The Soviet economy: how it worked… and how it didn’t

Marx explained that every social system is subject to its own laws: objective dynamics, forces, and pressures that govern its motion and development. In this article, Adam Booth examines the early decades of the Soviet Union, in order to provide a concrete understanding of the economic laws which imposed themselves on the young workers’ state, and to arm a new generation with the lessons required to carry out the successful struggle for communism.

"Gigantic achievements in industry, enormously promising beginnings in agriculture, a rapid increase of the numbers of workers, a rise in cultural level – such are the indubitable results of the October revolution, in which the prophets of the old world tried to see the grave of human civilisation. With the bourgeois economists we have no longer anything to quarrel over. Socialism has demonstrated its right to victory, not on the pages of Das Kapital, but in an industrial arena comprising a sixth part of the Earth’s surface – not in the language of dialectics, but in the language of steel, cement, and electricity."^[1]

– Leon Trotsky, Revolution Betrayed

The Russian Revolution was the greatest event in human history. Led by the Bolsheviks, the working class seized power, raised the banner of international socialist revolution, and offered a beacon of hope for the exploited and oppressed masses across the world.

But they did so under the most extreme and unfavourable conditions: in an economically backward country, devastated by years of war and upheaval, and besieged by imperialism. Moreover, they did so without any roadmap, save for the brief experience of the Paris Commune, which was drowned in blood after just a few months.

Despite making enormous progress in the field of economic development, the USSR never succeeded in building a communist society. Nevertheless, the early decades of the Soviet Union – from 1917 to 1937 – provide a number of important lessons for communists, which it is our duty to study and fully absorb.

By examining the Soviet economy in this period, warts and all, and by tracing the theoretical debates that emerged amongst the Bolsheviks on economic questions, we can gain a concrete understanding of the economic laws that would operate in the transition from capitalism to communism, and shed light on how a communist society could be built.

Transitional regime

On 7 November 1917 (25 October in the old Russian calendar), Lenin famously ascended the rostrum at the Second All-Russian Congress of Soviets and announced: “We shall now proceed to construct the socialist order!” ^[2]

Neither Lenin, nor any of the Bolsheviks, however, believed it would be possible to construct this order overnight. That same year, in his masterpiece The State and Revolution, Lenin quoted Marx:

“Between capitalist and communist society lies the period of the revolutionary transformation of the one into the other. Corresponding to this is also a political transition period in which the state can be nothing but the revolutionary dictatorship of the proletariat.” ^[3]

As Marx and Engels explained in The Communist Manifesto: “The first step in the revolution by the working class is to raise the proletariat to the position of ruling class.”

Neither Lenin, nor any of the Bolsheviks, however, believed it would be possible to construct this order overnight / Image: public domain

Having conquered power, the working class would then spread its revolutionary class rule across the world, and “use its political supremacy to wrest, by degree, all capital from the bourgeoisie, to centralise all instruments of production in the hands of the state… and to increase the total productive forces as rapidly as possible”.^[4]

On this basis, society would reach what Marx called the “first phase of communist society” ^[5], commonly referred to as ‘socialism’. Only then would the last vestiges of class society – such as the state, money, and inequality – finally begin to wither and die.

The transitional nature of the Bolshevik regime was recognised explicitly by Lenin in 1918:

“The term Soviet Socialist Republic implies the determination of the Soviet power to achieve the transition to socialism, and not that the existing economic system is recognised as a socialist order.”^[6]

But Lenin and the Bolsheviks also understood that the conditions in Russia were a far cry from those required to build socialism or communism.

Combined and uneven development

By 1917, on a global scale, the conditions for socialism certainly existed. In the decades leading up to the First World War, capitalist production had become increasingly socialised and planned. But the wealth produced continued to be privately appropriated by the bosses and bankers.

As Lenin explained in Imperialism: The Highest Stage of Capitalism, the economy had become dominated by monopolies, which had fused with finance capital and the state, to form what he called “state monopoly capitalism”. ^[7]

The German imperialist war machine exemplified this. The country’s industrial trusts and transport networks were taken into state hands. In place of the ‘free’ market, production was planned – albeit in the interests of the capitalists.

The working class, however, had first taken power not in an advanced capitalist country, like Germany or Britain, but in semi-feudal Russia, where even the tasks of the bourgeois revolution, such as land reform, had not been fulfilled.

“History,” Lenin noted, “has given birth in 1918 to two unconnected halves of socialism existing side by side.” “Germany and Russia,” he continued, “have become the most striking embodiment of the material realisation of the economic, the productive, and the socio-economic conditions for socialism, on the one hand, and the political conditions, on the other.”^[8]

This was a powerful expression of what Trotsky termed the ‘law of combined and uneven development’.

Due to its backwardness, Tsarist Russia was forced to import capital, machinery, and technique from abroad. As a result, by 1914, the country was characterised by islands of modern industry, with a developed working class, surrounded by a sea of economic, cultural, and agricultural backwardness.

This contradiction would prove to be both the mother of the Russian Revolution and, ultimately, its gravedigger.

The chain of world capitalism broke at its weakest link. Russia was propelled onto the road of socialist revolution “not because her economy was the first to become ripe for a socialist change,” as Trotsky explained, “but because she could not develop further on a capitalist basis”. ^[9]

Russia was the weakest of the major powers involved in the First World War, without the modern armed forces and industry at the disposal of its rivals. The country’s limited industrial capacity had to be diverted towards producing arms, exacerbating the scarcity of basic necessities and the disintegration of infrastructure.

Furthermore, the regime was particularly reliant on printing money and debt to fund its military expenditures. Consequently, prices soared by three-fold over these years.^[10]

Tsarist ministers tried to alleviate hunger amongst workers and soldiers by imposing a grain levy on peasants. But this provoked fury in the countryside.

Economic breakdown; rampant inflation; shortages of goods; forceful procurement of food from the peasantry: all of these horrors that bourgeois historians accuse the Bolsheviks of bringing about were in place long before the introduction of ‘War Communism’.

It was these dire conditions that provoked the mass protests in St Petersburg that led to the downfall of the Tsar in February 1917, and later of the Provisional Government, ushering in the October Revolution.

But the same conditions that prepared the way for the socialist revolution rendered the construction of socialism an unrealisable dream within the borders of the former Russian Empire.

From the very beginning, Lenin and the Bolsheviks embarked upon this formidable aim, armed with the perspective that the success of the revolution would ultimately be determined by its spread internationally. Without this, the nascent Soviet Republic could not survive, let alone build socialism.

This fact was explicitly recognised by Lenin in 1918, when he stated: “At all events, under all conceivable circumstances, if the German revolution does not come, we are doomed.”^[11]

Marxism vs. autonomism

The immediate task for the Bolsheviks was not – and could not be – the implementation of a fully-formed socialist plan, but merely the prevention of complete collapse, alongside the spreading of the world revolution.

The Bolsheviks had led the workers and peasants of Russia to power. But in the months following October 1917, they were also swept along by the movement, forced to react to events, rather than guide them.

The immediate task for the Bolsheviks was not – and could not be – the implementation of a fully-formed socialist plan / Image: public domain

The seizure of power had taken place in the context of an immense revolutionary ferment in both the cities and the countryside. Workers formed strike committees in the factories, while poor peasants drove the landlords off their estates, and began redistributing the land amongst themselves.

Lenin and the Bolsheviks attempted to channel this wave towards socialist ends. But political considerations consistently trumped economic ideals. And the apparatus of the new workers’ state was not strong enough to translate policy into action.

Take the question of the land. A day after the October insurrection, the Second All-Russian Congress of Soviets passed a decree that formally abolished all private land ownership. Instead of using expropriated land to establish large-scale collective farms and organise agriculture along socialist lines, however, the Bolsheviks were forced to adopt the programme of the so-called ‘Socialist Revolutionary Party’, which gave land to the peasants on an individual basis.

In this way, the Bolsheviks were able to win over the peasant masses. But once in government, frictions soon emerged with this newly-endowed mass of petty proprietors.

Similarly with workers and the factory committees, the Bolsheviks saw these as an embryonic form of workers’ control and management, a component part of socialist planning in industry. And given the backwardness of the country, Lenin envisaged a protracted period of workers’ control, during which the working class would learn how to run industry by studying the methods of the old owners and their experts.

The first steps in the direction of workers’ control, however, were anarchic, applied to localised factories without any plan. Many workers perceived workers’ control in a more syndicalist sense: not in terms of workers’ power over production as a whole, but in terms of workers’ cooperatives running their own workplaces, independently of anyone or anything else.

As workers occupied the factories, and the capitalists fled the scene, many businesses were brought under state ownership. But workers in these enterprises often assumed that they themselves were now the owners.

In his History of Soviet Russia, E. H. Carr reports that there were even cases in which “the workers, having taken over a factory, simply appropriated its funds or sold its stocks and plant for their own advantage”.^[12]

This was the difference between Marxism and ‘autonomism’; between workers acting as a class against the capitalists, and groups of workers struggling against individual bosses; between coordinated, centralised planning by a workers’ state, and independent control by scattered, isolated workers’ councils and cooperatives.

“The notion that the problems of production and of the relations of classes in society could be solved by the direct and spontaneous action of the workers of individual factories was not socialism, but syndicalism,” Carr concludes, adding:

“Socialism did not seek to subordinate the irresponsible capitalist entrepreneur to an equally irresponsible factory committee claiming the same right of independence of the actual political authority; that could only perpetuate the ‘anarchy of production’ which Marx regarded as the damning stigma of capitalism.”^[13]

Nationalisation of industry

The Bolsheviks consciously attempted to get a grip on the situation. In December 1917, the Soviet government established the Supreme Council of National Economy – abbreviated to VSNKh, a.k.a. Vesenkha.

Vesenkha was responsible for “organising the economic activity of the nation and the financial resources of the government”.^[14] Its first task was to bring under its control the glavki: trusts of big enterprises in each industry, such as metals and textiles, which had emerged in Tsarist times to plan wartime production.

The first industry to be nationalised was that of finance. Analysing the Paris Commune, Marx emphasised that the Communards’ failure to seize the Bank of France had been a fatal error. Lenin and the Bolsheviks took on board these wise words.

In December 1917, in response to sabotage by the bankers, the Soviet government deployed troops and decreed the merger of the banks into a single National Bank, with a monopoly over currency and credit.

The government also annulled all public debts accumulated by its predecessors – particularly those owed to foreign financiers. This was met with howls of protest from the imperialists, who swiftly cut off remaining lines of credit, heightening the importance of state control over the financial system.

Elsewhere, nationalisations were mostly spontaneous at first: a defensive response to sabotage by the bosses, or a retroactive endorsement of direct action by workers. In the first nine months, over two-thirds of nationalisations were carried out as initiatives by local Soviets and workers’ councils, not by orders from the top. ^[15]

From around May-June of 1918, however, as the capitalists’ vandalism intensified, and the imperialists stepped up their intervention, the Bolsheviks were forced to change direction and nationalise whole swathes of industry. But even then, these expropriations were mainly conducted in an ad hoc manner, not as part of a general plan.

The working class was clearly the motor force of the revolution. But this energy needed to be channelled and directed, in a consciously organised, planned way.

Lenin explained, however, that the young Soviet state did not have the capacity to properly plan production. In many cases, with the state starved of resources, nationalised enterprises were quickly leased back to their former owners, with the same directors remaining in place.

A genuine system of workers’ control and management, meanwhile, would involve factory committees, trade unions, and local soviets working in tandem. And to be successful, Lenin outlined, certain material conditions would be required – conditions that the Soviet Republic did not yet possess.

What was required was a working class with sufficient time and culture: a level of productivity such that workers had enough free time to participate in the running of production, along with the education and skills to perform the administrative tasks involved.

In short, even socialist planning could not be properly accomplished without a rapid development of the productive forces.

Instead, Lenin called for nationalisation only of the key levers of the economy, with the old managers left in place, but under workers’ oversight. This was to be accompanied by the maximum centralisation and organisation of industry, under Vesenkha’s purview.

A ‘Left Communist’ opposition emerged in the Bolshevik Party around this time, raising disagreements with this position. These ultra-lefts leant on the more autonomous conception of workers’ control, whilst also calling for a “determined policy of socialisation”.

Lenin gave them – and their denunciations that the government was pursuing a “Bolshevik deviation to the right”^[16] – short shrift.

“Only a blind man could fail to see that we have nationalised, confiscated, beaten down, and put down more [capitalists] than we have had time to count,” Lenin asserted. But, he stressed, “confiscation can be carried out by ‘determination’ alone, without the ability to calculate and distribute properly, whereas socialisation cannot be brought about without this ability.”^[17]

Nationalisation of the ‘commanding heights’ of the economy was accompanied by the establishment of a state monopoly over foreign trade, which was officially implemented in April 1918.

This was vital for protecting the newly-born Soviet economy from the pressures of the capitalist world market, and for preventing opportunistic merchants from syphoning wealth out of the country, or profiting from imports.

Looking ahead, alongside the nationalisation of large industry, control over finance and foreign trade would also be pivotal for socialist planning. In the short term, these moves were essential for the defence of the revolution.

This was where things stood in the Soviet Republic as the civil war began to unfold, propelling the Bolsheviks to put out even greater fires.

War Communism

The dislocation of the world war and civil war, in quick succession, was profound.

Between 1918 and 1920, millions of internal refugees were forced to flee their homes, as imperialist troops and White armies ransacked towns and villages. Millions more died of hunger and epidemics of disease.

This came on top of heavy territorial losses as a result of the Brest-Litovsk treaty and German imperialist plunder.

Harvests were heavily disrupted, transport links were broken, and urban populations nosedived, as starving workers returned to their villages in search of food.

The government attempted to resolve the food crisis by waging war on the speculators, private traders, and kulaks / Image: public domain

With factories deprived of workers, raw materials, and fuel, industrial output plummeted. By 1920, large-scale industry was running at just 13 percent of its prewar level.^[18]

The only aim of the Bolshevik government at this time was survival. Thus began the period and programme known as ‘War Communism’: an attempt to channel every available resource towards the Red Army.

In doing so, little was left for workers and peasants. The former faced spiralling prices and acute shortages in the towns, alongside gruelling hours and conditions in the factories. The latter were subject to state requisitioning of their grain and livestock.

The government attempted to resolve the food crisis by waging war on the speculators, private traders, and kulaks (wealthy capitalist peasants), who were profiteering and hoarding grain. But raids on villages and stores could only obtain so much.

The central government also sought help from the cooperative movement, hoping they could obtain and distribute food via their networks. Ironically, they proved to be remarkably uncooperative.

By 1919, therefore, the Bolsheviks introduced prodrazvyorstka: compulsory delivery quotas of grain, at prices fixed by the state. In some cases, this meant confiscation of grain surpluses. In others, it amounted to the same thing, since the money paid in return was meagre and increasingly worthless, thanks to inflation.

Thousands of volunteers signed up to help the requisitioning campaign. Unions, factory committees, and soviets formed armed ‘food brigades’, whose primary target was the kulaks.

As well as uncovering secret stockpiles and obtaining grain, their mission was to politically agitate amongst poorer peasants, so that they could join both the search for food and the struggle against the richer layers of the countryside.

The Bolshevik’s aim was to drive a wedge between the kulaks and the rest of the peasantry. The surplus that could be obtained from the former was not enough, however, leading to a broadening of prodrazvyorstka’s remit. The latter, meanwhile, tended to identify more with their fellow rural-dwellers than with workers in the towns.

With neither sufficient money nor manufactured goods to offer the peasants in return for their grain, requisitioning was met with resistance and sabotage, including reductions in sowing levels.

Workers in the food brigades faced the danger of being massacred by the kulaks’ henchmen. In more than one instance, the bodies of requisitioners turned up in barns, their bellies slit and stuffed with grain.^[19]

The government was caught in a doom-loop. Without adequate industry, they could not provide peasants with the goods they demanded in exchange for their foodstuffs. This meant worsening food shortages for workers, leading to further falls in industrial output. And all the while, the army had to be fed.

Extreme measures

The civil war accelerated the nationalisation of industry. The military effort demanded strict centralisation to combat the chaos proliferating across the economy. Production had to be concentrated in the most efficient factories. And scarce materials had to be allocated to where they would be most effective.

By November 1920, Vesenkha was responsible for overseeing around 3,800-4,500 state enterprises^[20] – mostly in large-scale industry, but also in smaller industries that weren’t exactly the ‘commanding heights’ of the economy.

The number of Vesenkha officials and glavki staff exploded from around 300 in March 1918 to 6,000 in total six months later.^[21] Many of these had served in the Tsarist state apparatus, fuelling anger amongst workers.

Even under these siege conditions, the Bolsheviks maintained debate over key questions: the relationship between central planners and local soviets, and between centralisation and federalism; the use of bourgeois specialists and administrators who were offered higher wages and bonuses; and the role of the trade unions as instruments for mobilising labour.

Criticism was raised against the leadership on all these issues, most notably from the so-called ‘Workers’ Opposition’. Lenin and Trotsky were the first to admit that the extreme measures demanded by the civil war were far from ideal. But they were necessary.

The war could not be won without the utmost centralisation. State industry could not be run by an inexperienced and exhausted working class, without the assistance of experts. Survival, not socialism, was the most pressing task of the moment.

The war could not be won without the utmost centralisation / Image: public domain

As shortages worsened, the government ramped up its control over distribution. Cooperatives and retail outlets were effectively nationalised. Prices were fixed for a range of products. Rationing was revived, having first been introduced before the revolution, with industrial workers prioritised and former bourgeois at the back of the queue.

But these rations were not enough. In 1919-20, only around 20-25 percent of food consumption in the towns came from rationed supplies.^[22] Factory employees even grew their own vegetables in workplace gardens. Such was the hunger that cats, dogs, and horses could no longer be found in Petrograd.^[23]

Markets had officially been abolished. But government restrictions were powerless. The law of supply and demand continued to make itself felt. Black markets mushroomed, with ‘bagmen’ (speculators) offering scarce goods at highly inflated prices.

To fund state spending, the government increasingly resorted to money printing. The ruble became ever-more devalued. The rate of inflation went from 600 percent in 1918 to 1,400 percent a year later.^[24]

As the currency became worthless, the economy began to scrape by without it. Money was replaced by payment in kind. Nationalised enterprises swapped materials on the basis of Vesenkha bookkeeping. The state provided rations and services – such as public canteens and transport – for free. And in lieu of wages, factory workers received a share of their own industrial products, to be exchanged via barter on the black market.

Law of value

War Communism, through emergency and expediency, had resulted in an almost entirely nationalised, moneyless economy. But this had little in common with the Marxist conception of socialism or communism. This contradictory outcome was the product of devastation and desperation, not doctrine or design.

More ultra-left Bolsheviks attempted to make a virtue out of necessity. What had come about unexpectedly and anarchically, as a result of chaos and collapse, was painted as a deliberate step towards socialism.

In fact, the laws of capitalism continued to operate – not only externally, through the pressure of the world market, but within the bounds of the workers’ state itself.

For every economic system, Marx showed, there are certain objective dynamics, existing independently of any intentions or will, which regulate society’s wealth, labour, and means of production.

Under capitalism, he explained, the wealth of society takes the form of commodities: goods produced for exchange, and distributed via the market.

Commodities, on average, are exchanged according to their value, determined by the socially necessary labour time embedded within them. Marx called this the law of value.

The law of value regulates the capitalist economy. It establishes the proportions in which commodities are exchanged. It determines the value of money, that ‘commodity of commodities’. And it guides the flow of capital from one sector to another, shaping the global division of labour.

Within capitalism, every part of the economy is interconnected via the ‘invisible hand’ of the market. But this system operates blindly, behind the backs of capitalists and workers alike.

The law of value therefore expresses itself under capitalism through the anarchy of market forces and the fluctuations of price signals, striving for ‘equilibrium’ through chaos and crisis.

Under War Communism, by contrast, the entire capitalist class had been expropriated. Market relations had been formally overridden, with basic goods and services now officially distributed not as commodities, but via the state.

Surely, then, the law of value had been overthrown, and money could smoothly exit from the stage of history?

Marx further explained, however, that money is ultimately a measure of value; a representation of socially necessary labour time; an entitlement to a portion of the total wealth in society.

Money is a social tool, acting as a means of exchange, a unit of account, and a store of value. And like any implement, it cannot be discarded until it has become obsolete and unnecessary.

Like the state, money must wither away in the transition from first phase of communism (socialism) to the higher phase of communism, as the productive forces are developed; as scarcity turns into superabundance; and as commodity production and market exchange are replaced by conscious planning and allocation.

Only on this basis can the law of value be overcome as the primary regulator of the economy, along with its monetary and material symptoms: volatile prices and shortages.

“In a communist society, the state and money will disappear,” Trotsky explains. “Their gradual dying away ought consequently to begin under socialism.” But, he emphasises, “money cannot be arbitrarily ‘abolished’”:

“The deathblow to money fetishism will be struck only upon that stage when the steady growth of social wealth has made us bipeds forget our miserly attitude toward every excess minute of labour, and our humiliating fear about the size of our ration.”^[25]

The existence of black markets and widespread shortages were a clear indication that the material conditions for the disappearance of commodities, money and the law of value – the conditions for genuine communism – did not exist under War Communism.

The productivity of labour was meagre. Every “excess minute of labour” was precious. The “size of one’s ration” was indeed humiliating.

Under these conditions, the law of value did not weaken, but asserted itself even more sharply – demonstrated by the fact that workers had to resort to barter, the most basic form of exchange.

War Communism therefore represented more of a step backwards than a move towards the construction of a communist society.

The ultra-lefts had made a serious theoretical mistake: assuming that the revolution had overturned capitalism’s laws in one fell swoop; that state ownership was enough to transcend the law of value. This grave error would later be repeated by the Stalinists.

New Economic Policy

By the end of 1920, the tide had turned in favour of the Red Army. This provided some breathing space: an opportunity for the Bolsheviks to review the policies of War Communism and to plan the next steps.

The entire country lay in ruin. Every aspect of the economy – industry, agriculture, transport – was shattered. Starvation and sickness stalked the land. Inflation was out of control.

This was the grim context to debates within the party that began in early 1921, culminating in what came to be known as the New Economic Policy (NEP).

‘NEP-men’: merchants and hawkers who would facilitate this network of private trade, pocketing a tidy sum for themselves along the way / Image: public domain

The most pressing issue was the shortage of food. More grain needed to be obtained from the peasantry. But prodrazvyorstka (requisitioning) had run its course.

As the threat of White reaction receded – and with it the danger of a return of the landlords – peasants became even less tolerant of the state’s seizures. This led to outbreaks of rebellion in the countryside, which came to a head with the Kronstadt revolt in March 1921.

These uprisings were symptomatic, demonstrating that the current setup was unsustainable; that class antagonisms were far from being resolved; that War Communism did not represent the foundations for a leap towards socialism, as the utopian ultra-lefts imagined.

The government therefore switched tracks. Grain requisitioning was replaced with a progressive tax-in-kind. Peasants would have to hand over a portion of their crop, but would be entitled to sell any surplus above this through private channels. Compulsion was replaced with incentivisation.

But this seemingly small step took on a logic of its own, snowballing in a way that nobody had fully anticipated.

Firstly, for the peasantry to sell their grain, there needed to be other goods – clothes, manufactured products, and other food items – that they could spend their newly-acquired cash on.

This meant ramping up the production of consumer goods. But state-owned industries were crippled. And the resources required to repair them could not be magicked into existence.

A successful revolution in the advanced capitalist countries would have solved the problem. But capitalism had survived the first postwar revolutionary wave, which had peaked in 1919.

The Bolshevik government was therefore forced to lean on private petty producers: artisans, cooperatives, and cottage industries, who did not require large upfront investments. Similarly, nationalised enterprises in lighter industries were leased to private entrepreneurs, and allowed to produce for profit.

All of this led to another requirement: the removal of price controls and the legalisation of markets. This was necessary to provide peasants with a means of selling their surplus; to distribute foodstuffs from the countryside to the cities; and to bring manufactured goods to the villages.

This gave rise to the notorious ‘NEP-men’: merchants and hawkers – already at large under War Communism running black markets – who would facilitate this network of private trade, pocketing a tidy sum for themselves along the way.

The next logical consequence was the need to stabilise the currency. How could there be private trade without a reliable means of exchange and steady prices?

This raised further questions, which were broached during discussions on the NEP at the 10th party congress in March 1921. As E. H. Carr reports:

“[The stabilisation of the currency] could plainly not be done so long as the printing press continued to turn out an unlimited supply of rubles; the printing press could not be checked until the government could find some other way of making both ends meet; and to bring government expenditure within the limits of any revenue it could conceivably raise was unthinkable until the state relieved itself of the immense costs of maintaining state industry and the workers engaged in it.”^[26]

In summary, the current inflationary economic regime needed to be replaced with one of monetarism and austerity.

By July 1922, in a bid to subdue rampant hyperinflation (now running at over 7,000 percent^[27]), the old, devalued ruble had been officially replaced by a new, gold-backed currency: the chervonets.

A process of ‘rationalisation’ began in state industry, known as khozraschet. State enterprises could no longer rely on the National Bank. Instead, they had to act as self-sufficient businesses, operating on commercial principles: managing their own accounts; cutting costs; improving efficiency; dealing directly with producers and distributors on the market; and seeking to generate a surplus (but not running for the profit of individual bosses).

‘Unprofitable’ (mainly smaller) state enterprises were leased under private management, paying rent-in-kind, or were consolidated inside the trusts. But, along with banking, all the most important industries – the true commanding heights – remained under state control, employing the vast bulk of industrial workers.

To balance the books, state enterprises had to reduce their costs. This led to a fire-sale of assets. The result was a glut of industrial goods arriving on the market, at a time of depressed demand. Prices fell compared to agricultural goods, benefitting the peasantry at the expense of urban producers and consumers.

These enterprises were also forced to carry out mass sackings. Capitalism’s ‘reserve army of labour’ returned. Furthermore, khozraschet demanded that workers be paid again in monetary wages, with bonuses to incentivise harder work.

This was a sharp shock for the working class; a stark change from the mobilisation of labour seen under War Communism, when employment and basic subsistence were guaranteed. “This crude form of labour discipline,” Carr remarks, “was quickly replaced by the old ‘economic whip’ of capitalism.”

“Work as a legal obligation,” he notes, “was succeeded by work as an economic necessity; fear of legal penalties replaced as a sanction by fear of hunger.”

“In less than a year,” Carr concludes, “NEP had reproduced the characteristic essentials of a capitalist economy.”^[28]

Primitive socialist accumulation

From the initial act of allowing peasants to sell surplus grain, a transformation had taken place across the economy. Tugging at this one thread, War Communism unravelled.

The full effects of reintroducing market relations in agriculture may have been unforeseen, but they were not accidental. The unwinding of War Communism expressed a certain necessity.

The different parts of the NEP constituted an interconnected whole. Making the first move in the direction of the market led the government far further down this path than anyone had initially intended. Objective pressures asserted themselves, brushing aside subjective wishes.

The Soviet Union had not, and could not have, escaped the laws of capitalism. At the same time, however, the workers’ state was not completely helpless in the face of market forces.

“The workers’ state, while shifting its economy to the foundations of the market,” Trotsky explained in 1922, “does not, however, renounce the beginnings of planned economy, not even for the period immediately ahead.”

The workers’ state was not completely helpless in the face of market forces / Image: public domain

“Centralised state control over [key industrial] enterprises,” he continued, “will be combined [under the NEP] with the automatic control of the market.”

The task for the Soviet state, according to Trotsky, was to “aid in eliminating the market as quickly as possible”.

Importantly, he emphasised, the workers’ state must use its control over credit, foreign trade, and taxation to channel resources towards state industry.

The state monopoly over foreign trade was an essential part of this. And both Lenin and Trotsky fought back against any suggestion that it should be abolished or relaxed. This, they stressed, would strengthen the kulaks and the NEP-men, at the expense of the workers’ state and the planned economy.

These fiscal and financial levers in the hands of the state, Trotsky outlined, “provide the opportunity for syphoning off increasingly greater portions of private capital incomes for the purposes of state economy, not only in the sphere of agriculture (taxes in kind) but also in the sphere of commerce and industry.”^[29]

In this way, the private sector would be “compelled to pay tribute” to what Trotsky called “primitive socialist accumulation”, in a nod to Marx’s concept of the primitive accumulation of capital.

The struggle between these two social forces – reflecting the pressures of commodity production and the market on one side, and state planning on the other – thus represented a fundamental feature of the ‘transitional’ Soviet economy.

The economic laws and categories of capitalism (money, value, surplus value, etc.) would therefore remain under the workers’ state, but now in a modified form, subject to a greater and greater degree of conscious control.

Recovery and reconstruction

In its early years, the NEP offered some relief. After the catastrophic drought and famine in the Volga region in 1921-22, harvests improved. And starting from a low base, industry began to recover – mainly by restoring factories, rather than constructing new ones.

Although the market had been brought back in agriculture and trade, key industries remained in state hands. And the government took steps to bring greater organisation and planning to these.

Already in 1920, the ‘Council of Defence’ had been reestablished as the ‘Council of Labour and Defence’, with responsibility for drawing up an economic plan for the entire country.

This was followed in the next two years by the creation of Gosplan and Gosbank. The former was in charge of general, long-term planning. This included preparing forecasts, targets, balances, and budgets for production and consumption; overseeing the construction of major industrial and infrastructure projects; and ensuring coordination between economic departments. The latter was the Soviet central bank.

Both supplemented Vesenkha, which continued to plan and manage state industry through its glavki (trusts).

Economic recovery continued over the next few years – albeit with some serious setbacks along the way.

Most notable was the ‘scissors crisis’ of 1923, named because of the widening divergence between agricultural and industrial prices.

The initial phase of the NEP had seen peasants benefiting from higher grain prices and lower prices for consumer goods. Now, as agricultural production grew more rapidly than industrial output, these prices switched places in relative terms. All prices, meanwhile, were rising in comparison to incomes, in spite of government attempts to tame inflation.

Price controls on state-produced industrial goods were introduced. But this just led to greater shortages. The result was growing tensions between the countryside and the towns, and the antagonism of the peasantry, which increasingly felt that it was losing out.

This episode revealed the inherent instability in the Soviet economy; the difficulty of achieving harmonious growth on the basis of a low level of development of the productive forces; and the social explosions that could erupt at any moment. It was less a case of ‘scissors’, and more a case of balancing on a knife edge.

Lenin had described the introduction of the NEP as a compromise with the petty bourgeoisie / Image: public domain

By 1925-26, existing industrial capacity was mostly back up and running, and agricultural and industrial production were at prewar levels of output.

No longer occupied by the immediate struggle for survival, the party’s attention began to shift away from restoration and towards ‘reconstruction’ – preparing the ground for the next stage in the economy’s development. What form this would take was a matter of great debate.

By this point, however, the argument was not merely over the rights and wrongs of economic policy. It was a political struggle about the fate of the revolution.

Rise of the bureaucracy

Lenin had described the introduction of the NEP as a compromise with the petty bourgeoisie; a defeat and retreat, but ultimately a necessary one; an attempt to buy time until a lifeline could be provided through successful revolutions elsewhere.

With its reliance on market methods, however, the NEP had important political consequences. It economically nurtured the kulaks, private traders, and other capitalistic elements, boosting their social weight compared to the working class. Paradoxically, these parasitic layers were benefiting more from the workers’ state than workers themselves.

This, in turn, aided the rise of the Stalinist bureaucracy.

The working class was alienated from its own state and from production, due to exhaustion. The Bolsheviks had to rely on a caste of old officials, administrators, and specialists to run society. And there was an objective need for, in Trotsky’s words, “a policeman to keep order” in conditions of generalised want.^[30]

The strengthening of the NEP-men and kulaks accelerated this process, putting pressure on the bureaucracy to adapt themselves to the new marketised framework, and to lean on capitalist tendencies in Soviet society.

Accompanying the NEP, therefore, Lenin called for a campaign against bureaucracy and careerism in the state and the party, and for steps to bolster workers’ democracy. If economic concessions were going to be made to capitalist and petty-bourgeois layers, then these needed to be counterbalanced with political measures to fortify the workers’ state.

In October 1923, with Lenin incapacitated by ill health, Trotsky and his supporters founded the Left Opposition, in order to fight against the bureaucratic degeneration of the party, and to defend the workers’ state as a workers’ state. Their programme included sharp criticisms of the NEP for its role in nourishing the kulaks, merchants, and middlemen.

On the other side was the Right Opposition, led by Bukharin. In the days of War Communism, Bukharin had been closer to the ultra-lefts. But he later swung sharply in the other direction, becoming a zealous advocate of stimulating growth through market means – summarised in his appeal to the peasantry: “Enrich yourselves!”

In the middle was the Troika: the triumvirate of Stalin, Zinoviev, and Kamenev, representing the interests of the ballooning bureaucracy. Trotsky described this faction as ‘centrist’, meaning situated between Marxism and reformism.

Lenin’s death in 1924 was certainly a blow. But his passing wasn’t the decisive factor in the degeneration of the Bolshevik Party and the Soviet state. As his partner Krupskaya later remarked, if Lenin had lived on, he too would have ended up in one of Stalin’s prison camps.

Battlelines drawn

The question of how the USSR was to develop industrially became an important flashpoint in this period in the struggle between the proletarian and petty-bourgeois wings of the Communist Party.

Both sides were in favour of industrialisation. The question was how this was to be achieved, and at what pace.

Trotsky and his supporters called for a transformative industrialisation plan to be drawn up and implemented. Priority, they said, should be given to investment in large-scale industry – into factories that could produce not just means of production (including materials such as steel and chemicals), but also the ‘means of producing the means of production’: industrial equipment, machine tools, etc.

To improve productivity on the land, agriculture needed to be mechanised and modernised. This required the creation of large-scale collective farms, since the present primitive, scattered state of peasant production – spread across 20-25 million households – could not accommodate tractors and advanced agricultural techniques.

Importantly, Trotsky and the Left Opposition emphasised that the poor and middle peasants must be incentivised – not forced – to join collective farms, by demonstrating that these could provide better living standards than traditional back-breaking petty agriculture.

To achieve both of these aims, Trotsky called for important engineering works to be undertaken. This included construction of a hydroelectric dam on the Dnieper river, to provide power to a new wave of modern factories and farms.

On the basis of such systematic, sweeping economic measures, Trotsky and his supporters asserted, tremendous growth could be achieved in the space of two five-year plans, far above the extremely modest targets set by Gosplan bureaucrats.

The Stalinists ridiculed these suggestions. Lenin had famously summarised communism as being “Soviet power plus electrification”. Yet Stalin responded to Trotsky’s Dnieper proposal with the pithy retort that it would be the equivalent of offering a peasant “a gramophone instead of a cow”.

Calls for an ambitious five-year plan were denounced as being unrealistic. Trotsky was accused of being a ‘super-industrialiser’. Bukharin, in particular, warned that such policies would lead to a rift with the peasantry.

At root, these criticisms reflected the inherent conservatism of the bureaucracy and the interests of the petty bourgeoisie, upon whom Stalin and Bukharin leant – just as the perspective of ‘socialism in one country’ did.

The Stalinists, fearing a peasant backlash to any measures that would put economic pressure on the countryside, called for industrialisation to be funded primarily from within state industry itself, by reducing costs and improving productivity in nationalised enterprises.

But such policies could only free up a small amount of resources for reinvestment into new means of production – hence the conservative growth targets of the Stalinists at this time.

Instead, Bukharin suggested that the peasantry should be incentivised to produce as great a surplus of raw materials as possible, which could then be exchanged for machinery and industrial equipment on the world market.

“Bukharin himself spoke of riding into socialism on a peasant nag,” remarks economic historian Alec Nove. “But could the peasant nag be persuaded to go in the right direction? Would the party be able to control it?”^[31]

These were the rough battlelines around which the reconstruction debate of 1925-27 took place: the prelude to the expulsion of Trotsky and the Left Opposition, the zigzags of the Stalinists, and the bureaucratic implementation of the first five-year plan.

Theoretical struggle

The struggle between the Stalinist majority and the Left Opposition was not only waged on the political plane, but also theoretically.

One notable work was Yevgeni Preobrazhensky’s The New Economics. Written in 1926 as an answer to the policies of Stalin and Bukharin, this was an attempt to develop a theory of the Soviet economy as a guide to action.

Preobrazhensky aimed to show that the Left Opposition’s programme was correct and necessary: correct in highlighting the potential for rapid industrialisation; and necessary for mastering the science of planning and developing the productive forces along socialist lines.

By comparison, he argued that Bukharin and Stalin – at this point in alliance – had abandoned scientific socialism when it came to economic policy.

The Stalinists acted empirically, driven by ‘pragmatism’ and narrow bureaucratic interests, not theoretical considerations. Like the bourgeois economists today, they had no real understanding of their own system.

The bureaucracy and its representatives were pushed along by events. Without recognising it, they were applying policies that were in complete accordance with the law of value – the logical conclusion of which was the full reintegration of the USSR into the capitalist world market.

The struggle between the Stalinist majority and the Left Opposition was not only waged on the political plane, but also theoretically / Image: public domain

Left unimpeded in a market system, Marx explained, capital flows into sectors that provide the highest rate of profit. Applied to Russia in NEP years, this meant directing investment towards agriculture, given what bourgeois economists would call the country’s ‘comparative advantage’: its abundance of rural labour, compared to its dearth of machinery. And this, in essence, is what Bukharin and Stalin were calling for.

The Left Opposition explained that the Stalinists’ suggestions would not lead to socialism, but to the return of capitalism. Rather than building up state industry, this strategy would only make the Soviet economy more dependent on the export of raw materials, much like a colonial country.

Furthermore, by insisting that industrial development must be self-financed from within the state sector, the Stalinists were ensuring a slow rate of economic growth, and thereby a widening gap between the Soviet Union and the advanced capitalist countries.

On this basis, Russia would not be industrialised, but would be kept in a state of permanent backwardness, under the domination of imperialism and the world market.

At the same time, by focussing on agricultural production, the position of the wealthier peasants would be strengthened. Eventually, this would produce a conflict between the countryside and the workers’ state, with rich peasants demanding direct, free access to the world market on their own terms.

Unless active steps were taken to subvert this process and deprive the private sector of its wealth, Trotsky and Preobrazhensky emphasised, then further accumulation would be in favour of the capitalist elements of society.

Taken together, these pressures would ultimately pose the question – and danger – of capitalist restoration.

Instead, therefore, Trotsky and the Left Opposition emphasised the necessity of what they called the ‘law of primitive socialist accumulation’.

As explained previously, this term drew an analogy with the earliest phase of capitalism, when the fledgling bourgeois system was still gathering the wealth and resources needed to develop industry on the basis of profit.

This preliminary capitalist development, Marx explained in Capital, was based not on equal exchange, i.e. adherence to the law of value, but on pillage and plunder – through colonialism, slavery, and the force of the state.

Similarly, the Left Opposition argued that, due to its backwardness and isolation, the Soviet Union would have to accumulate the resources for industrialisation through unequal exchange with non-state sectors of the economy. This, they argued, was an unavoidable necessity that must be comprehended and translated into party policy accordingly.

In practice, this meant fixing prices, imposing taxes, and utilising the state’s monopoly over finance and foreign trade, such that resources would flow away from peasants and private traders, and towards the workers’ state.

On this basis, accumulation could be accelerated in the state sector, primarily at the expense of the kulaks and NEP-men, and the country could become a modern industrial powerhouse. Without this, the Soviet economy would remain backward, reliant on a mass of low-productivity labour.

Primitive socialist accumulation would be necessary until the productive forces were sufficiently developed and socialist planning was victorious – until the first phase of communism was reached, and the state, money, and class antagonisms could begin to wither away.

In this respect, the requirements of primitive socialist accumulation were as much an objective law for the transitional Soviet regime as the law of value, which also made itself felt.

Both Trotsky and Preobrazhensky stressed, however, that the law of value had not disappeared. The prevalence of market relations, both internally and externally, maintained this pressure, as did the immaturity of the productive forces and continued conditions of scarcity.

These objective factors restricted Soviet planners. The economy could not grow at an arbitrary, breakneck pace. This would provoke shortages, inflation, and social outbursts – all symptoms of the law of value.

But the law’s potency had been tempered by the growing strength of the state sector and planning. The allocation of labour and means of production was no longer regulated simply by blind market forces, but by accounting and organisation also.

As Preobrazhensky put it, there was now “a new way of achieving equilibrium in the economic system, secured by the very great role of conscious foresight and practical calculation of economic necessity.”^[32]

“There operate at one and the same time two laws with diametrically opposite tendencies,” Preobrazhensky stated. In the law of value, “our past weighs upon us, stubbornly striving to remain in existence and to turn back the wheel of history.”^[33] Conversely:

“The more organised the state economy is, the more closely its separate links are united by an operative economic plan… the stronger is its resistance to the law of value, the greater is its active influence on the laws of commodity production, the more is it itself… transformed into the most important factor of regularity in the entire economy.”^[34]

Similarly, Marxist theoretician Ted Grant explained that in a transitional society attempting to move towards socialism, “some of the laws peculiar to socialism apply and some peculiar to capitalism”.^[35]

This, in essence, was a battle between the old mode of production and the new society struggling to be born.

Trotsky shared Preobrazhensky’s appraisal of the need for ‘primitive socialist accumulation’. But he argued forcefully against any crude and mechanical application of the concept.

Harmonious development was vital – above all from a political standpoint – in order to maintain the link between the urban working class and the poor peasant masses. There could be no suggestion of ‘plundering’ the peasantry, as European capitalism had ravaged its colonies.

Credit, taxation, and price setting should be slanted towards an ‘unequal exchange’, Trotsky outlined, favouring the towns and industry over the countryside. But matters should not be pushed to the point of crisis, provoking an open clash between the peasantry and the workers’ state.

Furthermore, Trotsky emphasised that living standards must not be blithely sacrificed in order to ensure the fastest possible rate of industrialisation. The workers and peasants must be able to feel that progress was being made.

Above all, Trotsky underlined, the demand for ‘primitive socialist accumulation’ must not be associated with that of ‘socialism in one country’, as advocated by the Stalinists.

Even if the Left Opposition’s economic programme had been adopted wholesale, this alone would not have led to the establishment of socialism, as long as the Soviet Union remained isolated and surrounded by the capitalist market. There was no solution without world revolution.

Forced collectivisation

The danger of the Stalinists’ empirical approach was soon evident.

Without collectivisation, and in turn mechanisation and electrification, however, it was impossible to improve productivity / Image: public domain

Having defeated Trotsky and the United Opposition at the 15th party congress in December 1927, Stalin began to don their clothes and tack to the left. He suddenly became an advocate for rapid industrialisation, and began to admonish Bukharin and the Right Opposition for adapting themselves to bourgeois tendencies.

There were economic factors steering this U-turn. As the Left Opposition had cautioned, the kulaks and rich peasants had been emboldened by the NEP. And they resisted any attempts to restrain them. In particular, they were hostile to the socialisation of agriculture, which threatened their interests.

Without collectivisation, and in turn mechanisation and electrification, however, it was impossible to improve productivity on the land. And without higher crop yields, there was no way of feeding the growing urban population, which was a necessary component of industrialisation.

“The peasantry,” Carr comments, “would be required to supply increasing quantities of agricultural products to the growing towns and industries”. If this “imposed too great a strain on the peasant,” however, “he would reduce his deliveries of agricultural products, hoard his surpluses, reduce his sowings for the market, and retreat into self-sufficiency.”

“On this delicate issue relations between the regime and the peasantry were to turn,” Carr concludes.^[36]

Preoccupied with purging the Left, the Stalinists ignored this simmering conflict for a while. But a deterioration in grain supplies towards the end of 1927 brought matters to a head.

As the warnings of the Left Opposition played out, the bureaucracy was forced to carry out a policy of ‘primitive socialist accumulation’, but in the most ham-fisted and reactionary manner.

Having leant on the petty bourgeoisie to strike blows against the Left, Stalin was now leaning on the working class to strike blows against the Right – in both cases to bolster his own position and power.

This abrupt turn disorientated many who had aligned themselves with Trotsky. This included Preobrazhensky, who concluded that, since the bureaucracy was now carrying out its own version of his recommendations, the time had come “to make peace with the party majority on the basis of the new course.”^[37]

Trotsky, for his part, predicted that the Stalinists’ turn would not lead to socialism, but to disaster – and to the further strengthening of the reactionary bureaucracy.

His predictions were rapidly confirmed by events. Without manufactured goods to offer in exchange for grain, the government resorted to repressive measures to resolve the agricultural crisis.

From early 1928, the Stalinist bureaucracy waged an increasingly coercive campaign against the kulaks and their hoarding and speculating. But state officials often made little distinction between richer layers and middle-and-poor peasants, forcing the latter into the arms of the former. Memories of War Communism were still fresh.

Soon enough, Stalin was calling for forced collectivisation and the ‘liquidation of the kulaks as a class’. But this only exacerbated the food crisis.

With the state grabbing all the grain that it could, little was left in the countryside to feed peasants and their livestock. This also meant less horsepower and manure for the fields, further impacting yields.

By 1932, agricultural production had fallen to 73 percent of its 1928 level.^[38] Bread queues sprung up in the cities. Rationing returned. The ‘bagmen’ reemerged. And millions died of malnutrition and disease.

Targets and crises

In the background, Gosplan and Vesenkha officials were busy formulating the first five-year plan. Having previously come under pressure to moderate their suggestions, hyper-ambitious targets were now the name of the game.

Debates took place amongst Soviet economists as to whether planning should be ‘genetic’ or ‘teleological’. Supporters of the former believed that planning should simply involve forecasting organic, anarchic economic changes. Advocates of the latter emphasised the need to set targets and then shape society accordingly through conscious efforts.

Broadly speaking, the ‘geneticists’ were associated with the Right, and with greater reliance on market methods to bring about economic equilibrium. The ‘teleologists’ reflected the subjectivist outlook of the Stalinist bureaucracy – the belief that planning production simply required willpower and a firm hand.

It was the views of the teleologists and Stalinists that moulded the first five-year plan. This was officially launched in October 1928. But its aims were only formally approved the following spring, after the Right Opposition had been routed. The NEP was over.

Despite its bureaucratic limitations and social costs, Soviet planning generated enormous progress. Even bourgeois estimates suggest that the economy grew by around 62-72 percent under the first and second five-year plans, between 1928-37. Output per capita jumped by 60 percent.^[39]

Industry was rapidly developed and reequipped. The country was transformed by impressive projects like the Dnieper hydroelectric dam, the construction of which began in 1927, only months after it had been dismissed by Stalin. Education and healthcare saw dramatic improvements. The Soviet Union was yanked out of its backwardness, and thrust into the modern age.

In this same period, meanwhile, western economies were being wracked by the deepest crisis in the history of capitalism: the Great Depression.

From the outset, however, the potential of planning was hindered by the unscientific, commandist approach of the Soviet bureaucracy. Stalin and his apparatchiks may have changed their tune since the days of the NEP, but all their bureaucratic flaws remained.

Bukharin had called for industry to adapt itself to agriculture, to be a slave to the peasantry. But now bureaucratic planners were setting objectives without any concern for genuine physical, productive, or political limits.

The advice of engineers and specialists was ignored, as were scientific data and models, in favour of targets based on prestige, not facts. The stated goal was to catch up with the imperialist powers as quickly as possible and at any cost.

The conservatism of the Stalinists in the NEP years was now replaced by adventurism. But the philosophy behind both approaches was the same: empiricism and subjectivism – the idea that the Soviet economy was not governed by objective laws and limits that needed to be understood in order to guide decisions.

As Stanislav Strumilin, one of the architects of the first five-year plan, stated candidly:

“Our task is not to study economics but to change it. We are bound by no laws. There are no fortresses which the Bolsheviks cannot storm. The question of the tempo [of industrialisation] is subject to decision by human beings.”^[40]

But in spite of the vainglorious declarations of the bureaucracy, the development of the Soviet economy under the first five-year plan was far from an uninterrupted upward march. There were times when growth stuttered. 1931-32 saw a sharp slowdown.

The Soviet Union was coming up against something even the Bolsheviks could not ‘storm’: the limitations imposed by its own internal dynamics, and by the external pressure of world capitalism.

Superficial sectarians saw in this evidence that the Soviet Union was a form of ‘state capitalism’. But the USSR’s economic crises were of a fundamentally different nature to those seen under capitalism.

Economic crises under capitalism are, at root, the result of overproduction: a generalised excess accumulation of capital across the economy; a fundamental contradiction, arising from the law of value and the origins of profit (surplus value) – the unpaid labour of the working class.

The crises in the Soviet Union, by contrast, were crises of underproduction, arising from bureaucratic planning; from Stalinist leaders setting unrealistic targets, and then straining the whole economy to meet these – creating tears and ruptures, disproportions and bottlenecks, shortages and inflation.

Crisis under capitalism is an indication that the productive forces have outgrown the limits of the market, that capitalist accumulation has gone too far, expressed in a glut of unsold goods.

Crisis in the bureaucratically planned Soviet economy was a sign that targets had exceeded the limits of the productive forces, that socialist accumulation had not gone far enough, expressed in rows of empty shelves. As Ted Grant comments:

“The state can now regulate, but not arbitrarily, only within the confines of the law of value. Any attempt to violate and pass beyond the strict limits set by the development of the productive forces themselves, immediately results in the re-assertion of the domination of production over producer… The law of value is not abolished, but is modified.”^[41]

Having pushed back against the laws of the capitalist market, the bureaucracy found itself butting up against other laws that it did not understand. This would have major implications for the fate of the USSR.

Science of planning

As the first five-year plan drew to a close, it was clear that problems were piling up in the Soviet economy. And yet the bureaucracy turned a blind eye to these, and ploughed on with the second five-year plan – setting even more ridiculous targets, and silencing anyone who protested.

Tension between the cities and countryside heightened. Imbalances between different sectors of the economy grew. Both the quantity and quality of goods deteriorated. Workers were put under inordinate physical strain, forced to work insane hours and live in cramped, dilapidated conditions. And Stalin’s purges amplified the contradictions.

Trotsky observed these disasters from exile, having been expelled from the USSR in 1929.

“The whole trouble is that the wild leaps in industrialisation have brought the various elements of the plan into dire contradiction with each other,” he wrote in 1932. “The trouble is that the social and political instruments for the determination of the effectiveness of the plan have been broken or mangled. The trouble is that the accrued disproportions threaten more and greater surprises.”

“The gist of the matter is that we have not entered into socialism,” he continued. “We have far from attained mastery of the methods of planned regulation. We are fulfilling only the first rough hypothesis, fulfilling it poorly, and with our headlights not yet on. Crises are not only possible, they are inevitable.”^[42]

The problem was the bureaucratic approach to Soviet planning, arising from disenfranchisement of the working class from the running of society; from the deformed nature of the workers’ state.

Planning is a science that needs to be tested / Image: public domain

Planning is a science that needs to be tested, Trotsky explained. “It is impossible to create a priori a complete system of economic harmony,” he warned. “Only continuous regulation of the plan in the process of its fulfilment, its reconstruction in part and as a whole can guarantee economic effectiveness.”

There is no “universal mind”, he emphasised, that could “draw up a faultless and exhaustive economic plan, beginning with the number of acres of wheat down to the last button for a vest”.

And yet this is exactly what the bureaucracy was attempting, calculating physical balances – inputs and outputs for all major materials and state industries – from the top down, from the comfort of their Moscow offices, with little connection to reality on the ground. Instead, Trotsky continued:

“The innumerable living participants in the economy, state and private, collective and individual, must serve notice of their needs and of their relative strength not only through the statistical determinations of plan commissions but by the direct pressure of supply and demand.”

In the transitional period, Trotsky stressed: “The plan is checked and, to a considerable degree, realised through the market… The blueprints produced by the departments must demonstrate their economic efficacy through commercial calculation.”^[43]

In other words, the workers’ state would need to use price signals to test, corroborate, and update any economic plan; to identify pinch-points and shortages; and with this, to consciously allocate resources and investment in order to bring about harmonious development and balanced growth.

A healthy proletarian regime would not be a helpless, ignorant victim of the law of value, but would wield this law as one tool amongst many to plan production and distribution. “Money as the means of economic accounting evolved by capitalism is not thrown aside,” Trotsky noted, “but socialised”.^[44]

This, in turn, he emphasised, would require a stable currency. But the bureaucracy was undermining the chervonets’ capacity to act as a reliable monetary yardstick by resorting to the printing press to fill holes in the budget.

Just as the ultra-left Bolsheviks had been complacent towards the menace of inflation in the early 1920s, so too were the Stalinists now woefully mistaken in imagining that they were free from the clutches of the law of value and money circulation.

“To erect a plan of economy on a slipping valuta is the same as to make a blueprint of a machine with a loose compass and a bent ruler,” Trotsky stated. “This is exactly what is taking place. The inflation of the chervonets is one of the most pernicious consequences – and also instrument – of the bureaucratic disorganisation of the Soviet economy.”^[45]

Planning is not only a science, Trotsky remarked, but an art – one that must be learnt through experience.

“The art of socialist planning does not drop from heaven, nor is it presented full-blown into one’s hands with the conquest of power,” he outlined. “This art may be mastered only by struggle, step by step – not by a few, but by millions, as a component part of the new economy and culture.”^[46]

This raised a life-or-death question for the socialist republic, and for the building of communism anywhere: scientific instruments of planning – such as forecasts and statistics, material balances, and price signals – need to be supplemented by a healthy setup of workers’ democracy.

This meant gathering information on production and consumption from workplace committees, trade unions, and elected representatives; continuously checking plans against the facts, and making the necessary modifications; and involving the organised working class in the running of society.

“Only through the inter-reaction of these three elements – state planning, the market, and soviet democracy – can the correct direction of the economy of the transitional epoch be attained,” Trotsky concludes, adding:

“Only thus can be assured, not the complete surmounting of contradictions and disproportions within a few years (this is utopian!), but their mitigation, and through that the strengthening of the material bases of the dictatorship of the proletariat until the moment when a new and victorious revolution will widen the arena of socialist planning and will reconstruct the system.”^[47]

Fight for communism

While the monstrous Stalinist state was executing communists, stripping away democratic rights, and strangling the Spanish Revolution, it was proudly announcing that: “We have not yet, of course, complete communism… but we have already achieved socialism – that is, the lowest stage of communism.”

Trotsky gave the following withering assessment of this claim:

“If Marx called that society which was to be formed upon the basis of a socialisation of the productive forces of the most advanced capitalism of its epoch, the lowest stage of communism, then this designation obviously does not apply to the Soviet Union, which is still today considerably poorer in technique and culture than the capitalist countries.”

“It would be truer,” he continued, “to name the present Soviet regime in all its contradictoriness, not a socialist regime, but a preparatory regime transitional from capitalism to socialism.”^[48]

In 1959, Soviet leader Nikita Kruschev repeated the Stalinists’ assertions once again. Having completed the period of socialist construction, he stated, the USSR was ready to take its “first step into communism”.^[49]

But despite such proclamations, the goal of communism was never achieved in the Soviet Union in any form.

The USSR remained at all times a transitional regime between capitalism and socialism. And contained in the nature of any such regime is the potential not only for progress, towards socialism, but also regression, towards the full return of capitalism.

Over the decades, on the basis of planning, there were incredible advances in terms of industry and education. At the same time, however, the bureaucracy grew to become a debilitating tumour, slowly draining all life out of the economy and society.

Ultimately, this led not to communism, but to capitalist restoration. Then as now, the only way forward was through international socialist revolution.

Today, on the basis of the development of the productive forces internationally, the conditions for socialism have never been more favourable.

The process of planning production would be incalculably easier thanks to the technology and techniques that have been developed under monopoly capitalism.

Furthermore, the size, strength, and cultural level of the working class – in all countries – is far higher than that which existed a century ago in Russia. Workers are equipped with more than enough skills and knowledge required to run the economy.

Following revolution in the advanced capitalist countries, with the latest science, innovations, and industry, the leap to the first phase of communism could occur in the space of a generation.

Even at this point, however, economic laws will not disappear completely. The law of value will have first been subdued, and then dissolved entirely. But we remain material beings. There will still be objective lawfulness governing society.

Genuine freedom under communism will not come from imagining ourselves to be free of such forces, but from understanding necessity – and harnessing this knowledge to our advantage, to transform the world around us.

“Control and planning will, in the first stages, take place within given limits,” explains Ted Grant. “These limits will be determined by the level of technique when the new social order takes over. Society cannot step from the realm of necessity into the realm of freedom overnight.”^[50]

“The realm of freedom really begins only where labour determined by necessity and external expediency ends,” Marx highlights.

“Just as the savage must wrestle with nature to satisfy his needs, to maintain and reproduce his life, so must civilised man, and he must do so in all forms of society and under all possible modes of production.”^[51]

Marx concludes:

“In a higher phase of communist society… after labour has become not only a means of life but life’s prime want; after the productive forces have also increased with the all-around development of the individual, and all the springs of co-operative wealth flow more abundantly – only then can the narrow horizon of bourgeois right be crossed in its entirety and society inscribe on its banners: From each according to his ability, to each according to his needs!”^[52]

This is the communist future that we must organise and fight for.

References

[1] L Trotsky, The Revolution Betrayed, Wellred Books, 2015, pg 3

[2] L Trotsky, History of the Russian Revolution, Vol. 3, Wellred Books, 2022, pg 1168

[3] V I Lenin, State and Revolution, Wellred Books, 2019, pg 85-86

[4] K Marx, F Engels, “The Communist Manifesto”, Classics of Marxism, Vol. 1, Wellred Books, 2013, pg 21-22

[5] K Marx, Critique of the Gotha Programme, Foreign Languages Press, 2021, pg 15

[6] V I Lenin, ‘Left-Wing’ childishness and petty-bourgeois mentality, Progress Publishers, 1968, pg 18

[7] V I Lenin, State and Revolution, Wellred Books, 2019, pg 67

[8] V I Lenin, ‘Left-Wing’ childishness and petty-bourgeois mentality, Progress Publishers, 1968, pg 19

[9] L Trotsky, The Revolution Betrayed, Wellred Books, 2015, pg 1

[10] S M Efremov, The role of inflation in Soviet history: Prices, living standards, and political change, East Tennessee State University, 2012, pg 17

[11] V I Lenin, “Extraordinary Seventh Congress of the R.C.P.(B.)”, Lenin Collected Works, Vol. 27, Progress Publishers, 1965, pg 98

[12] E H Carr, The Bolshevik Revolution, 1917-1923, Vol. 2, Penguin Books, 1952, pg 76

[13] ibid., pg 78

[14] ibid., pg 80

[15] A Nove, An economic history of the USSR, 1917-1991, Penguin Books, 1992, pg 46

[16] V I Lenin, ‘Left-Wing’ childishness and petty-bourgeois mentality, Progress Publishers, 1968, pg 13

[17] ibid.

[18] R W Davies, M Harrison, S G Wheatcroft, The economic transformation of the Soviet Union, 1913-1945, Cambridge University Press, 1994, pg 135

[19] V Serge, Year One of the Russian Revolution, Haymarket Books, 2015, pg 242

[20] E H Carr, The Bolshevik Revolution, 1917-1923, Vol. 2, Penguin Books, 1952, pg 178

[21] ibid., pg 186

[22] ibid., pg 242

[23] V Serge, Year One of the Russian Revolution, Haymarket Books, 2015, pg 213

[24] S M Efremov, The role of inflation in Soviet history: Prices, living standards, and political change, East Tennessee State University, 2012, pg 17

[25] L Trotsky, The Revolution Betrayed, Wellred Books, 2015, pg 46

[26] E H Carr, The Bolshevik Revolution, 1917-1923, Vol. 2, Penguin Books, 1952, pg 344

[27] S M Efremov, The role of inflation in Soviet history: Prices, living standards, and political change, East Tennessee State University, 2012, pg 17

[28] E H Carr, The Bolshevik Revolution, 1917-1923, Vol. 2, Penguin Books, 1952, pg 321-22

[29] L Trotsky, The First Five Years of the Communist International, Wellred Books, 2020, pg 650

[30] L Trotsky, The Revolution Betrayed, Wellred Books, 2015, pg 79

[31] A Nove, An economic history of the USSR, 1917-1991, Penguin Books, 1992, pg 121

[32] E Preobrazhensky, The New Economics, Oxford University Press, 1965, pg 172

[33] ibid., pg 147

[34] ibid., pg 145

[35] T Grant, “Against the Theory of State Capitalism”, The Unbroken Thread, Fortress Books, 1989, pg 210

[36] E H Carr, R W Davies, Foundations of a planned economy, 1926-1929, Vol. 1, Macmillan Press, 1969, pg 26

[37] Trotsky Archives, No. T-1594

[38] R W Davies, M Harrison, S G Wheatcroft, The economic transformation of the Soviet Union, 1913-1945, Cambridge University Press, 1994, pg 106

[39] ibid., pg 44-45

[40] A Katz, The Politics of Economic Reform in the Soviet Union, Praeger, 1978, pg 15

[41] T Grant, “Against the Theory of State Capitalism”, The Unbroken Thread, Fortress Books, 1989, pg 209

[42] L Trotsky, “The Soviet economy in danger”, Writings of Leon Trotsky (1932), Pathfinder, 1973, pg 278

[43] ibid.

[44] L Trotsky, “The Degeneration of Theory and the Theory of Degeneration: Problems of the Soviet Regime”, Writings of Leon Trotsky (1932-33), Pathfinder Press, 1972, pg 223

[45] ibid.

[46] L Trotsky, “The Soviet economy in danger”, Writings of Leon Trotsky (1932), Pathfinder Press, 1973, pg 260

[47] ibid.

[48] L Trotsky, The Revolution Betrayed, Wellred Books, 2015, pg 33, emphasis in original

[49] A S Balinky, “The proclaimed emergence of communism in the USSR”, Social Research, Vol. 28, No. 3, 1961, pg 261–82

[50] T Grant, “Against the Theory of State Capitalism”, The Unbroken Thread, Fortress Books, 1989, pg 218-219

[51] K Marx, Capital, Vol. 3, Penguin Classics, 1991, pg 958-959

[52] K Marx, Critique of the Gotha Programme, Foreign Languages Press, 2021, pg 16