E

E.A. Preobrazhensky

From N.E.P. to Socialism

Originally published in 1921.

Translated from Russian 1962, by Brian Pearce.

Published by New Park Publications 1973.

Transcribed by Martin F.

Marked up by Einde OCallaghan for the Marxists Internet Archive.

Biographical Note [5]Publishers Introduction [9]Introduction [15]Lecture 5: European capitalism in a blind alley [17]Lecture 6: Russias economic system after the end of war communism. The restoration of agriculture in Russia in the first decade of NEP [27]Lecture 7: The industry of Soviet Russia in the decade of NEP [43]Lecture 8: The wages system. The training of skilled workers. Red engineers [51]Lecture 9: The organization of state industry [61]Lecture 10: New forms of wages. The revolt of NEP against the proletarian dictatorship [75]Lecture 11: The beginning of the transition of the economy to a higher stage. An economic impasse [89]Lecture 12: The collapse of capitalism and the civil war in Europe [109]Nikolai Bukharin. The New Economic Policy Of Soviet Russia. A lecture to the delegates of the Third World Congress of the Comintern in Moscow, delivered on July 8th, 1921, on the significance of the new economic policy of Soviet Russia [127]Nikolai Bukharin 1922. Economic Organization in Soviet Russia [135]

Biographical Note

Evgenii Alexeyevich Preobrazhensky was born in the province of Orel in 1886, the son of a priest. While still at school he was introduced to Marxist literature, and set about organizing Social-Democratic student circles. In 1903 he joined the Russian Social-Democratic Labour Party and quickly attached himself to the Bolsheviks, carrying out Party work in Orel, Bryansk and Moscow from 1904-5, and attending the first Party conference at Tammerfors in December 1905. He then worked in the Urals during 1906-8, and was repeatedly arrested and eventually exiled from 1909-11. His defence lawyer at the trial, Kerensky, declared that Preobrazhensky was not involved in any revolutionary movement: Preobrazhensky immediately disavowed his lawyer and proclaimed his revolutionary convictions. In the winter of 1911 he escaped from exile, but was re-arrested late in 1912 and exiled again until 1915, when he took a leading role in the Siberian party organization, working in Irkutsk and Chita, and took part in the February revolution in Chita. He was elected a candidate member of the Central Committee at the Sixth Party Congress in Petrograd (July-August 1917) and returned to the Urals, where he led the party organization during the October revolution.

Early in 1918 he carne to Moscow and became associated with the group of young party intellectuals round Bukharin; he and Bukharin were regarded as the Partys ablest economists. In the controversy over the Brest-Litovsk treaty in spring 1918 he joined Bukharins Left-Communist faction which called for a revolutionary war, but which rejoined the party majority when the Civil War began in summer 1918. They collaborated again in the writing of a popular explanation of the Draft Party programme adopted at the 8th Party Congress in March 1919, published in October 1919 as The ABC of Communism. Preobrazhensky was also, under the same Bukharin, a member of the editorial board of Pravda.

During the Civil War he served on several fronts in various capacities, holding many responsible Party and governmental positions. He headed the Political Department of the Third Army, was active on the Eastern front against Kolchak; also chairman of the Party Committee of the Ufa Gubernia (Bashkiriya). Along with several colleagues he conflicted with Party policy on the self-determination of national minorities when in November 1919 his policies nearly led to an anti-Bashkir pogrom in Ufa. Only intervention from Moscow in the person of Trotsky (at the Sterlitamak conference in March 1920) averted an explosion in the charged political situation of that sector of the Civil War front, where the kulaks were up in arms. He was withdrawn from Ufa and drafted to the Southern front to supervise and speed up the concentration of the Red Army in October 1920 at the concluding phase of the Civil War.

He became a full member of the Central Committee at the Ninth Party Congress in April 1920, and was elected to the new three-man Secretariat of the CC (which took the place of Sverdlov after his death), along with Krestinsky and Serebryakov. At the following CC Plenum he was made a member of the Orgbureau and the Politbureau. At that time, like Bukharin, he welcomed the emergency measures of War Communism as a foretaste of the future socialist order. In 1920 he published a pamphlet Paper Money in the Age of Proletarian Dictatorship which hailed the headlong depreciation of the currency as a step on the road to the total disappearance of money under communism.

Together with his co-secretaries Krestinsky and Serebryakov, he supported Trotsky and Bukharins platform in the November 1920 party dispute over the militarization of trade unions. This was an extension of the policies of War Communism into the period of reconstruction, a course which was averted by the application of the New Economic Policy. Preobrazhensky himself at first opposed the NEP, seeing it as a capitulation to the peasantry and neo-capitalist forces in the countryside.

At the Tenth Party Congress (March 1921) which promulgated the NEP, he was removed from the secretariat of the CC along with his two colleagues through the machinations of the Stalin dique, the senior of the new secretaries being Molotov. He was not re-elected to the Orgbureau or the Central Committee, and was not again to hold a senior Party position, although in June 1921 he was a candidate member of the committee set up to purge the party of undesirable careerists. Instead, the Congress appointed him Chairman of the Financial Commission of the CC and the Sovnarkom, also a Collegium member of the Peoples Commissariat of Finance. The Financial Commission was set up to review and work out financial measures to meet the consequences of the NEP. In this capacity he produced a draft thesis on work in the countryside for the Eleventh Party Congress (March 1922), which he attended as a non-voting delegate. His thesis expressed apprehension at the increasing concessions offered to the rich peasants and the growth of differentiation in the countryside, and called for the further development of Sovkozy and agricultural collectives to promote the transition from peasant to socialist agriculture, rather than over-centralistic government. However, the draft was considered unsuitable by Lenin, being over-occupied with principle and not with practice, and was not submitted to the congress.

Preobrazhensky continued to develop his analysis of the problems in the countryside, putting forward the basic idea of primitive socialist accumulation that the resources for the rapid expansion of industry would have to be transferred from the agricultural sector. This brought his views close to those of Trotsky, who also stressed the need for rapid industrialization to create a firmer base for the proletarian dictatorship and for an overall planned economy.

In the inner-party discussion on democratization of October 1923 he signed the Declaration of the 46, which denounced the ineffectiveness of the official economic policy in industrial planning; protested against the stifling of discussion and the arbitrary rule of Party secretaries; and called for the abolition of the ban on factions within the Party. During the subsequent bitter conflict with the Stalin-Kamenev-Zinoviev triumvirate, he became a leading member of the Left Opposition. At the 13th Party Conference in January 1924, in Trotskys absence, he defended the Declaration of the 46 against the attacks of the ruling clique.

His celebrated work The New Economics [1] (1926) was written as a blow against the economic policies of the triumvirate and in particular against Bukharin, who had swung sharply to the right and become the main spokesman for socialism in one country, advocating further concessions to the rich peasants, the denationalization of land, and abandoning the State monopoly of trade. The ruling clique had accepted that the rate of industrialization should be determined by the situation in the countryside: in the words of Bukharin, riding into socialism on a peasant nag. The main chapters of the book were based on a paper read by him in August 1924 to the Communist Academy on The Fundamental Law of Socialist Accumulation, where he argued that the backwardness of the Soviet economy in the face of world economy meant that, in order to survive, it would have to industrialize rapidly until the productive resources reached the highest level attained in any capitalist nation. This could only be done by maintaining the State monopoly of trade against the economic pressures of imperialism and subordinating to it the private sector, by the artificial fixing of prices so as to drain resources from agriculture and concentrate them in industry. There was no other way to accumulate the capital necessary for the development of new productive techniques and the expansion of the nationalized industries.

When Zinoviev and Kamenev split from Stalin he was sent from Moscow to Leningrad to establish links between the two opposition groups in that city. In December 1927 he was expelled from the Party for his part in an attempt to print the Platform of the Joint Opposition (he claimed full responsibility for the organization of the press). Together with other leading members of the Opposition he was exiled to Siberia. However, he soon began to waver, impressed by Stalins empirical left turn in 1928 to industrialization and collectivization, and called for a rapprochement with Stalin, insisting that the bureaucracy was the unconscious agent of historical necessity. After publicly dissociating himself from the theory of permanent revolution, he deserted the Opposition in 1929 and was allowed to return to Moscow. In July 1929 he signed a letter of recantation together with Smilga, and was re-admitted to the Party, only to be expelled again in 1931. He was present, however, at the 17th Party Congress in January 1934 (The Congress of Victors) where he denounced both himself and the Opposition. He was arrested in 1935 and, although named as a defendant at the second Moscow Trial, was never brought before the court since he refused to confess to the frame-up charges; finally executed in prison in 1937.

Footnote

1. English translation by Brian Pearce, Clarendon Press, Oxford, 1965.

Publishers Introduction

This book is of a type unusual and perhaps unique in Marxist literature. Written in 1921, it takes the form of a series of lectures purportedly given in 1970 which describe the course of development of the Soviet economy in the decade after the books publication.

Preobrazhensky was a prominent Bolshevik economist, and over a crucial period a supporter of Trotskys fight against the bureaucratic degeneration of the Soviet Union. Like many others he became a victim of Stalins purges when he was shot without trial in 1937.

Like his famous ABC of Communism (written jointly with Bukharin) the present work was suppressed by Stalin and is still unobtainable in the Soviet Union.

It was written almost immediately after the adoption of the New Economic Policy, in March 1921. NEP represented the response of Lenin and the leaders of the Communist Party to the enormous problems inherited from the period of Civil War and War Communism: the basic aim of the NEP was to use market forces on a limited and controlled basis as a means of re-establishing some stability in the relations between the town and the countryside. Industry was to supply the rural areas with the necessary goods at such prices as would allow the State to dispense with forcible collection of the products of peasant labour, as was the case under War Communism. Secondly, it was a policy aimed at bringing into play all the under-utilized plant and equipment which had existed during the period of the Civil War. In short, a market economy was allowed to develop alongside the state sector which comprised the bulk of industry, foreign trade and the state farms. Preobrazhensky was somewhat dubious about NEP, but he accepted its necessity, provided that vigorous steps were taken to keep private trade and accumulation under control and constantly to strengthen the state sector at the expense of the private sector. In this way, he thought, the period in which NEP operated would be kept to the absolute minimum.

The importance of the present work is that it is not merely a speculative look into the future, but a statement by the author on how he thought NEP could be controlled and the dangers inherent in it limited. Preobrazhensky therefore wrote the book as a supporter of the policy of planned industrialization which was later to be adopted by the Left Opposition.

Preobrazhensky rightly feared that NEP would strengthen the position of the richer peasants (kulaks), as well as artisans and traders (nepmen) who also gained a considerable advantage from the partial restoration of the market. As the reader will see, Preobrazhensky envisaged in his lectures that NEP would strengthen both these strata to the point where they would make a bid for counter-revolution, assisted by sections of the foreign bourgeoisie.

In this respect his fears were partially justified by the course of subsequent events. As Lenin and Trotsky had hoped, NEP did make possible a restoration of the economy which had slumped to a disastrous level in 1921 when output stood at only one-fifth of its 1913 level. After the turn to NEP, industrial production gradually picked up, regaining its pre-war level in 1927, with agriculture achieving a similar result the previous year. In this sense the partial retreat involved in NEP had been justified and the ground-work laid for a programme of planned industrialization.

The reader will find that Preobrazhensky anticipated that this would be possible and devotes considerable time in the lectures to outlining the sort of policies that he felt would be needed to carry through a planned industrialization. He emphasizes not only the need to build up industry and particularly supplies of electrical power; he says that the working class should be strengthened by linking it more closely to the socialist economy, making it more conscious of its tacks, reducing inequalities in income and extending education.

In this respect this work is an anticipation of his later, more detailed, writings on the problems of planning, when the issues had left the realm of speculation and were the subject of a most bitter inner-party struggle. It was in this later period that Preobrazhensky became known as the leading exponent of what he called primitive socialist accumulation, that is that the state sector would have to appropriate part of the peasants surplus in order to obtain the resources required to build up industry. (Preobrazhensky deals with these questions in his work The New Economics [1] first published in 1926.)

But it is crucial to understand that Preobrazhenskys conception of industrialization had nothing at all in common with that finally carried out by Stalin in the Five Year Plans which started in 1928. Stalin, taking his lead in this matter from Bukharin, had long resisted the proposals of the Left Opposition for an industrialization programme, despite the fact that in the period following Lenins death (1924) it became increasingly clear that NEP had accomplished all that could be expected of it from the economic standpoint, and that it was leading to grave political dangers of the sort anticipated by Preobrazhensky and others. When Stalin, in blind panic, was forced, under the threat of foreign intervention as well as internal upheaval from the kulaks, to begin a programme of industrialization, he did so in the most brutal, unplanned manner. The Five Year Plans were initiated with no political preparations; the targets set for industry and agriculture alike were pitched at a ludicrously high level; far from aiming to reduce income differentials, such a policy was derided as a bourgeois prejudice. The result was that Russia was plunged into near-civil war, and huge quantities of crops and millions of animals were destroyed in reprisals against the Soviet government, events from which the Soviet economy has never fully recovered even to this day.

In contrast to these brutal, empirical methods, Preobrazhensky here, as well as in his later writings advocated a quite different course. The transfer of resources from countryside to town could only be a relatively gradual one. Further it was best carried out, he thought, through a manipulation of the price system whereby the prices of industrial products would be raised as against the prices paid by the state for agricultural products. Apart from involving the minimum of administrative complications, such a method would also reduce the political dangers which a direct tax upon the peasantry might have incurred.

There can he no doubt that in the inner party struggle on the industrialization question Preobrazhensky, as part of the Left Opposition, made a significant contribution to political economy and the problems of planning which none of his rivals, either in the Bukharin-Stalin camp or from amongst the bourgeois economists, came anywhere near to matching. And it is clear to see why Preobrazhensky should have eventually, like the rest of the Bolshevik Party leadership, fallen foul of Stalin. For he always saw the connections between the Soviet and the world economy. The present work, for example, ends with a sketch of the lines on which he thought the European revolution might develop in the decade after 1921, which brought him necessarily into the sharpest conflict with the Stalinist theory (first advanced in 1924) of socialism in one country.

But Preobrazhenskys undoubted talents and his equally great courage in refusing, before he was shot, to admit to a series of imaginary crimes like so many defendants at the infamous Moscow Trials were forced to do at the hands of the GPU, should not blind us to his weaknesses and limitations.

Although a close worker with Trotsky in the 1920s it must be remembered that after Stalins left turn in 1928, Preobrazhensky was amongst that section of the Left Opposition which took this turn at its face value and capitulated to the bureaucracy. Preobrazhenskys split from Trotsky had a major political impact for it undoubtedly strengthened Stalins hand, lending credence to his false assertion that he had now adopted the policies of the Left Opposition, while at the same time slowing down recruitment into Trotskys faction. Preobrazhenskys capitulation cannot of course be attributed to personal cowardice, as his entire career shows. There is no doubt that a section of the Left Opposition were fearful of the consequences of a Party split and saw in Stalins Five Year Plans a move in the direction of the policy which they had long advocated.

For Trotsky, however, the essence of Stalinism was not its attitude to the question of the industrialization of backward Russia, important though this question was. The lode star of Stalinism was, on the contrary, the theory of socialism in one country. Here was expressed the core of Stalins complete revision of revolutionary Marxism, a theory which increasingly entailed the subordination of the world revolution to the needs of the Soviet bureaucracy. Throughout all his many zigzags, from this theory and policy Stalin and Stalinism never broke.

Preobrazhenskys lack of clarity on this, the most vital of all questions in the fight against the rising Stalinist bureaucracy, is raised here because it is a weakness which to some extent finds its reflection in the pages which follow. There is a tendency on the part of Preobrazhensky to isolate the economic questions from the problems of world revolution. While for Trotsky, the former were always subordinate to the latter, Preobrazhenskys work lacks this theoretical clarity. Thus the impression is created in the present work that the Soviet economy, following the policies advocated in the lectures, would be able to build up its economy almost to the point of socialism, with the job being completed by the European revolution. It is as though the political questions are seen somewhat as an adjunct to the economic policies operating within the Soviet economy.

Despite these ]imitations, the following lectures can be studied with great interest and profit by the reader today, and their publication in English for the first time after so many years of Stalinist suppression is to be unreservedly welcomed. For they constitute not merely an interesting historical document nor merely a contribution to a debate which was of the greatest importance in the Soviet Union in the 1920s. More than this, they deal with issues that are of the greatest relevance to the still-unresolved problems of Soviet economy. For despite the grossly inflated claims of the bureaucracy and the undoubted achievements of the Soviet economy made possible by the nationalized property relations established in 1917, the aim of building socialism in one country remains as utopian as it was when first propounded by Stalin nearly fifty years ago. Because of its isolation from world economy and the international division of labour, the Soviet economy still remains a backward, distorted economy compared with the most advanced capitalist economics. None of these problems can in any way be resolved until the Soviet economy becomes integrated into a world socialist economy which embraces the now-dominant centres of capitalist power in Europe and America.

Preobrazhensky was amongst the first to grapple with these issues and their implications. It is from this standpoint that the present work, along with his other writings, should be studied.

Works by the Author

Bumazhnyye dengi v epokhu proletarskoy diktatury (Paper Money in the Age of Proletarian Dictatorship)

Ot nepa k sotsializmu (From New Economic Policy to Socialism *)

O morali i klassovykh normakh (Morals and Class Norms)

Ekonomika i finansy sovremennoy Frantsii (The Economy and Finances of Contemporary France)

Ob ekonomicheskikh krizisakh pri nepe (Economic Crises Under the New Economic Policy)

Novaya ekonomika (New Economics *)

coauthor (with Bukharin):

Azbuka kommunizma (The ABC of Communism *)

* Available in English translations

Footnote

1. The New Economics, translated by Brian Pearce, Clarendon Press, Oxford 1965.

Introduction

In Lecture hall No.1 of the Moscow Polytechnical Museum lectures have long been given for workers who, not content with what they learned at school, are continuing their education in their spare time. In 1970 lectures were given on the history of the great Russian revolution, and these attracted a large audience. The lectures, which were heard simultaneously by workers in other places, linked to Lecture-hall No.1 by radio, were given by Minayev, a professor of Russian history who was also a fitter in a railway workshop.

Minayevs course of lectures began with the first Russian revolution (1905) and ended with the period of civil war in Europe. The historian not only taught his hearers how to use the methods of historical materialism in analysing the concrete facts of history but also conveyed to them a number of definite ideas about the period being studied mainly economic ideas. His fifth lecture, given on May 13, began by describing the political and economic situation which existed in Europe after the first wave of proletarian revolution, in 1917-1920. We reproduce this lecture and those which followed it.

Lecture 5

European capitalism in a blind alley

COMRADES, in my last lecture I gave you a picture of the events which took place in 1918-1920. From the facts which I cited you were able to see that the first volcanic eruption of proletarian revolution proved not powerful enough to break through the social crust of capitalism throughout Europe. I tried also to explain to you why the revolution was unable to vanquish the bourgeois world in Europe at a single blow. But it would be wrong to underestimate the success actually achieved. The triumph of the proletarian revolution in Russia signified the passing of half Europe and one-sixth of the whole world under the rule of the workers. A war in which one of the combatants occupies a sixth of the enemys territory as a result of the first battle has not begun badly for this victorious combatant. But it would also be wrong to exaggerate the material results of this first stage of the revolution. If you compare the population of Soviet Russia of that time with the total population of the world, you will see that only one-fifteenth of man-kind were then under Soviet rule. Nor do the material results of the revolution appear any more important if we ascertain the relative weight of the economy of Soviet Russia in world economy. The net national income of Soviet Russia in the first years of the revolution did not exceed five milliard gold roubles, at pre-war prices, which constituted less than one-twelfth of the annual nation income of Europe and America, and therefore a still smaller share of total world production.

Nevertheless a breach had been made in the capitalist front, and a salient formed in the body of world capitalism in which the proletariat had secured the material possibility of gradually developing the pre-conditions necessary for socialist economy, The peculiarity of the political and economic situation in Europe in the 1920s consisted in the fact that capitalism could not stop up the hole made in it in the first stage of the revolution, and was obliged to adapt itself to the existence of the first Soviet state and the new property system, that is, social ownership--at least, in large-scale industry. While agreeing to tolerate the existence of the Soviet Republic, which it lacked the strength to crush, capitalism naturally looked on this situation as a temporary one, for it considered that Soviet power could not last long in Russia. History as you know, decided otherwise

How did all this happen, what forces led to the fresh out-break of workers revolution in Europe?

Let us begin by giving some attention to the economic situation in Europe after the first stage of the world revolution. Capitalism, saved from collapse but torn by internal contradictions, proceeded gradually to heal the wounds which it had received during the world war. It had to begin this task in a situation in which the volume of industrial production in Europe had shrunk by one-half. Capitalist Europes production could have escaped from this low level in a short time if all the elements needed for expanded production had been present. Among these elements were labour-power in sufficient quantity, instruments of production, adequate supplies of raw materials and adequate outlets for goods, the capacity of which would increase more or less in proportion to the increase of production.

As regards labour-power, this was available in the 1920s in great superfluity, in relation to the volume of production. Six million unemployed that was the reserve army with which capitalism, politically restored, began its new cycle of development. So far as the instruments of production were concerned, they too were available to excess. Factories worked at half their productive capacity. No fresh accumulation of capital was needed, as normally, for resources for the fixed capital needed for expanded production to be obtained from this accumulation fund. This was all the more important in that situation because post-war Europe was not in a state to accumulate for expanded reproduction: on the contrary, it was even obliged to get rid of the capital accumulated in previous decades.

The two other conditions remained. Here the position was very unfavourable for capitalism. During the war, American industry had taken a gigantic step forward. At the same time native industry had developed strongly in the colonies and semi-colonies which before the war had been sources of raw material and markets for the products of European industry. As a result, the size of the market for European industry bad been markedly reduced, and also the amount of raw material available for Europe was lessened, because a substantial part of it was now worked up in America and the colonies. As a consequence of this new distribution of markets and sources of raw material within the world economic system, Europes industry found itself hemmed in and compelled to sink to a much lower basic production level than before the war. In pre-war European industry there had, of course, been a definite proportionality between the fundamental conditions of production, and if now the amount of raw material and markets available had contracted sharply and disproportionately as compared with the other elements of production, the old structure of industry could not be restored without restoring the old proportions. As the strength of a chain is determined by its weakest link, so Europes industry could not overstep in its development the dimensions dictated by the available sources of raw material and markets, but, on the contrary, was obliged to come into line with them. Russias departure from the world economic system rendered the situation still more acute, because it meant the loss of a huge market and a very rich source of raw material. Europes industry could have enlarged its sources of raw material and its markets by three methods:

1. by drawing Russia into the world economic system, at the same time increasing the productivity of its agriculture;

2.

3. by increasing the purchasing-power of the population of Europe itself;

4.

5. by a new war, waged against America, which had ousted Europe from a number of areas important to her as markets or as sources of raw material.

Added to these difficulties were difficulties in respect of food supplies. Even before the war Europes industry had rested upon a slowly-developing agriculture, which led to an increase in the cost of foodstuffs. The production of grain became relatively dearer and dearer, while manufactured products became cheaper, as a result of the progress in industrial technique. And in its turn the slowness of technical progress in agriculture, by keeping up the price of grain, slowed down the process of cheapening manufactured products. Thus, even before the war, Europes industry was confronted with crisis approaching from this direction. The failure of the first Russia revolution (1905), which, had it succeeded, could have ensured a rapid development of Russian agriculture, closed this door in Europes face. The war mixed up all the cards, screening the grain crisis behind a number of other kinds of crisis. But the unsolved problem faced Europe afresh after the war. It was all the more serious because European agriculture had considerably reduced its production during the war, and the continents dependence on foreign grain had become still greater.

Europe could not find its way out of the situation through war with America because it was immeasurably weaker than America in all respects, not to mention the fact that it was impossible to form a united capitalist front against America. It was also impossible to increase the purchasing power of the population of Europe, and, especially, of the working class. Capital was driven to take the opposite course, to reduce wages in order to use the increased mass of surplus value to increase its purchases of raw material, which had risen in price. The need to extend its markets and its supplies of raw material by peaceful means led Europe to make use of what possibilities existed within Europe itself and in the colonies and to establish economic ties with Russia. The withdrawal of the Russian grain market from the European economic system thrust Europe into severe economic dependence on America, especially as regards food supplies and foreign exchange. Conversely, a restoration of the Russian grain trade would mean the establishment of a second large-scale competitive centre in the world grain trade, and so to cheaper grain. The inclusion of Russia in the European economic system would open to Europe the possibility of developing industry without transferring a considerable amount of capital and productive forces generally from industry into agriculture, which would have meant a lowering of the level of the entire economic system and of civilization in general. If a hundred million Russian peasants who in 1920 produced two milliard poods [1] of grain were in 1930 producing five milliard poods, this enlarged the food supply basis of European industry to a colossal extent. But the restoration of Russian agriculture, which, in the first years at any rate, got on to its feet more rapidly than Russian industry, enormously increased Russias demand for Europes manufactured goods.

From this we see, comrades, that the strength of Soviet Russia in the 1920s consisted above all in the weakness of Europe. The Achilles heel of European industry was Russia. And Russia was ruled by the revolutionary proletariat. If Russia were not drawn into the world economic system a rapid development of Europe would not be possible. The attempt of bourgeois Europe to turn Russia into a European colony by supporting civil war and intervention proved unsuccessful. It was necessary to choose other, peaceful, means. The first attempt in this direction was the Genoa Conference (1922), at which capitalist Europe wanted to arrange matters so that, in return for its inclusion in the world economic system that is, for something which was a vital necessity for Europe itself Russia should pay all the Tsarist debts, and compensation for the losses suffered by Europes capitalists through the nationalization of industry. The Soviet government did not agree to this, and subsequent events showed that it was quite right. More than that, events showed that Soviet Russia had underestimated its own strength. The capitalists of Europe were in much greater need of Soviet Russia than their diplomats made out more, even, than bourgeois diplomats then realized. Under these conditions the stronger party was the one who could wait the longer. Russia could wait longer than capitalist Europe, and proved to be stronger.

But the development of Russias own productive forces also required close economic ties with Europe. Unlike the industrial countries of Europe, especially Britain and Germany, Russia was a country which possessed all the resources economic, geographical and social needed to develop as a self-sufficient economic organism. First, Russia possessed all the natural resources for creating a powerful industrial and agricultural economic organism. Coal, petroleum, peat, timber, iron and other ores, cotton every kind of raw material except rubber: boundless possibilities of agricultural development and of increasing supplies of raw material of animal origin. Thus, the resources were there for rapid progress on American lines. But at the same time there was also a huge difference from America which did not hinder but on the contrary helped the formation of a unified economic entity: namely, the socialist rgime. At a certain stage of its industrial advance, the economy of capitalist America needed to expand its market base beyond the countrys frontiers. American industry and American agriculture became woven into the world economic system. Americas industry was always outgrowing its domestic demand, and inevitably broke out into the foreign market. Insofar as the driving force of the economy was profit, the distribution of the product proceeded only in the form of sales, and when sales proved impossible, expansion of production became point-less from the capitalist point of view. For a country like Russia, however, where natural potentialities for a self-sufficient economy were united with social potentialities (before the victory of socialism in other countries), the situation was different from what it was in America. External markets were not needed for the expansion of industry because every increase in production made more available for socialist distribution. To capitalist production the slogan the more the merrier does not apply, for not everything that is produced can be sold. This slogan is appropriate to socialism, however, indeed it is its basic slogan, because every increase in production makes more available for every worker. True, socialist economy needs proportionality between its various sections, even more than capitalist economy does. However, this proportionality is achieved not through the market but on the basis of calculating the volume of potential demand. At any rate, for the industry of Russia at that time, working for internal demand, there could be no question of overproduction.

True this industry was not socialist in the full sense of the word, as our present industry is, and not all of its products entered into socialist distribution. Industry then still worked to a considerable extent for the internal peasant market, because petty independent peasant economy was the predominant form in agriculture. In order to buy grain and raw material, industry had to sell part of its production to the producers of grain and raw material. Overproduction was a danger only to the extent that in certain branches an excessive quantity might be produced of goods which were wanted neither by the peasants nor by the workers, while goods which they both needed were underproduced. But this is another question, to which I shall come back later, when I shall be speaking to you about the economic development of Russia in the period of transition from capitalism to socialism. Here I want to emphasize only one point. While needing an increase in the capacity of the peasant market internally, our industry had no need of external markets for its development because in socialist distribution within the circle of state enterprises, state workers and office-workers, it had an outlet-valve which took the place of the outlet-valve of a new external market for expanding capitalist industry.

But while possessing all the natural resources for a temporary isolated economic existence (before the proletarian revolution in other countries), Soviet Russia nevertheless also needed, in order to ensure the most rapid development of its productive forces, economic connexions with capitalist Europe. While the capitalist countries were urged towards Russia by the need to seek markets and supplies of raw material for their developed industry, Russia was urged towards Europe by the inadequacy of her industrial development, which, in turn, was held back by the disorganized state of agriculture. Without a sufficiently sound agriculture Russian pre-revolutionary capitalist industry could not have survived. Without a strong agriculture socialist industry could not develop rapidly. But for agriculture to get quickly on to its feet, it needed external help, it needed, and on a large scale, not only short-term commercial credit but, also, and mainly, long-term credit, credit for land-improvement and for the restoration of the economy. Russian socialist industry was not able to furnish this aid to agriculture on a large scale; it could not provide credit on any substantial scale because it was itself in need of help through credit. It lacked sufficient circulating capital, and had to a large extent worn out its equipment during the war and the revolution.

Only the richer industry of Europe could supply credit to Russian agriculture, in reviving which this industry was itself interested to a high degree. Thus, the economic situation in Europe in the 1920s took this form, that a mutual economic tie-up was needed for the development of the productive forces both in capitalist Europe and in socialist Russia, and the initial driving force of development in this period of Europes economic history necessarily had to be provided by a rapid, almost violent, development of Russian agriculture. As I have already said, European industry did not possess within Europe itself the preconditions for its rapid restoration without new markets and supplies of raw material beyond the bounds of this continent. As a result, the Russian countryside was in this period the axis of the economic advance of Europe. This was the line of least resistance for progress. How true this was can be seen from a simple economic calculation. Every step forward economically means an increase in new values created in the country, hundreds of millions or milliards annually, with all the consequences that follow from this: increase in the possibilities of productive accumulation, and so of building new factories and railways, extending production in existing factories, increasing the possibilities of personal consumption both for the capitalist class and for the workers, and so on. Imagine for a moment the whole economy of Europe in the 1920s as a unified entity, though it was this only to a limited extent. Imagine that it is a question of increasing in the shortest possible time the amount of values produced annually by Europes industry by, say, two milliard gold roubles. How would this be objectively possible under the conditions described above and while retaining the mechanics of the capitalist mode of production?

Let us assume that European capitalism obtains the means to buy the additional amount of raw material needed, and then locates and buys this raw material, something itself almost impossibly difficult to do in a short time. But it still needs to sell the manufactured products, that is, to find in a short time an additional selling outlet, though what is involved here is the realization of only part of the new product, since capitalism itself, as we know, creates internally the market for the rest. As neither the one nor the other can drop from the sky, but can appear only through gradual, step-by-step development of economic processes both inside and outside Europe, it is perfectly obvious that a rapid leap forward by European industry on the basis merely of its own production potentialities and the existing markets would be impossible. If Europes industry, in its drive to expand, were to produce two milliard excess values and could not realize them all, this would mean such a crisis, such a waste of scarce resources, and would cal) forth such a reaction against expansion in the whole industrial organism, that after such an experience this industry would be unable to sustain even the limited amount of production which existed before this development took place. The restoration of European capitalist industry would have been an exceedingly easy matter if each factory had not only begun to produce as much as before the war but had been able, first, to sell all it produced, and second, to sell it at prices which ensured the continuation of production. Because the fabric of world economy was torn as a result of the world war, a number of new preliminary economic processes proved necessary for the expansion of European industry.

Russian agriculture, however, needed little to achieve an increase in its annual production.

While Russian agriculture produced in the first years of the revolution about two milliard poods of grain, in 1922 an average harvest was sufficient to bring its production figure up to nearly three milliard poods. And to produce more than three milliard, to bring production up to four milliard (the pre-war production figure), it was necessary merely, first, to plough 25 per cent more land, which was available for working at any moment; second, to introduce a number of very simple improvements into peasant economy, none of them requiring any specially large expenditure (such as early first-ploughing of fallow, ploughing up of autumn ploughland, drill-sowing, and so on); third, replenishment of agricultural equipment; and, fourth, increase in the number of draught animals and transfer of these animals to the areas which had suffered most from their loss.

None of these measures required any changes in the actual structure of the peasant economy, still less in the structure of European economy. But, being put into effect, they substantially changed the entire economic situation in Europe. The European economy got moving again though, as we shall see below, not for long thanks to Russia, while Russia, if it had continued to be isolated in Europe, could have made progress even with-out capitalist Europe, though, of course, at a slower pace. In this is partly to be found the explanation of the fact, at first sight paradoxical, that economically backward Russia played such a decisive role in the history of Europe. On this point I must conclude my description of the general economic situation in Europe. In the next lecture I will survey the history of the economic development of Russia, the period which is called that of the New Economic Policy.

Footnote

1. A Pood is a Russian measure of weight, about 36 lb. [Trans.]

Lecture 6

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 patriarchal-tribal 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 commodity-socialist 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 large-scale 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 all-Russia 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 motor-vehicles 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.]

Lecture 7

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 exa