The line of development of the Soviet economy is far from an uninterrupted and evenly rising curve. In the first 18 years of the new regime you can clearly distinguish several stages marked by sharp crises. A short outline of the economic history of the Soviet Union in connection with the policy of the government is absolutely necessary both for diagnosis and prognosis.

The first three years after the revolution were a period of overt and cruel civil war. Economic life was wholly subjected to the needs of the front. Cultural life lurked in corners and was characterized by a bold range of creative thought, above all the personal thought of Lenin, with an extraordinary scarcity of material means. That was the period of so-called “military communism” (1918-21), which forms a heroic parallel to the “military socialism” of the capitalist countries. The economic problems of the Soviet government in those years came down chiefly to supporting the war industries, and using the scanty resources left from the past for military purposes and to keep the city population alive. Military communism was, in essence, the systematic regimentation of consumption in a besieged fortress.

It is necessary to acknowledge, however, that in its original conception it pursued broader aims. The Soviet government hoped and strove to develop these methods of regimentation directly into a system of planned economy in distribution as well as production. In other words, from “military communism” it hoped gradually, but without destroying the system, to arrive at genuine communism. The program of the Bolshevik party adopted in March 1919 said:

“In the sphere of distribution the present task of the Soviet Government is unwaveringly to continue on a planned, organized and state-wide scale to replace trade by the distribution of products.”

Reality, however, came into increasing conflict with the program of “military communism.” Production continually declined, and not only because of the quenching of the stimulus of personal interest among the producers. The city demanded grain and raw materials from the rural districts, giving nothing in exchange except varicolored pieces of paper, named, according to ancient memory, money. And the muzhik buried his stores in the ground. The government sent out armed workers’ detachments for grain. The muzhik cut down his sowings. Industrial production of steel fell from 4.2 million tons to 183,000 tons – that is, to ¹/23 of what it had been. The total harvest of grain decreased from 801 million hundredweight to 503 million in 1922. That was a year of terrible hunger. Foreign trade at the same time plunged from 2.9 billion rubles to 30 million. The collapse of the productive forces surpassed anything of the kind that history had ever seen. The country, and the government with it, were at the very edge of the abyss.

The utopian hopes of the epoch of military communism came in later for a cruel, and in many respects just, criticism. The theoretical mistake of the ruling party remains inexplicable, however, only if you leave out of account the fact that all calculations at that time were based on the hope of an early victory of the revolution in the West. It was considered self-evident that the victorious German proletariat would supply Soviet Russia, on credit against future food and raw materials, not only with machines and articles of manufacture, but also with tens of thousands of highly skilled workers, engineers and organizers. And there is no doubt that if the proletarian revolution had triumphed in Germany – a thing that was prevented solely and exclusively by the Social Democrats – the economic development of the Soviet Union as well as of Germany would have advanced with such gigantic strides that the fate of Europe and the world would today have been incomparably more auspicious. It can be said with certainty, however, that even in that happy event it would still have been necessary to renounce the direct state distribution of products in favor of the methods of commerce.

Lenin explained the necessity of restoring the market by the existence in the country of millions of isolated peasant enterprises, unaccustomed to define their economic relations with the outside world except through trade. Trade circulation would establish a “connection”, as it was called, between the peasant and the nationalized industries. The theoretical formula for this “connection” is very simple: industry should supply the rural districts with necessary goods at such prices as would enable the state to forego forcible collection of the products of peasant labor.

To mend economic relations with the rural districts was undoubtedly the most critical and urgent task of the NEP. A brief experiment showed, however, that industry itself, in spite of its socialized character, had need of the methods of money payment worked out by capitalism. A planned economy cannot rest merely on intellectual data. The play of supply and demand remains for a long period a necessary material basis and indispensable corrective.

The market, legalized by the NEP, began, with the help of an organized currency, to do its work. As early as 1923, thanks to an initial stimulus from the rural districts, industry began to revive. And moreover it immediately hit a high tempo. It is sufficient to say that production doubled in 1922 and 1923, and by 1926 had already reached the pre-war level – that is, had grown more than five times its size in 1921. At the same time, although at a much more modest tempo, the harvests were increasing.

Beginning with the critical year 1923, the disagreements observed earlier in the ruling party on the relation between industry and agriculture began to grow sharp. In a country which had completely exhausted its stores and reserves, industry could not develop except by borrowing grain and raw material from the peasants. Too heavy “forced loans” of products, however, would destroy the stimulus to labor. Not believing in the future prosperity, the peasant would answer the grain expeditions from the city by a sowing strike. Too light collections, on the other hand, threatened a standstill. Not receiving industrial products, the peasants would turn to industrial labor to satisfy their own needs, and revive the old home crafts. The disagreements in the party began about the question how much to take from the villages for industry, in order to hasten the period of dynamic equilibrium between them. The dispute was immediately complicated by the question of the social structure of the village itself.

In the spring of 1923, at a congress of the party, a representative of the “Left Opposition” – not yet, however, known by that name – demonstrated the divergence of industrial and agricultural prices in the form of an ominous diagram. This phenomenon was then first called “the scissors”, a term which has since become almost international. If the further lagging of industry – said the speaker – continues to open these scissors, then a break between city and country is inevitable.

The peasants made a sharp distinction between the democratic and agrarian revolution which the Bolshevik party had carried through, and its policy directed toward laying the foundations of socialism. The expropriation of the landlords and the state lands brought the peasants upwards of half a billion gold rubles a year. In prices of state products, however, the peasants were paying out a much larger sum. So long as the net result of the two revolutions, democratic and socialistic, bound together by the firm snow of October, reduced itself for the peasantry to a loss of hundreds of millions, a union of the two classes remained dubious.

The scattered character of the peasant economy, inherited from the past, was aggravated by the results of the October Revolution. The number of independent farms rose during the subsequent decade from 16 to 25 million, which naturally strengthened the purely consummatory character of the majority of peasant enterprises. That was one of the causes of the lack of agricultural products.

A small commodity economy inevitably produces exploiters. In proportion as the villages recovered, the differentiation within the peasant mass began to grow. This development fell into the old well-trodden ruts. The growth of the kulak ¹ far outstripped the general growth of agriculture. The policy of the government under the slogan “face to the country” was actually a turning of its face to the kulak. Agricultural taxes fell upon the poor far more heavily than upon the well-to-do, who moreover skimmed the cream of the state credits. The surplus grain, chiefly in possession of the upper strata of the village, was used to enslave the poor and for speculative selling to the bourgeois elements of the cities. Bukharin, the theoretician of the ruling faction at that time, tossed to the peasantry his famous slogan, “Get rich!” In the language of theory that was supposed to mean a gradual growing of the kulaks into socialism. In practice it meant the enrichment of the minority at the expense of the overwhelming majority.

Captive to its own policy, the government was compelled to retreat step by step before the demands of a rural petty bourgeoisie. In 1925 the hiring of labor power and the renting of land were legalized for agriculture. The peasantry was becoming polarized between the small capitalist on one side and the hired hand on the other. At the same time, lacking industrial commodities, the state was crowded out of the rural market. Between the kulak and the petty home craftsman there appeared, as though from under the earth, the middleman. The state enterprises themselves, in search of raw material, were more and more compelled to deal with the private trader. The rising tide of capitalism was visible everywhere. Thinking people saw plainly that a revolution in the forms of property does not solve the problem of socialism, but only raises it.

In 1925, when the course toward the kulak was in full swing, Stalin began to prepare for the denationalization of the land. To a question asked at his suggestion by a Soviet journalist: “Would it not be expedient in the interest of agriculture to deed over to each peasant for 10 years the parcel of land tilled by him?”, Stalin answered: “Yes, and even for 40 years.” The People’s Commissar of Agriculture of Georgia, upon Stalin’s own initiative, introduced the draft of a law denationalizing the land. The aim was to give the farmer confidence in his own future. While this was going on, in the spring of 1926, almost 60 per cent of the grain destined for sale was in the hands of 6 per cent of the peasant proprietors! The state lacked grain not only for foreign trade, but even for domestic needs. The insignificance of exports made it necessary to forego bringing in articles of manufacture, and cut down to the limit the import of machinery and raw materials.

Retarding industrialization and striking a blow at the general mass of the peasants, this policy of banking on the well-to-do farmer revealed unequivocally inside of two years, 1924-26, its political consequences. It brought about an extraordinary increase of self-consciousness in the petty bourgeoisie of both city and village, a capture by them of many of the lower Soviets, an increase of the power and self-confidence of the bureaucracy, a growing pressure upon the workers, and the complete suppression of party and Soviet democracy. The growth of the kulaks alarmed two eminent members of the ruling group, Zinoviev and Kamenev, who were, significantly, presidents of the Soviets of the two chief proletarian centers, Leningrad and Moscow. But the provinces, and still more the bureaucracy, stood firm for Stalin. The course toward the well-to-do farmer won out. In 1926, Zinoviev and Kamenev with their adherents joined the Opposition of 1923 (the “Trotskyists”).

Of course “in principle” the ruling group did not even then renounce the collectivization of agriculture. They merely put it off a few decades in their perspective. The future People’s Commissar of Agriculture, Yakovlev, wrote in 1927 that, although the socialist reconstruction of the village can be accomplished only through collectivization, still “this obviously cannot be done in one, two or three years, and maybe not in one decade.” “The collective farms and communes,” he continued, ”... are now, and will for a long time undoubtedly remain, only small islands in a sea of individual peasant holdings.”

And in truth at that period only 8 per cent of the peasant families belonged to the collectives.

The struggle in the party about the so-called “general line”, which had come to the surface in 1923, became especially intense and passionate in 1926. In its extended platform, which took up all the problems of industry and economy, the Left Opposition wrote:

“The party ought to resist and crush all tendencies directed to the annulment or undermining of the nationalization of land, one of the pillars of the proletarian dictatorship.”

On that question, the Opposition gained the day; direct attempts against nationalization were abandoned. But the problem, of course, involved more than forms of property in land.

“To the growth of individual farming [fermerstvo] in the country we must oppose a swifter growth of the collective farms. It is necessary systematically year by year to set aside a considerable sum to aid the poor peasants organized in collectives. The whole work of the co-operatives ought to be imbued with the purpose of converting small production into a vast collectivized production.”

But this broad program of collectivization was stubbornly regarded as utopian for the coming years. During the preparations for the 15th Party Congress, whose task was to expel the Left Opposition, Molotov, the future president of the Soviet of People’s Commissars, said repeatedly:

“We not slip down (!) into poor peasants illusions about the collectivization of the broad peasant masses. In the present circumstances it is no longer possible.”

It was then, according to the calendar, the end of 1927. So far was the ruling group at that time from its own future policy toward the peasants!

Those same years (1923-28) were passed in a struggle of the ruling coalition, Stalin, Molotov, Rykov, Tomsky, Bukharin (Zinoviev and Kamenev went over to the Opposition in the beginning of 1926), against the advocates of “super-industrialization” and planned leadership. The future historian will re-establish with no small surprise the moods of spiteful disbelief in bold economic initiative with which the government of the socialist state was wholly imbued. An acceleration of the tempo of industrialization took place empirically, under impulses from without, with a crude smashing of all calculations and an extraordinary increase of overhead expenses. The demand for a five-year plan, when advanced by the Opposition in 1923, was met with mockery in the spirit of the petty bourgeois who fears “a leap into the unknown.” As late as April 1927, Stalin asserted at a plenary meeting of the Central Committee that to attempt to build the Dnieperstroy hydro-electric station would be the same thing for us as for a muzhik to buy a gramophone instead of a cow. This winged aphorism summed up the whole program. It is worth nothing that during those years the bourgeois press of the whole world, and the social-democratic press after it, repeated with sympathy the official attribution to the “Left Opposition” of industrial romanticism.

Amid the noise of party discussions the peasants were replying to the lack of industrial goods with a more and more stubborn strike. They would not take their grain to market, nor increase their sowings. The right wing (Rykov, Tomsky, Bukharin), who were setting the tone at that period, demanded a broader scope for capitalist tendencies in the village through a raising of the price of grain, even at the cost of a lowered tempo in industry. The sole possible way out under such a policy would have been to import articles of manufacture in exchange for exported agricultural raw materials. But this would have meant to form a “connection” not between peasant economy and the socialist industries, but between the kulak and world capitalism. It was not worthwhile to make the October Revolution for that.

“To accelerate industrialization,” answered the representatives of the Opposition at the party conference of 1926, “in particular by way of increased taxation on the kulak, will produce a large mass of goods and lower market prices, and this will be to the advantage both of the worker and of the majority of the peasants ... Face to the village does not mean turn your back to industry; it means industry to the village. For the ‘face’ of the state, if it does not include industry, is of no use to the village.”

In answer Stalin thundered against the “fantastic plans” of the Opposition. Industry must not “rush ahead, breaking away from agriculture and abandoning the tempo of accumulation in our country.” The party decisions continued to repeat these maxims of passive accommodation to the well-off upper circles of the peasantry. The 15th Party Congress, meeting in December 1927 for the final smashing of the “super-industrializers”, gave warning of the “danger of a too great involvement of state capital in big construction.” The ruling faction at that time still refused to see any other dangers.

In the economic year 1927-28, the so-called restoration period in which industry worked chiefly with pre-revolutionary machinery, and agriculture with the old tools, was coming to an end. For any further advance independent industrial construction on a large scale was necessary. It was impossible to lead any further gropingly and without plan.

The hypothetic possibilities of socialist industrialization had been analyzed by the Opposition as early as 1923-25. their general conclusion was that, after exhausting the equipment inherited from the bourgeoisie, the Soviet industries might, on the basis of socialist accumulation, achieve a rhythm of growth wholly impossible under capitalism. The leaders of the ruling faction openly ridiculed our cautious coefficients in the vicinity of 15 to 18 per cent as the fantastic music of an unknown future. This constituted at that time the essence of the struggle against “Trotskyism.”

The first official draft of the five-year plan, prepared at last in 1927, was completely saturated with the spirit of stingy tinkering. The growth of industrial production was projected with a tempo declining yearly from 9 to 4 per cent. Consumption per person was to increase during the whole five years 12 per cent! The incredible timidity of thought in this first plan comes out clearly in the fact that the state budget at the end of the five years was to constitute in all 16 per cent of the national income, whereas the budget of tzarist Russia, which had no intention of creating a socialist society, swallowed 18 per cent! It is perhaps worth adding that the engineers and economists who drew up this plan were some years later severely judged and punished by law as conscious sabotagers acting under the direction of foreign powers. The accused might have answered, had they dared, that their planning work corresponded perfectly to the “general line” of the Politburo at that time and was carried out under its orders.

The struggle of the tendencies was now translated into arithmetical language. “To present on the 10th anniversary of the October Revolution such a piddling and completely pessimistic plan,” said the platform of the Opposition, “means in reality to work against socialism.” A year later, the Politburo adopted a new five-year plan with an average yearly increase of production amounting to 9 per cent. The actual course of the development, however, revealed a stubborn tendency to approach the coefficients of the “super-industrializers.” After another year, when the governmental policy had radically changed, the State Planning Commission drew up a third five-year plan, whose rate of growth came far nearer than could have been expected to the hypothetical prognosis made by the Opposition in 1923.

The real history of the economic policy of the Soviet Union, as we thus see, is very different from the official legend. Unfortunately, such pious investigators as the Webbs pay not the slightest attention to this.