The Political Economy of Soviet Socialism: The Formative Years, 1918–1928

260 Pages·7.787 MB·English

by  Peter J. Boettke (auth.)

The Political Economy of Soviet Socialism:
The Formative Years, 1918·1928
The Political Economy of Soviet Socialism:
The Formative Years, 1918-1928
Peter J. Boettke
Foreword by
Yuri N. Maltsev
formerly of The Institute of Economics, Academy of Sciences of the USSR
....
"
Springer Science+Business Media, LLC
Library of Congress Cataloging-in-Publication Data
Boettke, Peter J.
The political economy of Soviet socialism: the formative years,
1918-1928/ Peter J. Boettke
p. cm.
Inc1udes bibliographical references.
ISBN 978-90-481-5787-7 ISBN 978-94-017-3433-2 (eBook)
DOI 10.1007/978-94-017-3433-2
1. Communism-Soviet Union-History-20th century. 2. Soviet
Union-Economic policy-1917-1928. 3. Soviet Union-Politics
and govemment-1917 -1936. 1. Title.
HX313.B58 1990
335.43 '094T 09042-dc20 90-4172
CIP
Copyright 1990 by Springer Science+Business Media New York
Originally published by Kluwer Academic Publishers in 1990
AII rights reserved. N o part of this publication may be reproduced, stored in a retrieval system
or transmitted in any form or by any means, mechanical, photocopying, recording, or
otherwise, without the prior written permission ofthe publisher,
Springer Science+Business Media, LLC.
To Rosemary, with all my love.
Contents
About the Author ix
Foreword xi
Acknowledgments xix
1 Introduction 1
2 The Meaning of the First Decade of Soviet Socialism 11
3 The Political Economy of Utopia:
Communism in Soviet Russia, 1918-1921 63
4 The Political Economy of NEP:
Market Relations and Interventionism in Soviet Russia, 1921-1928 113
5 The Political Economy of Development Strategy:
The Soviet Industrialization Debate, 1924-1928 147
6 Conclusion 193
References 203
Index 219
About the Author
Peter J. Boettke, assistant professor of economics at New York University, received
his Ph.D. in economics from George Mason University, where he was a Claude R.
Lambe Research Fellow of the Center for the Study of Market Processes. He has
held faculty positions at George Mason University and Oakland University. He is
the former managing editor of Market Process, the academic publication of the
Center for the Study of Market Processes. His research has been published in
various journals and books, including Research in the History ofE conomic Thought
and Methodology, Critical Review, Journal of Economic Perspectives, and A
Nation in Debt.
Foreword
by Yuri N. Maltsev
formerly of the Institute of Economics,
Academy of Sciences of the USSR
The following study on the history of Soviet economic thought during the first years
after the Bolshevik Revolution of 1917 is much more than the regular academic
scribble on this turbulent period of modem history. It is a systematic treatise on
economic theory. Interdisciplinary in nature, it discusses the central problems of
political economy and provides the serious reader with deep insight and complete
understanding of the greatest event of the twentieth century: the rise and fall of
communism.
The foundations ofthe economic system that we see today in a state offull-fledged
crisis were laid during the first ten years of the communist regime in the Soviet
Union. The symptoms and manifestations of this crisis have been cogently de
scribed elsewhere. The author should be credited for his appraisal and illumination
of the real causes, both economic and moral, of the great drama of our times. At the
end of the treatise, it is absolutely clear that only by means of economic theory is
it possible to organize and interpret seemingly chaotic historical and statistical data,
isolated facts, and opinions that constitute the mass media's coverage of an overly
complex array of events in the USSR.
A number of scholars whose views and positions are critically treated by the
author have provided interesting analyses of the Soviet economic system, drawing
on the history of past attempts to construct a "working model" of socialism, then to
restructure and reform this system after it became obvious that the model was not
working. Much less attention has been paid, however, to the theoretical and
methodological problems involved in construction of the centrally planned econ
omy and liquidation of the market system.
The response of the Soviet ruling class to the deteriorating economy and societal
alienation was the program of reforms known as perestroika, which was initiated
in 1985 and significantly amended in 1987 and 1989. In light of the stakes involved,
it is urgent to accurately understand the nature of the declared reforms and the
prospects for their success; such understanding is possible only on the basis of sound
economic theory.
The spectacular failure to date of the "radical" economic reforms in the USSR has
been due to the unwillingness or inability of Mikhail Gorbachev's administration
to part with the obsolete and economically destructive Marxist-Leninist ideology
and its economic doctrine. Mr. Gobachev and other spokesmen of the Communist
Party do not make a secret that their commitment is not to abandon but to "better and
improve" the current system. They view the socialist system as progressive and
correct; its failures in practice result from a lack of discipline and a deviation from
the Marxist-Leninist principles. The package of economic reforms adopted by the
Central Committee of the party in June 1987 is aimed towards "perfection of the
economic mechanis~," and it included measures that at best can be considered
inadequate to deal with the present situation. Designed by departmental bureaucrats
and their academic assistants, with a complete disregard of economic theory, these
measures were rubber -stamped by an inexperienced and economically incompetent
government, which was easily deceived by the radical talk of the new ministry
heads. The effect of these "reforms" on the economy has been disastrous. They have
seriously undermined the vertical system of management of the economy, but have
failed to replace it with horizontal linkages between enterprises. While the set of
"negative" incentives for managers no longer works (discipline was maintained by
fear of being relieved of one's duties or even of the party membership card), the
positive incentives have failed to appear.
The real character of the so-called centrally planned economy is well illustrated
by the fact that a fully balanced, checked, and detailed economic plan for the next
year can theoretically be ready, with the help of computers, in about 30,000 years.
There are tens of millions of product variants and hundreds of thousands of
enterprises. It is necessary to make many billions of decisions in order to substitute
for the market. The plans must relate both to outputs and inputs, involving billions
of intermediate products; labor norms; wage rates; normatives for costs, prices, and
profits; "planned return on investments"; and other things. Because next year's plan
must be ready by next year, and not in 29,999 years, it is inevitably neither balanced
nor disaggregated. It is not a plan in any meaningful sense of the term.!
But the large number of decisions and variables is not socialism's worst problem.
There are two deeper problems: First, what actually thwarts the planner is not that
the set of decisions and variables is large but that it is open-ended; it comprises
knowledge and future discoveries that are (and will be) dispersed throughout
society in incomplete and even inarticulate form. As such, it is unavailable to the
planners. Second, even if this information were in principle knowable, the planners
would be impotent anyway, because without real market prices, which provide a
common, cardinal denominator for disparate things, they could not calculate the
economic implications of the countless possible courses of action. Socialist plan
ning, as Ludwig von Mises demonstrated in his classic Socialism (1922) and as
Professor Boettke emphasizes, is logically impossible because the system cannot
provide the knowledge required to determine which production projects are
xii
desirable and feasible and which are not. Only the market, with what Mises called
its "intellectual division oflabor," can generate that knowledge and put it in a usable
form. The Soviets actually learned this early on. As is underlined by Professor
Boettke in his conclusion,
Not since war communism have the Soviets sought to
realize the Marxian dream of a completely rational
economic society so persistently, because that vision is
a hopeless and unachievable utopia. The choice of
development strategy was certainly shaped by ideol
ogy, but the consistent quest to abolish posthaste market
methods of allocation was abandoned. Instead, a state
capitalist system of economic management was insti
tuted. Even at the height of the Stalin regime no attempt
was made to achieve the Marxist utopia of a moneyless,
comprehensively planned economic order. Thus, per
estroika does not represent a move away from the ideal
form of central planning-that move was made over 60
years ago.2
The so-called "political economy of socialism," formulated by Joseph Stalin after
the bloody purge of his Marxist opponents, whose views are so clearly exposed in
this book, is still considered to be the sacrosanct "theoretical" foundation of
economic policy and applied economic analysis in the USSR. It is nothing,
however, but a collection of political slogans discredited by harsh economic
realities. For example, according to the "political economy of socialism," the main
economic law is the "Law of the Complete Fulfillment of the Rising Needs and
Requirements of the People." Other "basic laws" include the "Law of Remuneration
According to the Quality and Quantity of the Work Performed," the "Law of
Planned and Proportionate Development of the Socialist Economy," the "Law of
Reproduction of the Population on the Basis of Rising Standards of Life and
Constant Improvements of Living and Working Conditions," and so on.
It is a testimony to the strictures and rigidity of economic theory in the USSR that
much of the ferment ofp erestroika has involved little more than heated discussions
about these Orwellian "laws." Some Soviet scholars argue, for example, that these
"laws" can implement themselves only through the rational conscious activities of
the planners. Others oppose this view on the grounds that is is contrary to the
Marxist-Leninist assumption of the independence of production relations (objec
tive phenomena) from the will and mentality of the people (subjective phenomena).
The absurdity of the current situation in Soviet economic science is manifested by
the existence of the third "school," which insists that economic laws can exist but
not operate.3 None of these "scientific" discussions have helped increase the supply
xiii
of goods on Soviet shelves. Instead, the obsolete theories are a significant part of the
problem.
Another basic problem is that for the last seventy years, Western economics has
been depicted in the USSR as "bourgeois vulgar political economy," and as a result,
the vast majority of Soviet economists are unfamiliar with even its basic tenets. The
old and discredited dogmas of Soviet economics are perpetuated by the system of
higher education and academic training. The few Soviet economists who are
acquainted with modern economics have no access to the decision-making process,
which is still dominated by economists like Abel Aganbegyan, Leonid Abalkin,
Boris Milner, and other economic advisers to the government who may pretend to
be reformers, but still fall within the Marxist-Leninist mainstream.
All ofthese factors, as well as the opposition of hard-line apparatchiks to any kind
of reforms (even the piecemeal ones) and widespread public confusion caused by
the still~revailing egalitarian thinking, have led to the serious deterioration of an
already stagnant economy. The "command" economy was disrupted by 1987, while
the market economy failed to appear because of the inconsistency of the reform
package and complete disregard of economic theory.
The lack of sound economic theory is compounded by a complete absence of
reliable economic and social statistics. Until recently, statistics were treated as a
form of economic propaganda and as such, were used mostly to illustrate the
"achievements" of economic and social policy. Even today, official statistics are
based on often deliberately falsified reports of the ministries, republics, regions,
districts, and enterprises, which are inclined to report economic indices in a way that
is beneficial to them. The existing statistical methodology of the national accounts
in the USSR is based on the simple adding up of the value of all material outputs at
their stated prices. Services and other "nonmaterial" incomes are not included. This
approach, based on the Marxist concept of "productive" and "nonproductive" labor,
leads to some paradoxes. The dentist, for example, is a "nonproductive" individual,
while the dental technician is a "productive" one.
Because of the complete absence of reliable economic statistics (DIA-CIA esti
mates, for example, are no more reliable when they are based on the official Soviet
statistics4), it is impossible to quantify the depth of the economic and social crisis
in the Soviet Union. Meanwhile, desperate economic adventurism based on a
strange mixture of Marxism, Keynesianism, and "common sense" is assuming
larger and larger proportions. The Council of Ministers ofthe USSR is issuing new,
senseless economic decrees and regulations at an accelerated speed of 2,000 per
year, compared to "only" 500 to 700 per year during the Brezhnev "stagnation"
years of 1965 to 1982. As the Soviet economist O. Bogomolov recently admitted,
"The final choice in favor of the market has not been made."5 The time for such a
decision is expiring.
When industries are monopolized by government ministries and enterprises, costs
do not reflect final prices, nor do costs reflect anything except local or departmental
xiv