. The completion of these structures was a holiday occasion not only for the proletariat of Moscow who were going to live in them, but for the whole republic. However, neither these comparatively few constructions nor the intensified repairing of old blocks of flats could solve the housing crisis. In proportion as industry was restored, not only did the workers who had fled to the villages during the famine years now return to the towns, but also the unemployed peasants belonging to those strata which had not succeeded in restoring their economy began to be drawn towards the towns. The drift from the villages to the towns increased also owing to land hunger and over-population, which began to make itself felt in the countryside. In addition, the building and repairing of the towns attracted a mass of building workers from the rural areas. Despite the fact that the task of restoring the towns was very greatly helped by the organization of special joint-stock companies for building activity, the shareholders in which were the workers and office-workers who were going to receive flats in the newlybuilt blocks, and despite the drawing of foreign capital into the building industry, the crisis was not overcome, and you can judge the dimensions of it by newspaper articles which you can find in our archives. The government was obliged in those days to establish in the vicinity of the large towns numerous workers settlemens composed of wooden bungalows, which have survived, as you know, to the present time, and tram lines had to be laid to serve these new inhabited areas. In general, as you know, the question of the destiny of large towns was not decided quite in the way that had been indicated in the socialist writings of the capitalist period, which had said a lot about what was called the urbanization of the country-side. To break up a big town and scatter it over the fields of the countryside proved to be technically disadvantageous and in some respects economically inexpedient as well. Of course, all unnecessary outgrowths of a big town were transferred to its edges and to the rural areas. You know that quite a lot has been done in this connection in the last half-century. But you also know that we are far from having completed this work, and it is still uncertain when it will be completed. Those factories which cannot be shifted to where the sources of their raw material are to be found work more profitably in a big town amidst a lot of other factories, from which they obtain everything (apart from raw material) that they need for production, and the products of these factories are often put to use precisely in a big town. To break up this huge unified workshop, which is what a big town is, was found to be often harmful from the economic standpoint. Furthermore, the big towns could hardly be replaced as cultural centres, in spite of all the advances in broadcasting. Therefore, naturally, the solution of the problem had to be sought first and foremost in transport, and not in breaking up the big towns. Already, in the decade we are talking about, very great attention was paid to transport problems. In those days, it is true, communication between Moscow and the suburban areas was effected chiefly by railway and by electric trams along the suburban roads; air communication was not used on a mass scale as it is now. But this has merely made travel quicker in the Moscow periphery

and the suburban area in which tens of thousands of workers are able to live and enjoy the advantages of holiday-cottage life in the summer. White today a worker can live a hundred versts [1] from Moscow and fly to and from the city, in the morning and in the evening, by passenger plane, in those days he could not live further than thirty versts out, having to travel in by railway or tram. The workers triad not to waste the time they had to spend in travelling, and usually read the newspapers in this period. You can get an idea of the poverty of housing in that epoch from the photographs which have been preserved in the museum of the revolution, and also to some extent from the works of our historical painters, in the Tretyakov Gallery. We will now see how already at that time the system of socialist distribution was originating which prevails amongst us today, and which still, alas, does not correspond to the Communist ideal: from each according to his abilities, to each according to his needs. In the period of War Communism a bold attempt was made (partly under the influence of economic necessity) to leap over the love cultural level of the masses and introduce a system of equal rations for all. There was hardly any difference between the ration received by a skilled worker and an unskilled worker. In the beginning there was only a very slight difference between the remuneration of a worker and an engineer, of a worker and a most responsible Soviet functionary, not excluding the Peoples Commissars themselves. Each enterprise received an allotment of fond proportional to the number of workers employed in it, without any relation to the enterprises production. It got the same whether it fulfilled its task 100 per cent or only 10 per cent. As regards distribution within the factory, a worker who produced the maximum output got the same as one who produced the minimum. It is more correct to regard this experiment in distribution not as an attempt at semi-socialist distribution but rather as a means of purely physical maintenance of the proletariat in being during a certain period of the civil war. Looked at in this way, distribution in the period of War Communism appears in a quite different light, and from the standpoint of the physical maintenance of the working class not maintenance or development of production this system probably justified itself. But such a system could not continue for a long time even in the period of War Communism. In some branches they needed to increase production at all costs, as, for example, in war industry, feverishly working to serve the front. Given the inadequacy of resources it was found necessary to pick out what were called shock branches of industry, and shock enterprises, which were specially favoured. This process of selecting shock units was later extended beyond the field of industry. Equality in wages had thus been violated even before the beginning of NEP. In addition, piece-work was gradually introduced, and the payment of specialists was increased; there were nearly 40 grades in the tariff of wage-rates. Still more sharply did inequality manifest itself as between unmarried workers and workers with families. In the War Communism period there were free meals for children, including those of the bourgeois elements. Under NEP this institution was almost completely abolished, and workers children had to be fed by their parents instead of by the state. Consequently, the difference between the position of a worker who was a bachelor and a skilled man, and that of an unskilled worker with a family was very great.

And as the payment of specialists increased markedly at that time, the gap between the top and bottom of the wages scale increased several dozen times over. In addition, to the inequality within an enterprise was added inequality between enterprises. The singlingout of certain enterprises on the basis of their importance for the whole economic process, which had begun under War Communism, was continued, but in a purely spontaneous way. Those enterprises were necessary from the standpoint of the free market which manufactured the goods for which there was the most demand. Unless an enterprise was supported by the state as being very necessary regardless of whether it was deficient or not, the question of its necessity was settled by reference to the market. On the market, enterprises were not all on the same footing: there were favourite sons and there were stepsons. There were enterprises which made big profits, and there were others which hardly made ends meet, or even failed to do this. Those of the former category were in a position to pay their workers and technical personnel a great deal more than those of the second, and they made use of their right to vary wage rates by varying them upwards. Thus, if the distribution that prevailed in the War Communism period be regarded as equality, then, in accordance with the Hegelian triad, the first years of NEP were the complete negation of this equality, the most extreme degree of inequality, and, if it is appropriate to use a moral expression here, distribution was then extremely unfair. But this mode of distribution was absolutely necessary at that stage. The personal interest of each worker in increasing his output was stimulated, true, by a purely bourgeois method; in return, this method of distribution compelled everyone to pull themselves together, as compared with the period when industry was socially guaranteed by the state and labour discipline went all to pieces. The slogan of this period was: expand production at all costs, at the least possible expense, increase the quantity of products in the country by whatever methods are expedient. Given the countrys poverty, the low cultural level and the absence of preparation for a different mode of distribution which would have meant greater equality, there was no other solution. The inequality of this period was justified by the fact that the productivity of labour did actually increase and the most difficult phase was overcome. But the advance of production and the increase in the states revenues created the conditions in which inequality in distribution began to be resolved, little by little. During the first decade this process did not go very far, but its fundamental features were already quite definitely to be observed. Let us se how all this happened. When the resources of state industry began to increase, and when taxes began to bring in substantial Bums, the first thing done was to establish a minimum wage. The increased resources of the state and of state industry made it possible to increase wages generally; but the Soviet state and the trade unions set themselves the task, while raising the wages of all categories of workers, to raise relatively more the wages of the worst-paid sections. Later, another thing which tended to reduce inequality within the working class was the fact that, as electrification progressed, the employment of crude physical labour began to decline. This redistribution of labour power between the skilled and the unskilled groups led to an ever larger section of the formerly unskilled being transformed into workers at machines,

receiving a higher wage than before. In this way the progress of electrification led automatically to a levelling of the material position of the workers. Then, the development of a system of technical education of the workers had a great influence. Every working-class youth who had undergone technical training was acquainted with the elements of a number of trades. The children of unskilled workers and the children of peasants who had emigrated to the towns studied on an equal footing with the children of skilled workers. The level of skill of all sections of the workers became more equal, and it was no longer possible to pay young workers who had been through technical school as though they were unskilled, even in those cases when they were assigned to unskilled work. As regards inequality of payment between the workers and the technical personnel this too began to be evened out, as the higher technical schools filled up with students who were all from the workers faculties, and later with young workers from the lower and middle technical schools. This entailed a gradual regeneration of the tissue of the entire cadre of specialists in the country. The new, Red worker-engineers looked on themselves as merely more highly skilled workers than the rest of the proletariat and did not expect to be paid for their work at such rates as the bourgeois specialists demanded. And when the state and the trade unions raised the wages of the lower-paid groups, first and foremost, this did not call forth any protest from the worker-engineers. Inequality between different enterprises was gradually over-come thanks to the fact that in practice the necessary equilibrium and the necessary proportions between different branches of production were gradually achieved. This resulted in the establishment of substantial material equality in the situation of the different enterprises. Inequality between unmarried and family men, which had reached its highest point in the period when free meals for children were abolished and kindergartens, childrens colonies, creches and so on were closed down in great number, now began to be levelled out more and more each year, thanks to the new successes of social guardianship. In the first years of NEP the state, which had little to spare for popular education, naturally not only did not subsidize new childrens homes, orphanages and so on but even had to deny support to those which had come into existence. As industry advanced and the states tax revenue increased, a sharp turn took place on this front. Every year an ever greater share of the state budget was assigned to popular education, and especially to the education of workers children. The number of childrens institutions began rapidly to increase, and their amenities improved year by year, with the active support of the trade unions and of individual factories. Free meals for children were fully restored. Children began to be maintained by the state, and not only so far as food was con-cerned but also in respect of their school needs, their clothing, their toys, and so on. All this meant not only progress in the field of social guardianship, which in the period of War Communism had been a great dream rather than a reality, but also an equalizing of the material situation of married and unmarried workers. Workers with families were no longer obliged to spend a large part of their wages on their children, because everything these children needed was provided by the state.

Before going on to talk about the organizational structure of the Soviet economy in this period, I must clarify one important fact in the history of this period, namely, the crisis in skilled labour power. When industry was rapidly collapsing, and even in the period when it was only beginning to revive, the crisis in labour power did not make itself felt acutely. True, there was a moment, especially in the autumn of 1920, when a shortage of skilled labour seemed to be revealed. But this was a very temporary difficulty, because the expansion of industry at that time was also very temporary. The situation was different when, after a few years of the New Economic Policy, a regular expansion of industry began. It then became plain that our industry would not be able to attain pre-war figures for the simple reason that more than half of the skilled workers had completely disappeared: some had died natural deaths, others had been killed at the front, others had taken up responsible work in the state machine, others had sunk themselves irrecoverably in the rural areas. At the same time, there was a considerable lowering of the level of skill of the workers generally. The preparation of workers and young workers for skilled work was carried on only on a small scale, so that even the natural loss was not made up. Yet it was now necessary not only to replace the annual loss through death but also to supply fresh cadres for expanding production. From this crisis the republic emerged by two ways. First, through the immigration from Western Europe of substantial cadres of skilled workers who were driven to Russia by the unemployment raging over there. But the chief way out was through the establishment in this period of an enormous network of factory apprentice schools, the syllabus of which was considerably broadened on the general education side. As there were not enough working-class youths to fill the newly organized schools, the state had to carry out a number of mobilizations among the young peasants, and also to direct into these schools children from the urban pettybourgeoisie and the intelligentsia. This was not carried out without a struggle, because the children of the intelligentsia strove in great numbers to get into the higher educational institutions, even in those cases when, so far as their abilities went, they had no qualification to enter them, as compared with the best cadres of the proletariat. Several years were needed to attain a certain equilibrium between the number of skilled workers, who were turned out in thousands by these schools, and the number which was required for the manning of expanding industry. The filling up of this gap in the very body of the working class naturally hindered for a considerable time the carrying out of that point in the Communist programme in the sphere of education which demanded general and polytechnical education for all children up to the age of 17. This programme began to be fully implemented only two decades later.

Footnote
1. Verst = a Russian measure of distance, about 3,500 feet. [Trans.]

The organization of state industry

The question of how industry was organized and managed in this period is of very great interest: in the first place we see here for the first time in history the combination of two economic systems, the socialist and the capitalist, the combination of socialist management with regulation by the capitalist market. Equilibrium in the economic system was attained here on the basis of these two principles simultaneously. Looking through the economic writings of this period, we can see that some extremely worthy Communists did not always take into account not only the inevitability but also the expediency of combining both methods, in certain circumstances. There was a moment when some industrial executives rejected the principle of socialist regulation, assuming mistakenly that this method and the capitalist method were mutually exclusive in all circumstances. They reasoned like this: since the attempt at socialist management of industry has failed in the period of War Communism, now exclusively capitalist regulation must appear on the scene, and we must not hinder it but give it a clear road, or otherwise there will be no regulation. In reality it turned out that this maximalist way of putting the issue, which was absolutely correct in politics (either the dictatorship of the bourgeoisie or the dictatorship of the proletariat), did not justify itself in practice, in such a simplified form, in the field of economic relations. Historically we had in Russia a combination of socialism with capitalism in the economic sphere, with the dictatorship of the proletariat in the political sphere, a gradual subordination of the lower capitalist form by the higher socialist form, and eventually the complete triumph of the latter. True, this process was not merely evolutionary, as the capitalist form endeavoured to resist in the political sphere too, and was crushed, as we shall see later. But this defeat of the capitalist form occurred because it carne to blows with socialism after it had become intertwined with the socialist system and taken its place within the latter as a lower economic formation. The period under examination is interesting also because in this decade it became clear enough which capitalist forms and methods were the more vital and would only gradually give way to the superior socialist ones, and which fell away, like the old scales of a snake sloughing its skin, as soon as proletarian industry was more or less on its feet. In any case, experience showed that socialism could successfully use many capitalist forms (capitalist calculation) and categories of simple commodity production (money) long after the political power of the class which represented all these forms taken together had been destroyed. Experience also showed something else. It showed (as also in the case of consistent democracy) that many tasks of an economic character thrown up by capitalism, and even caused by capitalist methods, could not be carried out in practice so long as the capitalist class was in power. Economic construction in the period being studied proceeded to a considerable extent gropingly. From the heritage of War Communism whatever in practice began to hinder progress was rejected, while from capitalist forms was taken whatever was clearly advantageous for the given period. And this was a good thing. Thanks to this cautious

approach, socialist methods were not scrapped which later on began to play an important role, while only those capitalist forms were adopted which were needed, without the economy being subjected to all the storms and stresses of market spontaneity. Let us begin from the very top. What organs regulated economic life in general, and in particular large-scale state industry? At the top we see, side by side, the State Planning Commission (Gosplan) and the State Bank (Gosbank). The former is the brain of the socialist economy, the latter is (if this analogy be permissible) the spinal cord in the world of capitalist spontaneity. (A brain is, as you know, in general not characteristic of a capitalist economy.) It seemed to some economic specialists In this period that Gosbank should oust Gosplan, turning the latter into its own planning commission. This was said in the heyday of the taking-over by socialism of those capitalist methods which were suitable for the particular moment. Exaggerations were natural at that time. But Gosplan remained in being, and its role began to grow with each year that passed. Gosbank remained, too, and its role also grew. But the difference between them proved to be that Gosplan still exists now, as you know, whereas Gosbank is no longer with us. When we look now at the long historical space of time covered by our economic past, the role played by particular institutions becomes clear. Gosbank had to be organized and to adapt capitalist relations to socialism (to some extent bringing to completion in our circumstances that which our poorly-developed capitalism had not completed) and then to place the capitalist elements under the leadership of socialism in concrete terms, under the guidance of Gosplan. Gosbanks task under the dictatorship of the proletariat con-sisted in betraying capitalism to socialism, like a provocateur, using capitalist methods. Gosplans task consisted in adapting socialism, which it represented, to the capitalist and commodity relations existing in the country, while endeavouring to make itself master of them. To describe the roles played by these two organizations, which represented two historically different types of economy, one could employ Platos famous comparison of the two horses, soul and body, harnessed to one chariot. Gosbank and Gosplan, like wheelhorse and tracehorse, were harnessed to one cart, and whoever drove the wheelhorse thereby also drove the tracehorse. But the good driver knows that sometimes horses have to be allowed their heads before they are again reined in. In this period the capitalist tracehorse also rushed wildly ahead until it was restrained by the wheelhorse and its driver. It must be pointed out, though, that by Gosplan I here understand not so much the actual institution which was then housed in No.7, Vorontsov Place, but the entire socialist principle in the economy as a whole. In exactly the same way, Gosbank is for us only a collective concept of the organizing principle in the sphere of capitalist spontaneity. Before Gosbank and Gosplan were correctly delimited from each other and each assigned its appropriate task, some time passed. There was a period when many economic organizations tried to escape from the control of Gosplan and other organs of state regulation, and Gosplan itself was to a certain extent repudiated. In the same way, Gosbank took its place as dictator in the sphere of the capitalist regulationof the economy only some years after its foundation and after the stabilization of the currency and grant to Gosbank of the right to issue money on behalf of the State.

In concrete terms, the picture as a whole now looks like this. The State Bank began its operations with means that were quite inadequate for the financing of industry, which was half-ruined, lacking all circulating media, and which moreover came up against a sales crisis right from the start. Quite inadequate also were the means which the bank could assign for the financing of peasant economy, which required enormous sums for long-term credit. In addition, owing to the acute and uninterrupted decline in the value of the currency, the banks basic capital quickly depreciated, and thereby the financial lever which was to have exerted an active influence on the countrys life was gravely weakened. Only continuous support by the state saved the bank from inevitable collapse. Under these conditions the bank could, naturally, give credit only to those enterprises which had a chance of survival and seemed likely to be able to repay what was lent them. Absolutely hopeless enterprises, which in the War Communism period were given the means to survive along with the healthy ones, and at the expense of the latter, and which had concealed a hole through which state resources wasted uselessly away, now died a natural death, or else were obliged to reorganize themselves radically and make ends meet. The substitution of bank financing for the system of estimated supply undoubtedly played a positive role, training enterprises in strict accounting methods, economy in expenditure, business-like avoidance of waste in carrying on their affairs, and flexibility. But this system also had its negative consequences. Under it, enterprises which were important for the whole economy but were unprofitable from the capitalist standpoint were of course, pushed into the background so far as finance was concerned, and were looked upon as not specially desirable clients of Gosbank. Only the intervention of Gosplan, that is, of socialist reason, ensured the possibility of survival to these enterprises; the power of element forces was even then so strong that enterprises which were commercially profitable, though of little importance from the general economic standpoint, were still in a better position than enterprises of importance to the state. In the newspapers of those days, over many years of NEP, we constantly come upon complaints that heavy industry is irt a critical position while light industry is flourishing. Endeavouring to save itself from going bankrupt, and in the interests of a more expedient distribution of state resources, Gosbank was not only forced to carry out a natural selection among enterprises when financing them, but also, in conditions in which the currency was falling, it tried to make its operations, if not profitable, then, at least, free from loss. For this reason it demanded payment of interest, and of part of the principal, in kind, it reserved the right to share in the profits of the enterprises it financed, and it undertook trading operations on commission. The immediate stimulus to this was transitory, as we have seen, being caused by the conditions of a falling currency. After that phase had passed, however, the system was maintained for other reasons too. The point was that repayment in kind, especially in the sphere of agricultural credit, led gradually to the elimination of the private middleman between state and peasantry, which resulted in a reduction in expenditure on the distributive apparatus in the country. Also in line with the direction of economic progress was the banks sharing in profits and its more intimate connexion with the enterprises it financed. This connexion helped the state to get its hands, reaching out from the financial centre, on to those reins which in the

period of NEP were beyond the control of the Supreme Council of the National Economy, as a result of which state industry was without helm or sail. Participation in trade was of great importance because, owing to the decline in the importance of large industry in the countrys economy, there was an increase in the relative weight of petty production, which was linked up into a single entity with the whole economic organism mainly by way of trade. By financing trade in all its forms, the Banks acquired great economic influence over unorganized petty production. At the same time, with an economic structure in which large-scale industry was still weak, trade was the most effective instrument for accumulating capital at the expense of petty production. The Bank not only should not have refrained from all these activities but, on the contrary, should have intensified in every way the role it played in trade, indirectly subjecting it to socialist reason and carrying out accumulation in a capitalistic form for the benefit of the socialist exchequer. All this organizational activity of the Bank in the sphere of private economy, and of state economy working by capitalist methods, developed, of course, more fully when the currency became stabilized and when the Bank was given the right of issue. Stabilization of the rouble was accomplished in Soviet Russia very much sooner than might have been expected; having in mind the frightful state of monetary circulation at the very start of NEP. Stabilization was achieved by putting an end to the budgetary deficit. They began to make ends meet in the budget thanks to punctual receipt of the tax in kind and all the money taxes, through the reduction in the number of enterprises working at a loss and the increase in those making a profit, through further cutting down of the bureaucratic apparatus and, finally, through the re-establishment of the export of grain and raw materials. Once equilibrium had been achieved in the budget, it was not very difficult technically to organize a stable currency. The old money was exchanged for new paper roubles of full value, with silver coins serving as change for these notes. At the same time, the right of issue was transferred from the state treasury to the State Bank, which before this had had the right to issue only bank-notes, secured on gold and foreign currency. The right of issue enabled the State Bank to become a powerful economic force in the countrys whole economy, the financial brain-centre in the sphere of monetary circulation. This happened in the following way. When the currency was falling, accumulation in monetary form was impossible, cash was exchanged as rapidly as possible, and. even an expansion of goods-exchange could not in these circumstances produce any marked increase in demand for money. When the currency was stabilized the rapidity with which money circulated declined sharply, which meant an in-crease in the demand for money throughout the country. While during the period when the currency was falling rapidly, owing to the quick circulation of money the value of all the papermoney in the country declined to 40 million gold roubles and less, now the demand for purposes of circulation and accumulation was reckoned in hundreds of millions of gold roubles. To meet this demand a supplementary issue of stable currency was needed, which meant at the same time a very great increase in the monetary resources of whatever institution undertook this issue: it brought rich fruits to Gosbank and enormously enhanced its financial power. The countrys international trade, increasing from year to year, and also the demand for the Soviet rouble abroad owing to the development of foreign trade, had the result that, despite the increase in all kinds of resources calculated

otherwise than in money, an increase in the mass of circulation media was needed. This annual extra issue was now undertaken by the State Bank, which skimmed the cream from circulation, never varying the value of the rouble in the slightest. Furthermore, the financial power of Gosbank was increased by what were called the seasonal issues. What was meant here was that Russia, as a predominantly agricultural country, suffered from very great fluctuations in the demand for money in the period when the harvest was being realized, and in this respect was markedly different from the industrial countries. In the latter the goods produced found their way on to the market more or less evenly throughout the year. A great agricultural country, however, threw on to the market in the autumn a greater part of its production than in the other seasons of the year. The need for circulation media increased enormously in this period, agricultural produce became cheaper, money acquired greater purchasing power. In spring and in the first half of summer, on the other hand, the opposite phenomenon was observed, that is, a reduction in circulation media. When it was given the right of issue, Gosbank brilliantly utilized these seasonal fluctuations, in the market and currency conjunctures, for the purpose of accumulating capital. In the autumn, when all the commodity procedures in the countryside were obtaining money and trying to rid themselves of goods, Gosbank, hastening to meet these elemental forces, extensively utilized its right of issue within the limits of demand for monetary circulation media. Gosbank put into circulation hundreds of millions of roubles of full value, financing the grain trade and buying up, at an expenditure of many tens of millions, various agricultural products. In the spring and summer, when the currency hangover had set in, and the large quantity of paper money issued in the autumn could have resulted in a fall in the value of the rouble, in this period when it was not a case of goods chasing money but of money chasing goods, Gosbank again set itself against the wind of elemental fortes, and sold off at favourable prices everything that it had bought cheaply in the autumn. Thus, when the elemental forces called for goods, Gosbank provided goods, pumping the surplus money out of circulation and leaving it with only that surplus, in comparison with the previous year, which was required by the annual increase in circulation. This regulation of seasonal fluctuations on the money and goods markets ensured enormous profits to the Bank, which increased every year the amount of circulating media at its command. With a stable currency the power of the Bank increased also through the growth of its income from loan operations. At the same time the stability of the currency led to a rapid increase in deposits. The Bank now relied not only on its own capital but also on that of all the depositors in all its branches and in the credit institutions subordinate to them, and became the centre of all the monetary accumulation occurring in the country. Currency, commission, middleman, deposit and other operations, participation in mixed branches with foreign capital, sharing in the profits of the state trusts, all this made the bank a huge power during the first decades, the significance of which increased still further in the period when new enterprises were being established. In contrast to the capitalist countries, in that period of the history of capitalism when it was in excellent health and expansion, Soviet Russia in the period we are studying possessed very slender resources for new construction. While in the capitalist countries fatty excrescences of capital were always formed, which were not absorbed into production, so that surplus capital appeared on the market and the rate of discount fell, in Russia, on the contrary, reviving industry

and agriculture completely swallowed up the entire increase in new values. Both industry and agriculture suffered continually from the shortage of capital for extending production. This enormously strengthened the influence of the Bank over every individual enterprise which was firmly attached to it by the string of credit. As regards new enterprises, it was almost impossible to establish these without the Banks participation, unless, of course, an enterprise was founded by foreign capital. Consequently, the Bank not only ensured itself exceptional profits but also obtained influence on the management of enterprises. At the same time, the fact that new enterprises could not be started otherwise than with the aid of Gosbank enabled the state to implement its economic plan, encouraging the establishment only of such enterprises as were expedient from the standpoint of this plan. Private trading and industrial capital was at first very tenuously connected with the Bank. It was very difficult for a private person to obtain a loan, because Gosbank had not sufficient resources for more important enterprises. At first this credit to private economy was given rather on grounds of principle than for the sake of direct practical results. Moreover, private enterpreneurs and merchants were still not creditworthy, as they lacked as yet sufficient property to serve as security for bank loans, and had only just began to fleece the sheep. Gradually however, in this sphere too, after a number of bankruptcies, a group of more stable enterprises emerged. These applied to Gosbank for credit, because the interest demanded by moneylenders, owing to the general shortage of capital in the country, varied from 1 to 3 per cent per day. These enterprises now obtained credit from Gosbank, and this financial string tied them in to the general economic pyramid which was headed by Gosplan. As the actual power of Gosbank increased in the whole field of state credit, and its role in private economy increased, the bank was not only made, little by little, an instrument of the regulation of this part of the economy, but also was sometimes used as an axe by the socialist state to cut down whatever in private economy was harmful to state economy. The government did not need to issue a decree for the closing down of a private enterprise the existence of which was for some reason undesirable in the eyes of the state. The Bank killed this enterprise by refusing it credit, killed it in the legitimate capitalist way, just as the big banks in capitalist countries kill hundreds of enterprises. In the great majority of cases the mere threat of a withdrawal of credit was enough to make enterprises which were financed by the Bank work as the state required. In capitalist countries the banking system made masters over the economic life of the country those who were masters of the banks. In the epoch of finance capital the banks disposed not only of their own capital but of all the surplus capital in the country. As a result, out of the savings of the French peasants, workers, petty-bourgeois and officials, a railway could be built somewhere on the other side of the globe, and new enterprises could be opened, without the depositors being asked at all whether they considered these constructions necessary or not. The mighty State Bank of the Soviet Government, with its ramified network of provincial branches and the subsidiary credit institutions dependent on them, also acquired the practical possibility of disposing of all the free resources of private economy which were deposited in these credit institutions. Some kulak in Tula or Kursk province, realizing that it was senseless to keep his money in his own land bank,

the cellar of his house, deposited it with the local branch of Gosbank, with a credit association, or with a savings-and-loans office, so as to obtain interest. These deposits, amounting to hundreds of millions of gold roubles in Russia, as a whole, did not lie idle in the bank. They now found their way via Gosbank into loans to Soviet industry and transport which were used for building the next power-stations on the list, for increasing the circulating capital of the state trading organs, for providing long-term agricultural credit, and so on. In brief, the capital accumulated by the kulaks now served to extend socialist production. Thus, capitalist accumulation in the country was made an instrument of socialist accumulation. But this was done not only through the bank, not only indirectly, but also directly. State taxes in money and in kind imposed on petty production and private economy in general, including concessions, served the same purpose. In addition, state industry and state trade extracted part of the surplus value from petty production in the form of trading profit. This profit was obtained from petty production in the main not only through internal trade but through foreign trade, because state organs were the monopolist traders in grain and raw materials on the foreign market. Wherever trade was carried on by private Russian or foreign capital, the state obtained revenue from them by import and export duties. At the beginning it seemed to many that when state industry was on its feet, when state trade was organized and the state banking system consolidated, direct taxes could be abolished, and their place taken by an appropriate addition to the retail prices of goods. This would have been possible had the countrys economy contained only two magnitudes-state industry, artisan and petty peasant production. But so long as private industry, artisans and craftsmen, still existed and competed with large-scale state industry, so long as a considerable part of trade was in the hands of private, including foreign capital, and, lastly, so long as concession capital continued to exist in the country, such a method was not practicable. Additions to the prices of goods would enable not only the state to obtain additional income but also its capitalist satellites and competitors of the transitional period. This measure was practicable only in that sphere of production which was exclusively in the hands of the state. Consequently, this system was fully introduced only much later, when all the social and economic consequences needed for it had been established. Thus, the values received by the state were dual in origin: the income from state industry, on the one hand, and, on the other, an alienation of a certain part of the income from nonsocialized production, particularly peasant economy. Both of those parts of the states revenue increased, though at a quite different tempo. The first-narred part increased more slowly than the second. Essentially, the income from industry at first consisted of excise charges, taxes and interest-payments on loans by the State Bank. And since the states subsidies to industry exceeded the total amount of this income from industry, industry as a whole was run at a loss, if one confines oneself to capitalistic methods of calculation. Industry advanced to a considerable extent at the expense of petty economy, though at the

same time it also helped the latter especially peasant economy to recover. That part of its revenue which the state obtained from petty production provided the chief basis for introducing planning into the state economy. Through cuts in state expenditure on the army, the bureaucratic apparatus, education and cultural activities, a certain amount was set aside every year to go towards expanding industry and new construction. The task of Gosplan, the Supreme Council of the National Economy, Gosbank and the Bank of Trade and Indus-try was to ensure the most expedient use of these resources (together with foreign state loans, which, however, were not great). The economic organs had to know in what proportions particular branches of production were to be developed, and the production programmes of the trusts and of whole branches of production were sanctioned or not in accordance with these proportions. In this sphere the state had to overcome the inertia, if one can so express it, of capitalist methods of calculation and a number of prejudices derived from the capitalist way of running industry. With the dual system of economy, when combined methods of regulation were most suitable, capitalist ways of thinking obstinately imposed some capitalist prejudice on the leaders of the economy. This was the case, for instance, with what was called the sales crisis, when, however, it was not capitalist practice but socialist understanding of the entire economic process, in the interests of the working class, that prompted the way out that was found. The surplus production of consumer goods went to increase consumption by the working class and ensured higher productivity of labour in the subsequent phase. This sales crisis compelled the authorities to ascertain more or less exactly all the food and raw material requirements of the state economy as a whole, and this stimulated the state to speed up the organization of its own large-scale farming, as well as to ascertain the directions in which it should regulate peasant economy, which crops to develop and which to curtail, and so on. The crisis of industrys circulating media and the restoration of its fixed capital was also gradually solved. When the capitalist method of accounting as between trusts and separate branches of production was found to be threatening, in some spheres, to act as a brake on the expansion of certain branches, the state intervened and broke through the blockage that had been formed. It carne to the help of the necessary branches, using its reserves, and did not allow the fetishism of capitalist forms of accounting, in the grip of which certain enterprises or branches of industry were, to stand in the way of the development of industry as a whole. In just the same way the organization of long-term credit for the rural areas, on a scale which was unprecedented for any capitalist economic system, was undertaken not only and not so much in accordance with the idea that these operations should be directly profitable in the immediate future, but rather so as to secure the agricultural basis of large-scale industry in the future, and the de facto linking up of the whole of peasant economy with large-scale industry. This long-term credit in its turn solved, from another direction, the crisis in finding outlets for goods. The fact that the principal and indeed monopolist producer in some branches of industry was the state, and that the greater Part of the countrys wholesale trade was in its hands and in those of the co-operatives and mixed companies, enabled the state to regulate

prices, as though the state were conducting a planned economy on the basis of the capitalist mode of distribution. The market, with its capriciousness and its elemental waves of rising and falling prices, gradually ceased to be a source of surprises for planned economy, partly through study of the demands of petty production, and partly through the power over it which the state wielded owing to its dual monopoly in the production of large-scale industry and the trade in its products. It was gradually domesticated to socialism. The restriction of the power of the market proceeded along two paths, that of mastering it on the basis of its own laws, and that of distributing part of the values produced, in ways which by-passed it: collective payment of bonus to enterprises out of the states wages fund; advancing of long-term loans outside of the market mechanism, and distribution of credit in kind, without middlemen; sale of goods to the peasants on credit in winter and spring on the security of the next harvest; new planned constructions right outside any influence by market conditions on the distribution of the states free capital; and so on. As a result of this sort of regulation of the non-socialized part of production and of the management of the other, state-owned part that is, on the basis of combined methods of planned guidance of the economy, on the one hand, and capitalist calculation and consideration of the market, on the other the new commodity socialist system of economy which came into being in this country in the NEP period exhibited a far greater equilibrium of its different parts than had ever been within the capacity of pure capitalism. The management and regulation of the economy were not yet socialist in character, but at the same time they constituted, economically and historically, a higher form than capitalism. For example, the most powerful trusts and syndicates in America were able to regulate sales, prices and, to some extent, production branches, but, as against that, the resultant in the economy as a whole emerged as the spontaneous product of their mutual conflict, while the barriers to the expansion of production which are connected with the existence of profit, and so with the need for a definite volume of effective demand, could not be eliminated. In contrast to this, the mixed form of regulation and management of the economy in Soviet Russia united all the potentialities of purely capitalist regulation with the methods of planned economy, which ensured wide possibilities for unhindered and rapid development of the productive forces of the whole economy. In the period we are studying, the countrys private economy in general, and petty rural production in particular were drawn into the orbit of influence of large-scale industry and state regulation mainly through trade, in the first place,, and credit in the second, that is, through the exchange aspect. This connection did not yet lead to the organic transformation of petty peasant production into a different, higher form of production, but it approached close to it. Peasant economy began to be transformed organically and included in the economic system as a whole, as a constituent part, only when it was linked with large-scale industry not merely on the exchange side but also on the production side. This inclusion of peasant economy in the system of state economy as a whole took place by way of the inclusion of entire rural areas in the system of powerlines of the district power stations, which necessarily led to a sharp change in the entire mode of production and the whole way of working in the areas concerned, even when the

actual ploughing was not immediately taken over by the electric ploughs. It also took place by way of the extension of tractorized cultivation. State tractor squads of eight to ten machines were themselves large-scale economic units in mobile form, which by their work in the peasants fields linked the peasants with large-scale industry-providing tractors, repairing them, supplying them with liquid fuel and with skilled workers. But the linking of the peasant economy with large-scale industry was effected in another way, too. Peasant economy became dependent on large-scale state economy when it received fertilizer from state chemical works, when it received improved seed from neighbouring state farms, when it used state breeding centres, and so on. Finally, it depended on largescale production for the extensive and costly land-improvement undertakings which could not be carried out without state aid. If one adds to this the influence of state and cooperative trade, of long-term state credit, under the terms of which the peasants harvest was sold to the state for several years ahead, that is, if one adds to production influences the influence through exchange which has already been described, the whole situation can be defined as peasant economy in socialist encirclement. But these were only tendencies. In the period we have described, only indications of development in this direction were to be seen. Mechanical methods of cultivation had not been introduced at all extensively in peasant economy, all the district power stations designated in the electrification plan were not yet built, and not all of those which had been built were yet connected up with the peasant economy. In this period, therefore, socialist reason penetrated peasant economy only obliquely, through the banking system, state and co-operative trade, credit, and the productive and agronomic activities of the Peoples Commissariat of Agriculture. But even in this period it was possible to observe the beginnings, alongside of the link with peasant economy through exchange, of a link through production. The development of this process of linking on a production basis was the content of the second and longer period, in which Gosplan brought the rural areas into the orbit of planned economy not only through the capitalist controls of Gosbank but also through the power lines of the district power stations.

New

forms of The revolt of NEP against the proletarian dictatorship

wages

WE WHO live 50 years after the period being described are unable fully to understand the psychology of that time. The 1920s are always depicted to us as years of the greatest heroism both in the military sphere and then, later, in the economic sphere. We are inclined to imagine our grandfathers generation in a uniform, dazzling, bright-red light, and in heroic tones: in short, poetry rather than prose. It is hard even for the historian to avoid this psychological mistake when he approaches the study of documents of that epoch and tries to capture the spirit of life in those days, to grasp what everyday life was

like, to see all the variegations of the actual historical picture. It is hard for you, for instance, to believe that the great deeds of that epoch were accomplished by people with weaknesses and shortcomings, sometimes with criminal tendencies, and nearly always with an inevitably low cultural level, as was the case in reality, if we speak of the general mass and not of particular individuals or small groups. In the news columns of the newspapers of those days Pravda, Izvestia, Rabochaya Gazeta, Byednota and the rest alongside some historic decree or the announcement of some initiative the fruits of which we are enjoying to this day, you would encounter a report of the shooting of a group of citizens for stealing a couple of matchboxes from a railway truck, of the trial of bribe-takers from some economic organ, of speculations by Soviet functionaries drawn from the ranks of former merchants and industrialists, wailings about robbery of state property, and so on. The most notable poet of that period, Demyan Byedny, wrote words full of sarcasm and indignation about soviets Soviet idiots who let themselves be led by the nose by any crook from a Soviet institution. You can read in the newspapers of those day articles by a talented publicist of everyday life, Sosnovsky, about some scandalous business involving bourgeois specialists, you stumble with amazement upon Trotskys article about the need to clean ones boots and not to throw cigarette-ends on the floor. Worse still, you can read about crimes committed even by the Communists themselves, to which most of them were driven by frightful poverty. On the one hand the great task of building socialism and the heroic struggle for it, arms in hand on the other, the misappropriation of two poods of the states flour. Is this crime too great, and is the shame of it eternal upon the man who committed it, in comparison with the great cause for which he was fighting? Or are his great deeds boundless in comparison with his trivial crime? Looking at the question from the standpoint of the public opinion of later generations, we take the second of these views. But even if we recreate the actual situation of that time and see everything as it was in relation to everything else, if we observe the correct proportions of light and shade, this in no way forces us to feel disappointed in our evaluation of that epoch. On the contrary, I think, personally, that if a thousand people build a mighty bridge, and they do not consist of healthy and well-fed persons but of famished, sick people, with sores on their arms and legs, squabbling over a bit of bread, then they are very remarkable people. It is the same with socialist construction. When this work is done by people who are themselves tainted by capitalism, with a psychology which is a field of battle between yesterday and tomorrow, people who, in the mass, carry in themselves all the barbarousness of capitalism and that uncivilized state in which it kept the mass of the people, this only increases our amazement at what was achieved in that epoch. This was the situation as regards human material when state industry was being restored. The Communists had not learnt before that time either to manage enterprises, to trade, or to conduct banking activities. All these they learnt to do in the course of the work, just as previously they had learnt to build an army, to administer it and to lead it to victory. In this economic sphere, however, owing to the complication of the task itself the process was drawn out over a long period. At first the mass of former traders, entrepreneurs, and ordinary swindlers of every sort, robbed the state, carried on as was most profitable to themselves, and so on. But gradually these cadres were thrown out of the state service. On the one hand, a stratum of reliable and honourable people emerged from among the

specialists, and, on the other, a considerable section of the Communist Party members themselves underwent training for this work, passing through higher schools, special schools and courses and probationary training in the existing organs of state trade and industry. Later, as it became clear that private trade and industry had no great scope for development, and, what was decisive, had no future, the best representatives of the class which had been overthrown began consciously and conscientiously to work for the state. A particularly favourable reaction occurred in these circles after the failure of the bourgeois-kulak uprising which took place at the end of the period we are studying and which we shall speak about in more detail later. In industry a role of decisive importance was played by engineers from the ranks of the workers, who built state industry as something close and dear to themselves, with the support of a section of the engineers of bourgeois background who had understood the spirit of the time, who had understood that socialist state production was on a higher plane than capitalist production, giving greater scope for the development of the productive forces, the progress of science and technique. Of great importance also was a certain turn in the psychology of the Communist Party itself, especially among the young Communists. During the civil war it was absolutely necessary for a Communist to know about everything, even though on a superficial level. The revolution hurled the Communists this way and that, from a dozen tasks of one kind to a hundred of a quite different kind, while owing to the sabotage of the old intelligentsia they had to fulfil the role abandoned by that class, or to act as Commissars over them. The task of organizing state industry, trade, banking and socialist education in the broad sense of the term required, however, that the Party reject superficiality and the jack-of-all-trades approach and obliged its cadres to specialize in particular branches of practical work and knowledge and throughly to learn whatever job each had chosen for himself or had been assigned by the Party. This made possible the formation among the Communists of cadres of genuine specialists in various spheres of work. You and I, workers in a socialist society which is being gradually transformed into a communist one, are separated from the period we are studying by a whole epoch, in this respect too. I speak of incentives to work under capitalism and socialism. You have already seen from the preceding exposition that War Communism gave no psychological stimuli either to increasing production in particular enterprises or to increasing the productivity of labour on the part of each individual worker. What was the situation as regards these incentives in the period we are examining? We have seen that under NEP there was a turn in this connection towards capitalist incentives, which had begun to play a role already under War Communism. Eventually piece-wages became the predominant form of remuneration wherever it was applicable to the conditions of production. In general, the greater a workers individual output, the more he received. And every enterprise received more, either from the market or from the state, if it produced more.

This system began gradually to change as the state, partly in order to put an end to the artificial sales crisis and partly, and chiefly, owing to the increase in its resources, took to increasing wages from year to year. Experience showed that there was no need for the additional wages to be paid on the basis of piece-work. On the contrary, this additional wage-payment could become a more powerful instrument for increasing the productivity of labour it it was distributed as a collective bonus. Already the experience of collective supply, introduced in the first year of NEP had shown that when the increase in a workers earnings was made dependent not merely on how much he himself produced but on how the enterprise as a whole produced, this enormously strengthened the workers interest in the work of their mates at the bench, in that of the neighbouring workshop, in the work of the entire enterprise. The worker now did not merely keep an eye on himself, but also on others, while others kept an eye on him. Something like a production morality binding upon everyone was evolved. A collective incentive was added to individual incentives and this was a higher phase of production discipline compared with the individual responsibility of each worker and individual reckonings with him. For this reason, the state, when it increased wages, while keeping the old capitalist incentive so far as one part of the workers earnings was concerned, at the same time introduced collective bonuses for the workers of those enterprises which fulfilled or over-fulfilled their production programmes. At the same time the enterprise was required to produce goods not only in a certain quantity but also of a certain quality; while the enterprise itself, from considerations of business accounting, was given an interest in the least possible expenditure of material and fuel, in working every section of the maximum capacity, and so on. Collective bonuses had been, in essence, decreed already in the War Communism period, but had then proved to be still-born, because when there was something that deserved a bonus there was nothing with which to pay this bonus, and the workers were cheated. In that period the state was not in a position to pay bonuses, because it could not guarantee a minimum of subsistence, not only for the workers but even for the army. True, there were in that period individual enterprises which displayed very great heroism on the economic front, even with such meagre feeding for the workers that they sometimes fainted at the bench. It was an act of heroism then to work at all. It was a matter of the same enthusiasm as well displayed in the struggle at the front, but it could not go on indefinitely, and its production results were not great. The advance of industry and the increase in the states resources made collective bonuses materially possible and expedient in relation to production. Let us take an example. A congress of representatives of the different branches of the railway service is held. It emerges from the report on production that if the railway transports a certain quantity of freight, or more than that, if the depot workshops get through a certain amount of repair work on engines and carriages, if the railway uses no more fuel than is laid down, or even manages to use less than this norm, thn all the railway workers will receive a bonus of such and such an amount. The congress decides, in the name of all branches of the service, to qualify for the highest bonus, and this is made known all along the line, to every guard, every pointsman, every fireman. Everyone has an interest in seeing to it that engines and carriages are repaired at a brisk rate, that less fuel is burnt and that it is not

wasted, that goods are carried to their destination safely, and so on. The entire running of the line is now carried on under the inspection of thousands of eyes. And at the same time, piece-wages are retained where they are technically possible and useful as incentives. This collective bonus payment was the embryonic form f a new form of wages characteristic of socialism. The new form grew up on the basis of the collective responsibility of workers for the results of production, on the basis of mutual supervision and, finally, on the basis of a higher level of culture and consciousness on the part of the working class generally. While piece-work stimulated competition between individual workers in a workshop, collective bonuses stimulated competition between entire enterprises, and eventually between entire branches of production. Essentially, the state distributed in this form the surplus values produced by the workers in the economy as a whole. Later on, as productivity of labour increased throughout industry, the greater part of wages began to be paid by the bonus method. The share of piece-wages in the total volume of wages paid declined every year. But piece-wages died out not only materially but also psychologically, in that the fulfilment of a certain average minimum of work became transformed into a kind of work-instinct which was a matter of habit and for which no remuneration was specially paid. It is true that matters advanced very slowly in this respect, because the triumph of the new form of wages was closely connected, as we have already said, with a growth in the level of culture and consciousness of the working class which was not attained in a few years. How difficult was the advance in this direction can be seen from the fact that we have still not achieved communist distribution. Here it is a question of transforming the human character in the expectation that that will come to be done by instinct which was formerly done by compulsion or by the promise of material reward, or else was an act of collective enthusiasm and self-sacrifice. The replacement of one generation by another, and a new system of education, was needed before the new collective man could replace the individualist of the period of commodity production. The moment when collective incentives become dominant in the working class, as compared with individual incentives, is a triumphant moment in the building of socialism, of no less importance for the future than the socialization of the instruments of production. And though we have not attained to communist distribution we have advanced a long way towards it in comparison with the period under examination, when the worker, like a child, had to be led towards awareness of the need to do a certain piece of work not by knowing the statistics of production and demand but by the promise of being given another pood of bread or a larger sum of money. As regards the work accomplished by foreign capital in Russia in this period, the extent of the influence of this capital on the countrys internal economic life was not particularly great in comparison with the role of foreign capital, as industrial capital or as merchant capital. So far as loan capital was concerned, during the decade being studied the Soviet Government negotiated several loans in a number of countries. But these were small loans, mostly in the form of commodities. Capital did not flow into large loans, which seemed to it risky investments. In the field of industry the situation was a little: better.

But it must be remembered that capital in all countries in this period was in a period of senile decrepitude. It was fearful of great initiatives and risks, and, in its senile cowardice, was not tempted even by big profits. The only exception was German capital. Foreign capital had, of course, no great incentive to go into those branches of industry which worked for the internal market, in that this market was almost completely satisfied by the products of Russian industry. This was true especially of the period when the commodities produced in the country were sold for paper money of the declining currency. Foreign capital was naturally attracted to those enterprises which produced goods for export, for instance, the petroleum industry, gold and platinum, timber, copper, and so on. At the same time it was not inclined to undertake investments which could not give results before a long time had passed. There was no point in the Soviet Government leasing to foreign capital those enterprises which produced profits without particularly large expenditure, however small were its own circulating media. The attraction of German capital was in general a great success for the economy of Soviet Russia, and especially the attraction of this capital to develop on a large scale the desert expanses of the South and South-East and of Western Siberia and to establish here tractor centres and animal raising farms. German capital was more enterprising and more mobile than British. It was obliged to take greater risks than British capital, which still had incompletely utilized possibilities in the colonies. German capital wedged itself into the economy of Russia and, without knowing it, worked for the creation of a single mighty economic union between Russian agriculture and German industry, the fruits of which later on were to be reaped by socialism. It was from German capital that our agriculture obtained to a considerable extent that commodity credit, in the form of agricultural machinery and implements, which made it possible for the agricultural bank to organize long-term agricultural credit on broad principles. As regards American capital, its participation in the economic life of Russia was the most important, after that of German capital. But it was chiefly and rather exclusively interested in our petroleum, manganese and platinum industries, that is, in the branches of production which were needed by the American economy. As regards foreign trade, this grew from year to year, and by the end of the decade the export of raw material and grain was already in excess of pre-war. The Soviet Government tried to keep that section of foreign capital which was interested in trade in the channel of wholesale trade, regulating it through participation in mixed trading companies. It endeavoured to prevent the penetration of private foreign capital into the internal retail trade. In this way, foreign capital was kept confined to the borderlands and the areas around the ports engaged in foreign trade, and was not allowed without some special need to extend its tentacles into the interior. This was the source of great misunderstandings with foreign merchants, especially at the start, when foreign trading firms, above all those of the speculative type, burst into the country in search of maximum profit. Later on they reconciled themselves to the situation that had been created, restricting themselves to participation in wholesale trade and attendance at the big fairs, where their deals were made mostly with co-operatives, state trading and trusts. The monopoly of foreign trade was formally abolished once the state had become de facto the monopolist of foreign trade. A formal monopoly was retained only for trade in a certain, strictly defined number of goods.

In any event, foreign capital had no noticeable corrupting influence on the Soviet economic system, such as the White Guards had expected. Its role in the Soviet economic system amounted to approximately 10 per cent of the total production of the state enterprises. Even during the rebellion by the NEP bourgeoisie against the dictatorship of the proletariat it was unable to present a united front in support of the rebels, being divided instead into two groups, one of which remained neutral. Let us now pass on to this last attempt at capitalist restoration. From the moment when the New Economic Policy was introduced, the acute manifestations of class struggle by all sections of the bourgeoisie and part of the pettybourgeoisie against the proletarian dictatorship, which had reached their apogee in the Kronstadt rising, completely ceased. NEP gave sufficient scope for the time being for capitalist accumulation and in general for the development of capitalist relations, within the limits of what was economically possible for capitalism itself. The countrys productive forces had declined to such a low point that their development could proceed by a variety of paths, and the path of restoring capitalist methods in those branches where the state consciously held itself back could advance parallel with the restoration of largescale industry by socialist methods. In regard to the restoration and intensification of individual petty production, given the lack at that time of objective factors for restoring it in the form of large-scale cooperative economy, this was absolutely necessary it was the fundamental condition for the restoration of large-scale state industry. From this standpoint NEP constituted a combined method of restoring the economy using both socialist methods (planned state economy, large scale industry and transport, and so on) and purely capitalist methods (the market, capitalist calculation even in state industry, private capitalist enterprise in trade and industry, concession capital), and, finally, methods of petty commodity (mainly small peasant) economy. In the first years all these methods got along quite well together. The territory in which they were applied was sufficiently spacious. But the fundamental directions in which the capitalist and socialist methods of restoration led were completely different. The elemental striving of all the capitalist forces and tendencies was towards relying upon the countrys petty-bourgeois basis, gathering strength, linking up with foreign capital and thereby linking it with the Soviet countryside, shaking off the restrictions which the socialist state imposed on capitalist accumulation, so as to transform it into socialist accumulation, overthrowing the Soviet state, denationalizing industry and placing again upon the countrys petty commodity production that capitalist summit which had existed in Russia before the revolution. The task of socialism, on the contrary, consisted in using capitalist forms for the development of the productive forces only up to a certain stage, reducing the role of these forms to that of timber for building the house of socialism. It sometimes relied upon these capitalist forms where these represented a more progressive principle than petty production (an average capitalist enterprise was of a higher order than an artisan-type enterprise; orderly private trade, when petty commodity production prevailed in the country, was better than speculation and bagmanship; large-scale concessionaire capital was of a higher order than any of these forms). It adapted the capitalist forms, as being

the lower, to the higher, socialist forms, wherever, whenever and to whatever extent this was possible and useful for socialism; doing away with them where such adaptation was impossible or unnecessary and they could be replaced by the higher, socialist forms. The task further consisted in enabling petty commodity farming to develop at the expense of petty natural, subsistence farming. The task was one of leaning temporarily with one foot on capitalist relations, then freeing this foot and bringing petty rural production right up close to large-scale socialist industry and organizing it co-operatively. Today we find laughable the fears of our grandfathers who, occupying such positions as large-scale industry, transport, wholesale trade, banking and the control of the currency, and wielding a powerful state machine and army, were afraid that they might be ousted and beaten by the Kolupayevs and Razuvayevs [1], that is, by the representatives of an historically more backward mode of production, which was then on the downgrade in all capitalist countries. But we must not fall into an error to which we are psychologically exposed. For instance, the feudal serf-owning mode of production and the form of property corresponding to it could not beat the bourgeois forms after the big factory had made its appearance and the bourgeois revolution had placed the Third Estate in power; this, however, did not render hopeless all attempts at feudal counter-revolution, without exception. In France itself several revolutions were needed before the bourgeoisie was stably in power. It was the same in Soviet Russia in the epoch of NEP. The capitalist form, represented by squalid speculative capital and the reviving kulak element in the countryside, was a lower form compared with socialism, and the fundamental line of development was for these forms to be adapted to the socialist forms, just as in their time the beaten but not crushed feudal forms were adapted to the bourgeois forms. This, however, did not put out of the question the possibility of capitalist restoration in certain instances. On the whole the victory of socialism in the 20th century was a certainty, but this did not mean the invariable and unconditional failure of all counter-revolutionary bourgeois uprisings. What happened depended in each specific situation on the actual balance of forces. This is how things stood in Soviet Russia in the period under examination. Let us see what the balance of forces was between the two types of economy and between the class groupings each of which represented a distinct mode of production. Measuring the balance of forces means first and foremost measuring the balance of economic forces and calculating the cultural level of the contending groups. The capitalist forces were: private trade, small and medium, private medium industry (mainly leased enterprises); the economy of the kulak and well-to-do strata in the countryside, making up the bulk of farming for the market; foreign concessionaire capital. In addition one must take into account the kulak co-operatives, the clergy, the bourgeois intelligentsia and, finally, those remnants of the former ruling classes which, though they had no economic weight, nevertheless possessed living human weight. All these elements oriented themselves above all on the middle peasantry, trying to secure the support of this infantry numbering many millions which, owing to its intermediate class position, played in history now the role of infantry of the revolution, now that of cannon-fodder of the counter-revolution.

The socialist forces were: the urban proletariat, which was at the end of this decade no longer de-classed as it had been at the beginning and which was no less numerous than before the war; the poorest strata of the peasantry and that enormous mass of weak peasants who utilized long-term preferential credit and the fate of whose economy depended on the Soviet state; that section of the petty-bourgeois intelligentsia which had accepted socialism, and which made up the majority of the personnel of the state machine. Finally the purely political forces of the Communist Party, the Young Communist League, the Red Army and the state machine. As regards the size of the national income which each of these groupings represented, the states represented the larger share, if one does not include the production of the middle peasant economy in either grouping. As for cultural level, the state socialist group was, if not higher then not much lower than its adversaries. During this decade the proletariat and its state understood the great danger threatening it through the cultural superiority of the defeated classes, and much work was done to raise the cultural level of the entire proletariat. The immediate socio-economic causes of the movement were these. Private trade in the towns, having succeeded in getting under way on a stable basis, began to be systematically ousted from its positions by state and co-operative trade, while taxes ate up a substantial share of trading profits, and the State Bank took a certain share in the form of interest on loans. The well-to-do section of the peasantry, which was subjected to progressive taxation, found itself restricted in its attempts to exploit poor peasantry, and was unable to devote itself peacefully to capitalist accumulation, became embittered and strove to break the chains laid on it by the socialist state. Medium industry too was hostile to the state, complaining of the burden of state taxes and leasehold charges. But there was no unanimity in the bourgeois camp. A number of capitalist enterprises, both trading and industrial, were so intimately woven into the whole economic organism that they were deprived of any freedom of movement, while they also feared that, in the event of failure of the attempt at bourgeois restoration, they would lose everything they had acquired under NEP. Nor was there unanimity in the camp of foreign capital. In principle, from the standpoint of the class interests of the bourgeoisie generally, all the foreign capitalists were for the bourgeois restoration. But in relation to the actual concrete attempt at restoration, interests diverged. Victory for the counter-revolution with the existing international grouping of forces meant the ousting of German capital from Russia in favour of French capital. And as the bourgeoisie is usually guided in making a decision by the advantages of the current moment, German capital proved to be against the bourgeois restoration, owing to its antagonism to French capital. French capital itself, which supported the restoration, had no substantial economic influence inside the country. The ideologists of the counter-revolutionary movement were representatives of the bourgeois intelligentsia. Among this intelligentsia, however, a section of the most important specialists were against the restoration. Certain changes had taken place in this milieu since the October Revolution. As you know, the majority of the Russian

intellectuals fought against the autocracy under a socialist flag. But this socialism of theirs was merely a pseudonym for bourgeois democracy, as was shown by October, which hurled all the intellectuals into the camp of bourgeois counter-revolution. Ten years of building a large-scale socialist economy under Soviet power, a process in which bourgeois specialists also took part, had, however, forced some of them to carry out a reassessment of their values. By the experience of economic construction, and especially by the experience of electrification. they were convinced not only of the social but also, and above all, of the technical superiority of socialist over private capitalist economic forms. And when they smelt in the air the bourgeois-kulak counter-revolution, which might and indeed must hold up the development of large-scale industry and throw the country back to its pre-war position, this section of the specialists sided with the proletariat for the state form of economy. Another section of the intelligentsia, mainly from the former migrs who by this time had mostly returned to Russia, took the lead in the counter-revolutionary movement. But these were not representatives of the Cadet elements among the former migrs. The old Cadet orthodoxy, incorrigible and discredited, was squeezed out by the Smenovekhovtsi. The latter were an organized ferment, on Russian territory, not only among the returned migrs but also among the intellectuals who had remained in Russia. They gave the intelligentsia an ideology and reconciled it, provisionally, to the Soviet power. Later they split, and their right wing headed the restoration movement. The slogans were: defence of economic liberalism, struggle against restrictions on private economy, struggle against increased taxes on private production, struggle against the continuous increase in wages, which in their opinion had a hindering effect on economic development, struggle for universal suffrage and a parliamentary system. In addition, they preached violent anti-Semitism. The new bourgeoisie had of course, its own literature and Press, partly legal, partly based abroad. In the first years of NEP the new bourgeoisie, especially the trading bourgeoisie and the kulaks, were rather in different to the ideological activity of the bourgeois intelligentsia. They were busy accumulating and had no time for politics. Moreover, the old-fashioned ideology of the intellectuals was little understood psychologically by the new bourgeoisie. Soon, however, the bourgeois intelligentsia found a way to the soul of the Nepman in town and country, adapted itself to his requirements and began to manufacture the ideology he needed. The movement began in the towns, with large demonstrations, in which the urban traders played the most active part. By mutual agreement they simultaneously increased the prices of all goods, blaming this on high taxation, and in this way tried to draw the mass of consumers into the movement. This movement in the towns was joined by the well-todo elements in the rural areas, who refused to pay their taxes to the state and gave support to the opposition of the urban traders. All this stir, however (except in some areas in the borderlands, where kulak banditry began), proved unable to assume the form of an open armed and organized struggle against the Soviet power, and was crushed before it could create an organizational centre for all Russia. The representatives of the bourgeoisie who were involved in the movement had their property confiscated. Groups of urban traders suffered especially. The shops belonging to them were nationalized and included in the network of state co-operative stores, and their stocks of goods were requisitioned by the

state. The co-operative associations of the kulaks were also broken up and the cooperative organizations of the poor and middle peasantry strengthened at their expense. The kulak strata which participated in the movement were subjected to heavy fines, which, however, did not crush their economy. The Communist reaction which followed the suppression of the movement, though it did not create a new situation, nevertheless hastened the socialization of those branches of trade and industry which were ripe for it. In particular, the rout of private trade led not only to the strengthening of state and cooperative trade, it also facilitated a change in the relationship between what private trade survived and the state. This private trade became more and more transformed into something like trade carried out on commisson for large-scale state industry, and in this way was included in the system of planned state distribution.

Footnote
1. Gangster types appearing in the works of the Russian satirist Saltykov-Shchedrin. [Trans.]

The beginning of the transition of the economy to a higher stage An economic impasse

IN THE preceding lectures I have briefly sketched for you the economic development of Soviet Russia in approximately the first decade of the New Economic Policy. During this period, as I have already said, the pre-war proportions of the economy were attained, and in part exceeded. The mixed form of the commodity-socialist economy opened up sufficient scope for the development of the productive forces, and the capitalist coat did not at that stage constrict the development of the economy. On the contrary, it was only calculating in the capitalist way that the working class at large could learn how to manage production, at the given level of the development of large-scale production. But soon the socialist content of the socialized part of the economy began to be constricted by the capitalist form of its clothing and to burst out of it, seeking new forms. At the same time, relations with petty peasant production entered a new phase, when the link with it through trading and credit was found to be inadequate for the development of the countrys economy as a whole. This new period could therefore be described as the painless and gradual casting off by socialist economy of the husk of capitalist forms. This process was merely hastened by the unsuccessful revolt of NEP against the proletarian dictatorship, but it had begun earlier, before that revolt.

In this period the international situation of the Soviet republic changed substantially, as a fresh wave of proletarian revolution began to arise in Europe, to which the rout of the NEP revolt in Russia served as a sort of introduction. But let us return to Russia. In examining this period I will not dwell upon the figures of the production of large-scale industry, and still less upon those relating to particular branches. I will speak only of the changes in economic forms. Let us start with the summit of the economic pyramid, state industry. We left this in the position where it was financed, in the great majority of cases, by Gosbank and the Bank of Trade and Industry, and operationally managed by the Supreme Council of the National Economy and the Bureau of Industrial Congresses, and where it kept its accounts in the capitalist way, and bought and sold for money not only in its trading relations with the non-socialized section of the economy but also in the trading relations between individual state enterprises. This market chaos inside the state sector of the economy itself had to be abolished first and foremost, because it prevented the establishment of strict proportionality the development of the separate branches of largescale industry even where the market was the state sector of the economy itself. A state enterprise, a factory engaged in manufacturing work, for instance, needed a certain quantity of mechanical equipment, fuel and so on. The suppliers of all these requirements were also state enterprises. But they did not know what, in each production year, would be the demands on their production by other state enterprises. Each enterprise made its purchases where it could buy cheapest. As a result, purchasing was carried out over a wider territorial area than was necessary, resources were expended on commission charges and purchasing organizations, and all this meant many cross-hauls in the transport system. The organs of economic planning began first of all by putting an end to the market chaos within the state sector. The first step, which was taken already in the first years of NEP, was to oblige all state enterprises to draw up not only financial estimates but also economic ones. These estimates were put together and worked over, by the Supreme Council of the National Economy in such a way that all magnitudes of the same kind were added together, and it was ascertained how much petroleum, coal, iron and so on was needed for the state sector itself. Thus, the demands upon industry by industry itself and by state institutions were clarified. This made it possible, first, to know beforehand what quantity of what products had to be produced to meet the states own requirements. Secondly, it made it possible to distinguish according to their degree of importance those enterprises which needed various products of state industry but could not pay for them in full. Consequently it was established what enterprises had to be subsidised by the state in order to expand production. Further, this made it possible to discover, among the state enterprises, what quantity of their products they could certainly dispose of within the state sector and what they must sell on the market of the non-socialized sector. This made it possible, finally, to observe where underproduction of particular products was threatened, and to prevent it, as also to foresee possible amounts of overproduction. Under this system, measures could be taken in advance to purchase abroad goods which were in insufficient supply, and to introduce compulsory planned distribution of those goods which, inevitably and

deliberately, would not be available in sufficient quantity for all the state consumers. It is quite obvious that, in addition to this, the state had to know the volume of production expected from all private enterprises which were of more than local significance, and to compel all private enterprises to supply the state with details of their production plan and their expected production figures. This work of socialist accounting had been begun, as I have already said, so far as the most important branches were concerned, already before the period under examination; now it was carried out in relation to the whole of industry, not excluding the principal branches of handicraft and artisan industry. The next stage was then to distribute orders and purchases in accordance with a definite plan. The state planning organs did not wish in any way to stifle the initiative of the separate enterprises by introducing the old system of distribution and trade by authority. But they did endeavour to associate a definite group of state consumers with a definite group of state producers by economic gravitation, starting from the task of accounting for and economizing in transport costs. At the same time a number of measures were worked out which permitted the purchaser not to be tied down in cases where particular producers supplied satisfactory goods. All these measures also made it easier for state industry to operate as a united front in relation to the non-socialized sector of the economy, and prevented individual state enterprises from weakening the position of state industry as a whole on the free market. The new form of accounting and of distributing orders was at the same time flexible and elastic; it left sufficient scope for the initiative of the separate trusts, while protecting the interests of the whole, the interests of more rapid advance by the entire economy with the last possible expenditure of forces. However, regulating the production of that section of large-scale industry which was orientated towards the non-socialized part of the economy, especially the peasant economy, was very difficult. It was hard to ascertain with any exactitude either the volume of effective demand or the amount of raw material which the peasant economy could furnish. For approximately estimating the production of the non-socialized economy and foreseeing the possible conjuncture, the state made use of all sorts of statistics, correspondents reports from the localities, and indices from all the trading and credit organizations which had contact with the free market and could estimate its demand and its stocks. Before the adjustment of peasant economy to large-scale state industry on a production basis began which radically changed the whole situation a big role in estimating the resources of the countryside and subordinating petty production to the tasks of large-scale industry was played by the system of long-term credit, which was developed in Russia, in relation to the rural areas, on a very much bigger scale than anywhere else previously. Already, thanks to the wide development of short-term credit through the mediation of all sorts of co-operatives and state trading organs, the autumn harvest was usually mortgaged in part to the state six months ahead, in the springtime. The peasants not only received credit in commodity form but also advances in money, against the forthcoming harvest. This system was utilized for the purchase of technical crops (flax, hemp) and also of various kinds of raw material of animal origin, such as wool, hides, bristles and so on. This system of trade on credit necessarily required

estimation of the solvency of the millions of households to which credit was to be given, and to avoid huge losses being incurred by the lender, all the organs which carried out this task had to take into account all the resources of the peasant economy. Socialist accounting grew eventually out of this capitalist commodity accounting. Long-term credit had a still greater influence on the relationship we are studying. Through a special agricultural bank of long-term credit the peasants obtained on credit every year agricultural machinery, fertilizers, improved seed, and so on, and also money loans to the value of tens of millions of gold roubles loans for new buildings, to buy cattle, to carry out land-improvement, and so on. The annual amount of values lent increased as industry and foreign trade expanded and the production of peasant economy itself increased. But every year the amount being paid off by the peasants also increased. This repayment was effected not so much in money as in kind in grain and other foodstuffs, in raw materials, to some extent in labour, since carting work and procuring firewood for the factories and railways, work at repairing the roads, and so on, could serve as means of repaying loans received from the state. But long-term credit requires not less but more thorough estimation of the credit-worthiness of the client than the short-term variety. Thus, estimation of the quality and quantity of peasant production was undertaken from this angle, too. Mere reconnaissance of the market was not sufficient now. What was needed now was regular agency work, constant, systematic, scientific and statistical calculation of the facts of peasant economy generally and the economic position of the individual peasants. Under long-term credit the peasants mortgaged not only the immediately forthcoming harvest but also the harvests of several years ahead. If now three magnitudes be added together, namely 1. what the state received in repayments of short-term commodity credit and longterm credit, and 2. from the tax in kind [1] and 3. what was consumed within the peasant economy itself, and these magnitudes be deducted from the total production of the peasant economy, then what is left is what the peasants had to put on the free market. This amount, which escaped from the states control, was now no longer so big as before, and it grew less year by year, as the peasants found it more advantageous to deal with the state with-out employing intermediaries. This is to say nothing of the fact that the peasants sold a considerable part of their production to the co-operatives. They sold on the true free market only that part of their production which was exchanged for the products of handicraft and artisan industry, and of the small private capitalist industry, as well as that which was exchanged among the peasants themselves. Naturally, the estimates of peasant production which we mentioned above had to take into account this part of it too, which did not come into the states hands. In any case, when the general production programme for the following year was drawn up, the states planning organs not only knew everything that could be calculated in the state sector but were also fairly well able to estimate the volume of that part of the output of petty production which was destined to enter the channels of the state economy in the form of raw material and foodstuffs. At the same time, the planners could estimate

approximately how much of the production of large-scale industry could be absorbed in the coming year by peasant economy, given an average harvest. It was already no longer quite correct to talk of the peasant market in the old sense of the word, because the amount of the products of large-scale industry made available on credit to the peasants was determined by the state itself. which knew both how much credit it could give and also, through the tentacles of the trading, credit and statistical organs and agencies, how much credit the peasantry were in a position to take. I must also mention the very great role played by state insurance against fire, damage by hail, loss of cattle, and so on, since this insurance also necessitated estimating the property of the insured and meant that considerable amounts of the peasants resources were mobilized in the form of insurance premiums. And so we see that, while using capitalist accounting methods in most cases, and combining scientific statistical calculation with these methods, the state was in a position, not only in the state sector alone, but also in the whole field in which it carne into contact with the non-socialised sector, to carry out calculations covering the economy as a whole. One may ask whether the state was able not merely to estimate the resources of petty production, not only to divert a large part of its output into the states own circulationchannels, but also to influence the volume and quality of this production. It was important to the state not only to know what amount it could obtain from the peasantry and in what form. The state was also vitally interested in ensuring that, in accordance with its plan for the development of industry and with the demands of the foreign market, the peasants should produce those kinds of raw material and foodstuffs which the state needed, and in definite quantities. Further, the state was interested not only that some crops should expand at the expense of others but also that the expansion of all crops should not lag behind the tempo of industrial development or, in other words, that the backwardness of farming should not hinder the process of industrial development. The first task proved capable of accomplishment already on the basis of the link between peasant economy and state industry through trade and credit. When the planning organs of the state drew the conclusion, on the basis of their calculations, that it was necessary to increase the cultivation of flax at the expense of grain in the North, the cultivation of hemp at the expense of potatoes in the Centre, and so on, they addressed not only to the Peoples Commissariat of Agriculture but also to all the organs of capitalist regulation the directive to arrange their dealings with the peasantry in such a way that the necessary effect should be achieved in all the areas mentioned. This effect was achieved through Gosbank, the Agricultural Bank, the organs of state trade and the co-operatives announcing to the peasants: We will accept flax and hemp in repayment of our loans and our commodity credits, we will not accept grain, we will raise the prices of hides and wool, and so on. At the same time the credit organs could increase their loans to those peasants who extended their production of the required crops. From the standpoint of the economics of the entire economy these bonus prices and increased advances were a sort of a loan to secure the expansion of branches of production needed by the state; they meant an increase in the fixed and circulating capital of certain branches of the economy, and had to be kept up until, thanks to increased production, equilibrium was obtained

with large-scale industry and its requirements. Reduction in the output of a crop was secured by measures of the opposite order, that is, by refusal to accept this crop in repayment of loans and by reducing the price paid for it. While, in a similar situation, in the years of War Communism a decree would have been issued, agitators would have been sent in to the rural areas, vigorous appeals to the peasantry written, and all this, through the lack of the necessary economic incentives, would still have failed to achieve the desired results, now, with the degree of economic power the state had acquired, these results were achieved by shrewd manipulation of the price lever. Market prices, formerly the spontaneous regulator of the economy, were now transformed, in the hands of the mighty state, into an auxiliary tool of planned economy. In this way socialism transformed, adapted to itself and made serve it those capitalist forms which had proved most elastic and most suitable for the economy of the transitional period. The movement of prices on the market, which at the beginning of NEP forced state industry to dance to its tune and made a mockery of planned economy, was now made a means of socialist regulation of the non-socialist part of the economy. We shall see later how this transformation affected money and its functions in the socialist commodity system. The methods of regulating peasant economy were adequate for the socialist state up to a certain time. But then it began to become clear that the rate of development of agriculture was beginning to lag behind the rate of development of industry and of the demands of foreign trade. True, the large-scale state farms in the borderlands mitigated the approaching crisis, and their rapid expansion played the part of a safety-valve, but this safety-valve proved inadequate. Such changes were needed in the entire technique of the peasant economy as would signify a rapid and decisive increase in the agricultural basis for Russias industry, and for the industry of Germany which was economically linked with it. The trade-and-credit link with the peasantry could serve the purposes of regulation only up to a certain point. When these resources were exhausted it was necessary, on the one hand, to go over to changing the very mode of production in the peasant economy, and, on the other, to bring under cultivation fresh tracts of the desert expanses in South-Eastern Russia and Western Siberia. According to the calculations of economists and statisticians of this period, the task was formulated more or less like this : it was necessary, with the given amount of labour power engaged in agriculture, to increase to an enormous extent the production of grain, technical crops, fats, meat and animal raw material; it was necessary, in all areas where local conditions made this possible, to introduce cultivation by means of tractors and electric ploughs; it was necessary to introduce all the improvements known to agricultural technique and agronomical science, to carry out a planned distribution of crops as between districts, and to intensify emigration to the borderlands, organizing a large-scale economy for the immigrants. All this was, first, to increase enormously the crop capacity of the land, and secondly, to release from the peasant economy a large amount of labour power which was needed for the further development of industry. In the period being studied, over a hundred million people were engaged in agriculture in Russia, of whom about half were able-bodied. The revolution in farming technique was to release about one-third of all these able-bodied people. The economists proposed to devote this surplus labour-force, in

proportion as peasant economy was rationalized, to the colonization of the desert areas in the borderlands. In this way, through a revolution in technique and a redistribution of forces within farming itself it would be possible to bring very large tracts of land under cultivation and also improve cultivation in the areas of old peasant farming. This would ensure a huge increase in the supplies of grain and raw material which were needed for industry and export and would make it possible for Soviet industry to race ahead for an indefinite period. But in spite of all the obvious cogency of these conclusions it was almost impossible to put this plan into action in the more or less near future. There were obstacles on every side. In the first place, the district power stations had not all been built, and insufficient resources were available to the state to hasten their construction. The stations built were insufficient to serve the huge area covered by peasant farming; they were able to constitute only islands of electrified agriculture in the boundless peasant sea. As regards cultivation by tractor, to serve the whole area where electric ploughing was impracticable would have required nearly a million tractors, and, consequently, an enormous number of drivers and repair workers, a huge amount of petrol, and, the most important thing, enormous resources at the states disposal. The third obstacle was the peasantry itself. The very great over-population which then existed in the countryside, and the passion for small-scale intensive cultivation, led to stagnation in farming. The numerous stratum of farmers operating farms separated from the village stood stubbornly by their Danish methods of farming, which certainly produced a very large yield per desyatin, but required a tremendous outlay of labour power by the farmer and his family, per unit produced. And the remaining great mass of peasants, though less attached to their holdings than these, feared a mass-scale shift in the economic system and still more a mass migration to the borderlands, which was absolutely necessary. Previously, when in the days of Tsardom life in their own villages, in circumstances of frightful land-hunger, had grown excessively unbearable, the peasants had felt a great urge to migrate elsewhere. But since the peasants had succeeded in getting their economy working in their old homelands, improving cultivation and increasing the yield of their land, the majority of the peasants, especially the older ones, had no desire at all to leave the places they had occupied for so long. Only the young people, who had acquired higher needs during their stay in the towns, in the Red Army barracks, did not object to a mass transference to the borderlands. Despite the fact that this colossal task could not be accomplished in a short time with the resources of Soviet Russia alone, and that a political revolution in Europe was needed if the economic revolution in Russian agriculture was to be carried through, nevertheless something was done here and there with the countrys own forces. Mechanical cultivation was introduced on some peasant holdings, though only a small percentage of them. In the same way, electrification was introduced in a number of places in the countryside. It was necessary to accelerate this process by every possible means. The situation was similar with migration, which took place every year, though only on a restricted scale. The state had need of agricultural workers to extend the area of its big state farms in the borderlands and its animal-raising centres in the steppes. The migrants were recruited, and willingly for the most part, in the provinces of the interior, those where there was

least land available, and they made their way to the borderlands on their own initiative. It was mostly youngsters who went, after making a partition of property with their elders. At first, owing to the lack of the necessary means, the state restricted itself to staking out holdings in the immigration areas for individual peasant households, and giving the most necessary aid for the journey and the initial building work on arrival. The migrants continued to cultivate their holdings in the new homeland in the same way as in the old. But when the state grew richer it organized the migrants in a different way. In the resettlement areas it put up buildings for large-scale collective farms, provided with machinery and everything needed for large-scale agricultural production. Now the migrants changed not only their place of habitation but also their way of running their economy. From being individualists and petty-bourgeois they became workers in a collective enterprise, and sometimes, if everybody in the unit agreed, they formed communes. True, these large farms were not always state enterprises like the state farms and the resettled peasants did not always look on themselves as workers in a state enterprise. This depended on the terms of the agreement which they had concluded with the state when they migrated. In those cases where the migrants were given equipment for a large farm, in the form of a long-term loan, they looked on this farm as their own property. They disposed freely of the products of their labour, except for that part which went to repay the loan. Thus, already at that time, alongside the old resettlement policy, the state began to introduce a new, socialist policy. Besides extending petty production into the borderlands, that is, besides petty-bourgeois colonization, there began also to develop socialist colonization of the borderlands. It was now necessary to give very wide scope to all this advance by agriculture, and in particular to undertake the building of new power stations especially for the electrification of agriculture. As mentioned earlier, this huge task was beyond the power of the Soviet Republic alone. Here the development of Russias productive forces necessarily depended on proletarian revolution in the West and a re-grouping of productive forces on the European scale. As regards the monetary system, it proved very tenacious of life not only in the first of the periods we are studying, that is, when socialist and capitalist economic relations existed side by side, but also in the second, when socialism began to conquer all along the line. The monetary system revealed great adaptability to the new type of economy, although, of course, the functions of money were markedly different under planned economy. In general, the abolition of money is inevitable in Communist society, where there is no individual or group accounting of who takes what and how much. Socialism, however (because it is socialism and not communism), does have this accounting, though eventually it is applied only to a section of the products distributed. Moreover, socialism does not completely exclude the market for those branches of the economy for example, for petty production which are not yet socialized. True, these branches, and the market with them, gradually wither away under socialism. But they wither away gradually, as socialism gradually turns into communism being, as it is, merely unfinished, undeveloped communism. Finally, under socialism voluntary, amateur industry and art develop, activities in which the workers under the socialist state engage after they have fulfilled their obligatory spell of work, and the products of which are exchanged for

money, as happens now. But of course the role of money in these conditions is not at all the same as under the capitalist or commodity-socialist systems. In these latter, money served as the yardstick of the value of commodities, the means of circulation and the means of payment. It was one of the means whereby the spontaneous regulation of the process of production and exchange took place. When, however, all decisive branches of the economy became subject to planning, and when, consequently, exchange between these branches also became subject to planning, with planned accumulation and planned distribution of consumer goods, then money was transformed into a mere auxiliary instrument of planned distribution. It retained its former status only for the non-socialized part of the economy, and even there not for the whole but only for its market in the narrow sense of the word, that is, for the market in which exchange within the nonsocialized part of the economy took place. But we have already seen that petty nonsocialized production put only a small part of its output on the free market. Moreover, in the countrys general economic plan this output had also been already taken into account, and not only the output of petty economy but also all the processes in this surviving market were in many ways already regulated by the state. Thus, money existed here in socialist encirclement, and its economic role became extremely limited. In the period being studied the state completely mastered the task of regulating the circulation of money. No unsolved problems continued to exist for it in this field. It also solved the problem of replacing the circulation of gold by that of paper-money while retaining for the latter all the basic functions fulfilled by gold. The state did not hasten to drive money out of circulation or artificially to restrict the sphere of calculations in money, since, as we shall see, non-monetary calculations successfully ousted monetary calculations in a natural way. Under the mixed system of economy money had a great advantage, and could not be replaced by any labour-units or other artificially-conceived methods of calculation. Nevertheless, something like a crisis of monetary circulation threatened to break out. The origin of the trouble was as follows: The first decade of NEP saw a growth from year to year in the exchange of goods for money, though at the same time the possibilities of non-money settlements increased with the growth of credit and banking. In the period of the stabilization of the currency money was no longer tossed from hand to hand, commodity exchange absorbed it in enormous quantities, and thanks to the expansion of foreign trade the stable currency of the Russian state was in big demand abroad; in addition, accumulation in money form developed strongly. I have already mentioned that the government and Gosbank made use of this situation to increase their circulating media, in that every year they made an additional issue of money to the extent required by commodity exchange and the needs of accumulation. Now the situation underwent radical change. Although the production of industry and agriculture increased from year to year, commodity-money exchange began to decline, owing to the reduction in the sphere of money calculations. The planned distribution of orders within the state sector reduced to the minimum the circulation of money among the state enterprises themselves. Money was paid out only to cover the balance left when accounts were reconciled; the amount of this balance in comparison with the total circulation within the state sector was only a small percentage. Substantial changes took place also in the method of paying wages.

The workers left the greater part of their wages in some areas nearly the whole in the co-operatives and state trading organs, where they found everything they needed. The cooperatives bought their goods either from state institutions (the bulk) or on the free market (the small remainder). In particular, as regards agricultural products, such as grain, meat, fats and so on, whereas previously the co-operatives had bought most of these products in the rural areas in the normal course of trade, now they got them mostly from the state, which was in possession of huge quantities through the tax in kind, repayments of bank loans, payments for commodity credit by state trading organs, and so on. Thus, instead of settlements being made in money between state enterprises and their workers, then between these workers and the co-operatives, and finally between the cooperatives and the state and its organs, it was much simpler and more convenient for the co-operatives to work out clearance settlements with the state trading organs, with the participation of the bank, so that only the net balance needed to be paid in money. So far as the worker-consumers were concerned, the co-operatives bound themselves by agreement with the state to pay a worker his wages in kind, on the basis of his workbook, if he so wished. The co-operatives were granted sufficient credit for this purpose by the state organs. Money was paid to the worker at the end of the month only to the extent that he had not drawn his wages in kind, on the basis of his work-book, at the cooperative store. In most cases the workers took up in this way more than they drew in money wages in a given month, because they took advantage of the credit available at their co-operative stores. Concretely, if a worker took goods to the value of 60 gold roubles a month, and was due to receive 70 roubles in wages, then the factory office made the deduction and he received in money only the balance, ten roubles. In a number of places, especially where the workers usually spent all or nearly all of their wages in the co-operative stores, a system was further introduced whereby, through agreement between the factory administration and the co-operatives, the final end-of-month clearance in money was also effected in the co-operative store itself. All this meant the ousting of money from an enormous field of commodity exchange and accounting, which was accomplished without the slightest loss either to the state trading organs and co-operatives or the workers. The peasants settlements of their tax-in-kind obligations to the state were predominantly carried out without the use of money, repayments of Gosbank loans were also mostly non-monetary, and so also to a considerable extent were the peasants payments to the co-operatives for goods received on credit. Furthermore, thanks to the development of the credit system, monetary [2] settlements declined even within the non-socialized part of the economy. For these reasons, the demand for money continually grew less. Whereas it had previously served the whole commodity-circulation of the country, both within and without the state sector, it was now completely ousted from the sphere of settlements within the state sector and to a very large extent from that of exchange between the state and non-socialized production. The only field which remained to it was the free market in the true sense of the word, and the volume of the free market shrank continually, owing to the increasing role of socialized production in the countrys economy. The sphere of settlements in money contracted still further when all enterprises, not only state and co-operative enterprises but also private ones (except small ones), were compelled to open a current account at Gosbank, the Bank of Trade and Industry or other credit institutions connected

with them. Thus, Gosbank and the other credit organs were gradually turned not only into collectors of spare resources, the countrys exchequer of surplus capital, but also into the central accounts office of the entire socialist economy, not excluding a section of the enterprises in the non-socialized sector. What role did money play now? For the workers who received in money the difference between their purchases and their monthly wage, this money meant means of buying something elsewhere than in the cooperative store, that is, for freer choice on the free market. For state enterprises it was the means of settlement between themselves, with the co-operatives and with the peasants, that is, money was a means of payment. In so far as these payments did not mutually cancel each other out, what was left over served as a fund for purchases on the free market, which in its turn made purchases from the state enterprises. Here money played the role of means of circulation between two economic systems. Was money a means of accumulation? It was, but under the credit system, when the countrys entire accumulation normally flowed into the banks, this money was then put into circulation by the banks, and by being paid into the bank it merely served as evidence of a certain share of the national income. What, finally, was the position with that very important function of money in commodity economy, its role as a measure of value? As soon as a large part of the countrys production was produced in the socialist sector, managed by planning organs, as soon as it was no longer the market that controlled the state economy but the state economy that began to control the market, which now operated only as a corrective to the planned economy; when, especially, it was no longer the market that determined prices, through the spontaneous resultant of supply and demand, but prices were determined for the market from then onward the role of money as the means of measuring value gradually began to wither away. Society no longer needed to go a long way round to determine what lay at the bases of value, that is, to determine the amount of socially necessary labour expended on a particular mass product. This magnitude could be determined directly, by calculations carried out in the central accounting and statistical offices of the dominant sector of the economy, and then expressed in money. Money under these conditions retrained a technically necessary means of expressing value in a generally-understandable way. What it had to express in the language of its figures was dictated to it by the accounts and statistics of socialist economy. In other words, money retained those functions which were needed for planned economy. Basically, it was little by little transformed into either a form of evidence of a certain share of the national income. that is, in the given instance, into coupons, or a form of evidence of receipt of a certain amount of raw material and instruments of production, that is, into a licence-ticket or voucher of planned economy. It retained its former role only on the free market of the non-socialized sector, that is, the sector of the economy which no longer played an independent role in the countrys economy. This process took place in a natural way, without upheavals, unnoticeably, as the commodity socialist economic system under the dictatorship of the proletariat was unnoticeably transformed into a socialist commodity system, and the latter into a purely socialist system.

What happened to the money thus thrown out of employment? By the laws of monetary circulation, should not the processes I have described have led to a regular annual decline in its value? In fact this phenomenon was observed. The value of the stable rouble now began to fall, inside the country, not be-cause of disorder in the economy but because of the latters progressive development. There were two ways of avoiding this devaluation, which was very unfavourable for economic development: either to reduce the amount of money in the country year by year by withdrawing it from circulation and destroying it (or keeping it in the strong-rooms of the bank for posteritys benefit); or to regulate the process by annual exchange of all the existing money in the country for fresh money, with a reduction in the face value say, ten old roubles for nine new ones. The government was strong enough both politically and economically to adopt the second of these measures, which from the narrowly financial point of view was the more advantageous. But this was too unwieldy a method, and one which would have to be repeated nearly every year. The state preferred to proceed by the first method, that is, by deflation, floating a number of internal loans for this purpose. Thanks to these, the quantity of money in the country was adapted to the needs of circulation, or in other words it was reduced year by year. Money not only lost its former economic functions, being gradually transformed into coupons, but also it withered away physically. Now a few words about the fate of small-scale industry in this period. In the days of the breakdown of large-scale industry the role of craft and artisan industry increased enormously throughout the economy. Whereas before the war the net output of handicraftsmen and artisans was equivalent in value to one third or one quarter of the value of capitalist industrys output, luring the revolution this output became almost equal to that of state industry. When large-scale industry began to be restored, and its output attained the pre-war level, the role of craft and artisan industry began to decline rapidly. This decline became still more marked when the state set itself, as one of its next tasks in the sphere of production, to kill off those branches of craft and artisan industry in which petty production could long since have been replaced by machine production and which survived in Russia only because pre-war capitalism barbarously exploited labourpower and had no interest, given the low level of wages, in introducing machinery in a number of branches. At the same time, in the areas where power stations were in operation, the retention of certain kinds of handicraft work had become obviously senseless from the economic standpoint. In this way the restoration of industry led not only to the ousting of petty production from those spheres which it had penetrated, thanks to the temporary breakdown of large-scale industry, but also from those where it had been established before the war. Handicraft proved, however, to be very tenacious of life. In the first place, the fact that the improvement of technique in agriculture freed part of the peasants labour-time encouraged him to take up handicraft work as an auxiliary and secondary job. Already in the War Communism period, collective work in farming communes and artels, especially the liberation of womens labour in the kitchen, had led to the commune-members having more time free from agricultural work than the peasants of the neighbouring villages.

This free time the commune-members usually employed in various sideline jobs. Finally, owing to the seasonal character of farm work, the peasants had plenty of free time in winter, which they usually spent in hand-weaving and a number of artisan occupations. All these factors delayed the abolition of the survivals of the Middle Ages in small-scale industry. In conclusion, it was also important that when large-scale industry replaced handicraft it could not always absorb the surplus of labour-power thus created. If, say, owing to machine production, 1,000 workers on machines began to do the work of 5,000 craftsmen, the remaining 4,000 had to be found employment somewhere or other in large-scale industry. With very rapid development of industry, this placing of the labourpower ousted from handicraft work proceeded more or less normally. But when there was a slowing-down in the development of large-scale industry some of the ousted handicraftsmen were left without work, which usually led the handicraft section of industry to try to compete with large-scale industry by ferocious exploitation of the craftsmans labour-power and that of his family, through reducing their personal consumption to the minimum. But we have seen already that the rapid progress of Soviet industry was hindered at a certain stage by the backwardness of agriculture. Industry suffered from the existence of this Achilles heel, the stagnation of agriculture, also on the front of struggle against handicraft industry. Here all roads led to Rome, that is, to the proletarian revolution in the West. *** My brief exposition of Russias economic development may have given you the illusion that the entire process of the struggle of socialism against capitalist forms and all the forms of the past which surrounded the socialist island of the proletarian economy in a peasant country, proceeded easily and painlessly, apart from the moment of the outbreak of the NEP counter-revolution. Such a notion would be mistaken. It is enough merely to study the Soviet press of that period, to study the reports, debates and resolutions of Party and Soviet congresses, to appreciate how many dangers lay in wait for the proletarian dictatorship at every step. True, our grandfathers exaggerated some of these dangers, or else noticed belatedly those which really had existed. But there were dangers, and a fierce struggle was waged against them. The proletarian power experienced several critical moments in its existence. These moments were the period of the Brest peace; July and August 1918, when the white-guard forces carne very close to victory and the Red Army had only just begun to be built; the period of the greatest successes of Yudenich and Denikin; the moment of the Kronstadt rising. The transition to the new economic policy averted the danger of petty-bourgeois counter-revolution, which was all the more serious because part of the town workers, under conditions of famine and want, were then strongly influenced by peasant moods. The first years of NEP were years of fairly peaceful existence for the Soviet state. Although state industry was in a ruinous condition, and the proletariat to a considerable degree declassed, on the other hand capitalism had not yet recovered its strength and was only just entering the epoch of

secondary accumulation. Danger began at the moment when the development of capitalist relations began to progress rapidly and capitalism might have outstripped socialist construction economically. This danger was especially strongly felt in the first half of the NEP decade. The working class and the Communist Party had to rely in their struggle against capitalism not so much on their economic base as on means of noneconomic pressure. To bring this pressure to hear it was necessary to have all the proletarian and Communist forces clenched in one fist, sharply counterposing itself, ideologically and organizationally, to the disruptive bourgeois and petty-bourgeois influences. This was extremely difficult; and the task itself contained an inner contradiction, because large-scale industry could economically subordinate petty production and capitalist relations not through economic isolation from them but only through becoming interlocked with them. This was a moment of great danger resulting from the cultural superiority of the conquered class over its conqueror. Socialism could not carry through its economic construction without the aid of bourgeois elements, because the task of construction itself called for a higher level of culture than had been attained by the proletariat of that epoch. The bourgeois specialists were an even greater danger at this time than in the period of War Communism, because their bourgeois habits and their psychology of hostility to the new social order were nourished from the inexhaustible sources of those very capitalist relations which socialism had to utilize to develop the productive forces of the country. The most dangerous and critical years for the proletarian power were precisely those years when large-scale industry was not yet completely on its feet and the working class had not yet produced from its own ranks a sufficient cadre of advanced people, in all fields of economic construction, to take over from the bourgeois specialists. This was the period of maximum graft, stealing of state property, scoffing by the bourgeois elements at the failures of state economy; this was the period when even a section of the Communist Party was in danger of being demoralized. The Party began a vigorous fight to raise the cultural level of the working class and conquer higher education and science for the working class. The higher educational institutions gradually, as a result of these efforts, became really proletarian. At the same time, the Party undertook a fresh purge, the purpose of which was to get rid of those elements which were being demoralized under the influence of NEP, which had become moderate in their attitude to the bourgeoisie and which had essentially turned into agents of the enemy within the commanding positions of the proletarian dictatorship. This period also saw the struggle for the new Soviet man, for the regeneration of the Russian worker as an actual national type. Soviet industry could not make rapid progress so long as there had not been vanquished, in the working class itself, not merely ignorance and lack of culture but also laziness, lack of conscientiousness in work, and slovenliness. Soviet industry could not triumph without the introduction into it of a new scientific organization of labour and the formation of a type of worker who would correspond to the higher type of industry. The history I am narrating is not the history of culture in the Soviet period and I cannot spend time on all these problems our grandfathers fought hard to solve. They solved these problems with honour. But in the field of economic and cultural struggle too there was, consequently, a moment when the existence of the proletarian regime in Russia in the

NEP period seemed in jeopardy. The victory of socialism became clear only when the restoration of large-scale industry began to outstrip the development of capitalist relations, when in the cultural field the working class began to catch up with the class that had been overthrown, and when at the same time in Western Europe the economic bankruptcy of capitalism was revealed and a new wave of proletarian revolution began. In my next lecture I will speak about the proletarian revolution in Western Europe.

Footnotes
1. Though the tax in kind was formally abolished after the stabilization of the currency, and the peasants were allowed to pay their tax in money, nevertheless it went on being paid for the most part in kind, as the peasants tried to avoid resorting to middlemen, and it was advantageous to the state to receive the tax-payments in kind, so as to increase its stock of grain to sell abroad. 2. The original says non-monetary but this is clearly an error. [Trans.]