Appendix C

APPENDIX C A COMPARISON BETWEEN OUR CONCLUSIONS AND EXPERIENCES IN SOVIET RUSSIA THE SOVIET UNION is to-day the only country which according to our definition is a completely socialist society. The National-Socialist countries have gone a long way towards this, but in them there still exists a formal right to possess means of production and a certain degree of free disposal. It has been tempting, and would have been natural, to refer to developments and actual conditions in Soviet Russia on almost every point discussed in this book. This has not been done for many reasons, but especially because that might have aroused subjective reactions which could have detracted attention from the argument. Also, it might have been objected that references to Soviet Russia have little force as arguments, so long as it is not known what aim the Russian leaders have set themselves. Without that, we have no means of judging the efficiency or rationality of economic activity in Soviet Russia. If the aim has been merely to build up exactly that production apparatus which has been built, and nothingelse, then the system cannot be said to have functioned unsatisfactorily. If it is correct, what the Soviet Courts pretend to have proved, that the majority of the original leaders of the socialist movement have in reality been saboteurs and secretly aimed at creating chaos, the system has not been bad. In such circumstances it is not a relevant objection to point o-q.t, as has often been done, that rapid development of the productive apparatus has involved a severe reduction in the standard of living and that millions have died of starvation.

Nevertheless, this appendix will attempt a comparison for these two reasons: (I) Soviet Russia from her socialist experiments has harvested a crop of experiences which should be of value to other societies, and (2) developments in Soviet Russia shed light on problems discussed in this book, even though there may exist no yardstick for judging whether the results have been good or bad. The first experiment of the Communists on achieving power was to nationalize the banks. They were taken over on 14th December, 1917. At that. time Lenin believed that state socialism. was three quarters of the way to introducing socialism. This proved to be wrong. Nine months later, in the summer of 1918, the attempt at state socialism zzo COMPARISON WITH EXPERIENCES IN SOVIE.'f RUSSIA 22 I was given up. Lenin had overlooked the fact that in the private capitalist society banking is based on certain legal principles, including the right to own means of production, and, if these are annulled, it also does away with banking in its proper form. Its real contents disappear. Lenin had confiscated the banks' buildings, safes and books, but the banks had really already ceased to function two months after the communist revolution.!

In the period between the summer of 1918 and March, 1921, an attempt was made to introduce purely communist principles, Lenin then: considering money nothing but a capitalist tool for obtaining social goods, for speculation, and for exploiting the worker. In this period all goods were to be placed at the disposal of the central authority. The aim was to eliminate market transactions (a decree of 15th July, 1920, and elsewhere). No attempt was made to restrict the quantity of money, it being considered that the quickest way to destroy the remains of the bourgeois community was to destroy the value of money. The total amount of money in circulation on 1st November, 1917, was 22.4 milliard roubles, on 1st January,192.0, 225 milliards, and on 1st July, 1921, 2,346 milliards. During the war prices had not increased as quickly as the amount of money, but in this period they did so far more rapidly. Between November, 1918, and 1st July, 1921, the amount of money increased one hundred-fold, but prices rose till they were eight thousand times-as high. 2 In this period it was also decided not to require payment for use of the post, telegraph, gas, electricity,· or other public services. People could travel by train or steamer for nothing. Wages were paid, at least in part, in natura. To get the workers to carry out the production programme, it became necessary in 1920 to set up committees in various districts to introduce forced lab0ur.

The results of this period of no money and accounting in· natura were such that these ideas had to be abandoned. Although the wretched results were partly due to the war, they were a clear object lesson that a natural economy in a modern community leads to chaos. The third congress of the economic council announced in January, 1920, that a fixed unit of accounting would have to be introduced, and it was suggested that this should be a normal day's simple work with normal effort for a given working-day. This, in other words, was an attempt to put the Marxist theory of labour value into practice. Tschayanoff's ideas had to make way for those of S. Strumilin and E. Varga (see p. 48). Subsequent events of that hectic period make it difficult to ascertain how far the proposals of the congress. were IFor a description and quotations, see Brutzkus, op. cit., pp. 99-101. 2These figures are taken from Professor L. ]urowsky's book Die Wahrungsprobleme SowjetrussJands,Berlin, 1925, p. 21.

2. 2. 2. ECONOMIC CALCULATION· IN THE SOCIALIST SOCIETY acted upon. Brutzkus maintains that no one took them seriously,! and Jurowsky tells us that the theorists discussed the problem, but never arrived at any result. 2 The results were catastrophic. This was due to the natural economy, to practising the Marxist theory of labour value, or to other reasons. The Communists excuse themselves by saying that the Russian economic system was not ripe for socialism, but others maintain that Russian heavy industry was excellently suited to socialization, being highly centralized. The bread ration fell in the towns to about half what it had been before the war; there were 5t million cases of typhus, railway traffic fell to 12. per cent of the pre-war figure and industrial production to between 10 and 1 5 per cent. 3 This amounted to a complete collapse and Lenin was forced to abandon his communist experiments.

In 192.1 the so-called New Economic Policy, N.E.P., was introduced. In reality there was nothing new in it. It merely re-introduced a price and market-economy. The results were good, and an obvious im provement was being felt as early as Autumn, 192.2. The conclusion reached, however, was not that private enterprise and the price mechanism should be retained, but that there was now a good enough basis for making a fresh dash for socialism. Private business men found their work made more and more difficult by the Communist authorities and at the end of 1923 it was obvious that they had no real legal security. At the beginning of 1924 most of the private capital earned under N.E.P. was confiscated and private undertakings were taken over by co-operative concerns whose managers were but little interested in profit and minimizing costs. 4 The first prerequisite for centralization of business activity, as had already been discovered, was a comparatively stable currency, and it was only in February, 1924, when that had been achieved, that a plan could be worked out. This was done by the summer of I 925 and it was given the title "Economic Control-Figure for U.S.S.R. for the year 1925-1926". Space does not permit of any detailed description.

We must confine ourselves to those sides of the development which throw light on our problems, but it may be mentioned that in putting this plan into effect they met with great difficulties which seem to have been connected with the abolition of markets. lOp. cit., p. 105. 20p. cit., p. 27. 3See Barbara Wootton's Plan or No Plan, in which she speaks of the "complete ness of the collapse". Brutzkus gives (p. 100) industrial production in 1920 as being 13 per cent of pre-war. This is based on official statistics. 4Brutzkus, op. cit., p. II 3.

COMPARISON WITH EXPERIENCES IN SOVIET RUSSIA 223 Trouble was experienced. first and foremost with the peasants, in the difficulty of obtaining their agricultural products. As their ability to sell freely at market was progressively restricted, the· peasants received less and less for their products. According to official figures, at that period they received (in industrial goods) what amounted to less than half of what they had got before the war. (Later they received far less still.)l There was also a tendency towards expropriation and compulsory surrender. The Institute for Economic Investigation drew attention to the dangers inherent in this tendency: "Any attempt to counteract discrepancies by the use of non-economic methods· in a combined goods-and money-market must logically· lead to the economic methods of early communism with all its characteristic features". 2 At the same time the Institute pointed to certain phenomena reminiscent of the early days of communism: illegal trading and the fact that the peasants were given low-quality goods; "This", said the Institute, "will lead to .a serious drop in the production and sale of agricultural products". Memories of the early days of com munism were still so fresh that this warning aroused a storm of indignation as a result of which the institute had to cease its activities.

Events, however, proved the prognosis right. The government met with increasing difficulties •in o~tainingagricultural products; the peasants refused to give up their corn for low prices, and in •1927 almost no corn crops were grown at all.3 As the government had destroyed the trade in grain, it had to assume responsibility for feeding the people. In January, 1928, it decided to close all markets and to go over to compulsory surrender of products and an economy of coercion. The last pillars of the N. E.P. had thus fallen. The first result was that for the first time since 1922, according to official figures,4 the acreage under corn decreased. The economic ideology of the early days of communism was now again in vogue due to the fact that. the non-political experts were at this period replaced by young communist orthodox economists. These still believed in communism and natural economy. In their opinion money could be eliminated without risk, as money was merely a symbol of accountancy, and if the Soviet economy required a yardstick of value, the most suitable one was the working day. In connection with the Gosplan for 1929-30 they said that: "the expression of the national income in value form (in price) begins to lose its universal significance."

lSee Collectivized Agriculture in the Soviet Union, Monograph No. 2 issued by School of Slavonic and East European Studies, University of London, r934. 2Ir:stitute for Economic Investigation's Bulletin No. II-12, 1927, p. 52. (Brutzkus, Ope rt., p. 120.) 3See Brutzkus: Gp. cit., p. 121. 4See Brutzkus: Ope cit., p. 136.

224 ECONOMIC CALCULATION IN THE SOCIALIST SOCIETY That they had at least some doubts appears from the following: "This gives rise to new problems of economic analysis in general and for the analysis of the conditions of distribution in par ticular-problems which are solved neither by the theory of Soviet economics, nor by our statistics." 1 Their doubts were more justified than their faith. The communist ideas proved to be just as difficult to put into practice now as they had been previously. One result of the new policy of "economic planning" was that the government, despite the bad harvest, exported wheat in order to obtain foreign exchange to carry out the plan. It is estimated that the famine this entailed cost about six million lives in the years 1931-32.2 Those who, despite criticism of the "welfare concept", also take account of human factors must, when judging Soviet collectivization, remember not only this extraordinary large loss of life, but also the fact that it turned the peasants into serfs. The workers on collective farms are forced to work under particularly severe conditions and have no more chance of getting ~way from the collective farm than their forefathers had of escaping from their village before the emancipation of the serfs in 1861. 3 Agriculture was not the only sector in which the attempt to revert to natural economy and communist principles created difficulties. It was accompanied by a rene\ved laxity in the granting of credit and by certain inflationary phenomena. At a conference of managers held in Moscow in 1931 many depressing statements about the economic situation were made, and it was obvious that the Soviet economic system was on the verge of a new general collapse. 4 Under N.E.P., when means of production had to be acquired in the markets, all concerns calculated in money and sought to be economical and to make ends meet. Now, however, the acquisition of means of production no longer depended so much on money, as on the decisions of various boards. Once the decision had been made, the money could always be obtained from the state bank. Thus managers became accustomed to carry out their plans without economizing either on labour or means of production. 5 What really happened was that-the economic plan, originally set out in money, degenerated into a kind of IBrutzkus: Op. cit., p. 153.

2See Professor K. A. Wieth-Knudsen's Hvad vet vi om Sovjetrussland?Oslo, 1935; Pp·4 2 -43· 3See CollectivizedAgriculturein the Soviet Union, pp. 24-25. This also gives quota tions from official decrees concerning labour on collective farms. 4See"Brutzkus: Op. cit., pp. 162-163. 5Za industrializaciu, 19th December, 1930 (quoted in Brutzkus: Ope cit., p. 163)' COMPARISON WITH EXPERIENCES IN SOVIET RUSSIA 2.25 . economy in natura, although that system had already been proved unworkable in practice . . Anew conference was held in secret and Stalin made a speech. (on 23rd June, though it was not published till 5th July) that decided the Soviet government's policy for the following period. Even though Stalin neither abandoned the idea of a planned economy, nor showed himself in any way in favour of private trade, he admitted that certain capitalist institutions were .indispensable for implementing their communist plans. He strongly denounced any idea of a moneyless economy, which he called a "Trotskyist" idea (rather unjustifiably in view of Trotsky's opinion, see p. 170). Economic calculation was now to be recognized as the chief principle of the Soviet economy, and Stalin coined the expression "Soviet distribution" to take the place of "socialist distribution". Contact with consumers was to be made and wholesale undertakings were to be set up in the provinces to avoid distribution in small lots, and irrational and superfluous transport. During the course of 193I it was further decided that half the profit should be retained. The system of rationing was to be avoided, if possible. A widely varied scale of price-rates was in troduced to increase the efficiency of labour. The choice of managers for concerns was no .longer to be dictated merely by party-member ship, but qualifications had also to be taken into consideration.

Finally, a number of credit reforms were introduced, the purpose of which was to force managers to adopt better methods of calculation. Professor Brutzkus maintains that this attempt to introduce certain capitalist institutions within the socialist framework was not without effect and that it saved the Soviet economy from final collapse.! Professor Louis Rougier has reached the same conclusion: "If one summarizes the lesson to be drawn from the Soviet experiment, one could say: the experiment was successful where it was unfaithful to its principles; it has failed where it has been faithful to them." 2 What is of greatest interest for our purpose is to examine whether these directions to introduce economic calculation were feasible in a socialist society like Soviet Russia. Economic calculation presupposes a certain stability in the value of a currency. "Without a firm monetary unit", writes Trotski, "com mercial accounting can only increase the chaos". 3 There is no dis puting the fact that the value of money in Soviet Russia has .been unstable, but that is not where the greatest difficulty has lain. The lOp. cit., p. 170.

2Peut-onsavoirfa Verite sur f'ExperienceSoviitique?Besan<;on, 1937, p. 45. 3Srwiet Economyin Danger, New York, 1933, p. 31.

226 ECONOMIC CALCULATION IN THE SOCIALIST SOCIETY greatest difficulty has been that prices have been arbitrary and that after the abolition of markets there have existed simultaneously irrespective of time and value of money-several different levels ofprices (for goods at the same place and stage of production, and of the same quality). Trotsky, who is fully alive to the consequences of abolishing markets, said: "By eliminating the market and by installing instead Asiatic bazaars the bureaucracy has created, to consummate all else, the conditions for the most barbaric gyrations of prices, and con sequently has placed a mine both under the plan and under com mercial .calculation. As a result, the economic chaos has been redoubled."! Most of those who have studied the question either in Soviet Russia or from existing literature, state that the result of abolishing markets has been to make price-formation in Soviet Russia arbitrary.

Though references will follow later, it can be stated in advance and this is of decisive importance for the problem under discussion that the basis for economic calculation disappears the moment prices are fixed arbitrarily and become void of real significance. R. L. Hall, who is in sympathy with socialism and planned economy, has made a study of most of the literature in English on Russian prices. Of his conclusions the following will throw light on our problem: "Russian writers made constant reference to the control of processes with reference to prices and costs; but these do not yet mean what they do in ordinary economic language. 2 "Until this is general (that prices do represent the relations of supply and demand) the state cannot have any prices of finished goods in which it can place any confidence, and it· is difficult to know in what units it can make its calculations, since its money is to a large extent meaningless (because of the variety of price levels). 3 "When the final prices are not representative of any particular supply-demand relationship, costs cannot be imputed from them. 4 "It is difficult to know how the Planning Commission gets· its statistics. 5 "On the whole, then, it seems unlikely that the costs at present can be reliable indices. They serve to control the operations of the lOp. cit., p. 34.

'!.TheEconomicSystem in a SocialistState, London, 1937, p. 236. lOp. tit., p. 238. 'Ibid., p. 244. 5Ibid., p. 246.

C01fPARISON WITH EXPERIENCES IN SOVIET RUSSIA 227 directors of industry, but do not really measure the alternative possibilities of the productive resources. 1 " . . . the danger would be that the Russians might allow themselves to be influenceci by their prices and costs under the impression that these had some validity. 2 "It will be seen from this account ... planning does not mean the careful adjustment of means to ends ... There can be little doubt that this causes what would be considered fairly large losses of welfare. in price economics, both through the production of goods which· are not wanted so much as others would have been if the consumers had a free choice: and through the lack of knowledge about the relative costs of productive resources." 3 One example of the chaotic state of prices in. Soviet Russia is the existence of several different pricing· systems for retail prices. L. E.

Hubbard mentions seven: 4(I) Normal (I.e. ration) town prices at which limited quantities of goods. are sold to that part of the population possessing ration cards. (2) Country prices at which the peasants buy manufactured goods at the village co-operative shops. (These are sometimes equal to the town "commercial price", but sometimes not, because the peasants receive fewer manufactured goods than towns people.) (3) Commercial prices at which unrestricted quantities of con sumption goods (except bread and cereals), are sold. The "com mercial" level is several times higher than the "normal", and there has never been a constant ratio between the two. (4) Conventional prices at which the peasants sell their surplus produce to the state collecting organizations and to enterprises. (5) Open-market prices at which the town consumer buys direct from the peasants. (These prices are determined by supply and demand, but Government action prevents . prices rising to an exorbitant level.) (6) The single bread price. Since the abolition of bread cards on 1st January, 1935, bread, flour and other cereal foods and. fodder have been sold by the State at prices roughly midway between the former rationed and "commercial"

prices. (7) Torgsin or "gold" rouble prices which apply to the foreign shops. This is classed as external trade and has no bearing 011 paper rouble prices. Hubbard adds that it is clear that the purchasing power of a given sum of roubles is not constant, but depends on the privileged position of the individual. These· different values for.the one sum of money when possessed by different individuals mean that two nominally equal sums received by lOp. Git., p. 249. 2Jbid.,p.252. a/bid., p. 255. 'Soviet Money and Finance~ pp. 138-14°' 228 ECONOMIC CALCULATION IN THE SOCIALIST SOCIETY the government (in the form of taxes or by sale of governnlent bonds) have a different value even for the state (and hence for the com munity), depending on the greater or lesser privileged class to which the taxpayer or purchaser of bonds belongs, on which depends the larger or snlaller quantity of goods which the amount in question could have been used to acquire.

A practical example of how little importance is attached to pricing in Soviet Russia is given by Barbara Wootton.! She visited a large home for rescued street children outside Karkov. Attached to the home were extensive \vorkshops in which the children made electrical gears. The authorities told her with pride that, though the actual building had been given them by OGPU, the institution was other \-vise "entirely self-supporting" .As the children worked four hours in school and four hours in the workshops daily, and as they were obviously unskilled when they came, this certainly seemed remarkable. Further enquiry elicited, however, that the gears were not produced anywhere else in Russia, and were sold exclusively to certain state trusts. This put the statement that the home was self-supporting in a different light. Obviously the term had no real meaning (we are quoting :l\1rs. Wootton), since the planning authorities could both give the bome a monopoly and at the same time see that the purchasers of its products were provided with fllnds to pay what was asked, notwithstanding the high price.

Elsewhere in his book L. E. Hubbard says: "Since the test of an experiment is how it works, we must try to answer this question in relation to the Soviet monetary system. The theory that prices fixed on a basis of production costs can serve the same purposes with equal efficiency as prices fixed by supply and demand on an open market has been proved a fallacy. It also seems that when arbitrary price-fixing interferes with· a currency's function as a measure of value it also impairs its utility as a costing unit. The Soviet argument is that the value of an article to the community does not necGssarily agree with its value as determined by the price obtainable under open-market conditions .... This theory, carried to its logical conclusion, would mean the abolition of money." 2 The most serious consequence of using prices without meaning and real contents is that there is no basis for calculation.

In a lecture given to the American Economic Association on 2 8th December, 193 5, Alexander Gourvitch voiced his doubts about the accuracy of Russian data for calculation. He described the sharp rise iPlan or No Plan, p. 91. 20p. cit., pp. 308-3 0 9' COMPARISON WITH .EXPERIENCES IN ·SOVIET RUSSIA 229 in prices and the cost of living in Soviet Russia and said that invest ment undertaken without regard to costs had· resulted in resources being tied up in incomplete and. unprofitable activities. 1 In the subsequent discussion Michael T. Florinsky'had the following to say: "The question of prices is one of the most important and also one of the darkest in the entire field of communist economics. The few articles dealing with this fundamental subjectwhichhave appeared in Soviet periodicals throw practically no light on the actual process of price-making in Soviet-Russia."2 Florinsky also said that one of the few discussions of the subject of which he knew was to be found in Planovoe Khozyaistvo(Planned Economy) NO.4, 1932. In this number the Soviet economist S.

Turetsky points out that even for goods of the same class. there is often no connection between production costs and the price. He revealed that with production costs equalling 100, the prices of machinery, machine-tools and metal goods varied between the wide limits of from 65 to 200. 3 L. E. Hubbard has this to say: "The notion is more or less that the price of any article should correspond with its production cost in labour-time. On attempt ing to put this theory into practice prices have been reduced to a mere formula which lacks reaHty."4 "The difficulties, if not impossibility, of correlating production planning and financial planning when neither plan is definitely subordinate to the other, the only link being provided by arbitrary fixed prices, has been demonstrated."5 Nicolaus Basseches, an engineer and the Neue Freie Presse's corre spondent in Moscow, put the matter in a nutshell: "It is not to be expected that any considerable improvement will occur in this regard. For the reasons for the rise in self costs-and this rise will certainly be far higher than what the official figures give-lie in general conditions. First and foremost Soviet industry has no possibility of calculation. . . . There can be no ordered calculation in the Soviet Union."6 In this treatise the importance of economic calculation has been 1 AmericanEconomicReview, 1936, pp. 270-271, 276 and 280 (Supp1.).

20p. cit., p. 289 (Suppl.). 3Ibid., p. 289. 40p. cit., p. 166. , °Ibid., p. 322. 6Prom "Die Industrie", supplement to Die Rote Wirtschaft, p. 95.

230 ECONOMIC CALCULATION IN THE SOCIALIST SOCIETY stressed. This view is shared by all those who have taken part in the discussion (with the exception of Dr. Weil). The fatal consequences of lack of calculation are explained by L. E. Hubbard: ". . . accounting is of greater neces'sity to a Soviet economic enterprise than ·to a capitalist undertaking. A capitalist entre- ' preneur can carryon with a bare minimum of bookkeeping, and the state of his bank balance indicates whether he is losing money or making profits. . . . "The manager of a Soviet enterprise may continue an un troubled course of squandering practically indefinitely, unless his activities are subjected to a very searching and thorough periodical scrutiny. And even this will only show whether his enterprise is operating more or less efficiently than others of the same sort. "The fact that a Soviet enterprise is making paper profits or losses is no real criterion of its efficiency or of its utility to the community. For instance an enterprise may consume a quantity of a comparatively scarce raw material, also needed by another enterprise manufacturing something else of greater utility.

"The fixed price of the material may be low and the first enter prise may show a paper profit, but the real cost of its products, measured by the quantity of the second commodity which is not produced, will be greater than the nominal production cost."! Waste and irrational use of resources (irrational in relation to the objective) are not the.. only consequences of there being no real basis for calculation. Real planning becomes difficult or impossible, and, also, there is no basis for control. To quote from ContemporaryRussia (which set out to throw light on developments in Russia on the basis of documentary reports): "Price control was lax and indifferent, and in any case the multiplicity of price levels hindered effective supervision. Some types of shop even sold the same sorts of goods at different prices." 2 In W. B. Reddaway's short, but interesting book we find this: ". . . production has been planned on a somewhat arbitrary basis and without much conscious consideration of the principles of interpreting demand; indeed the Bolshevik planners seem to have very little conception of demand at a price, but regard it as something absolute."3 "If these shortcomings were simply due to failure of the lSovietTrade andDistribution,London, 1938, p. 323-324.

2See Vol. I, NO.1, October, 1936, p. 70. 3The RussianFinancialSystem; London, 1935, p. 84.

COMPARISON WITH EXPERIENCES IN SOVIET RUSSIA 23 I personal element, there would be little more to say on the subject, since this essay is not concerned with elaborate calculations of the degree of success attained in practice; but it is fairly clear that the system itself is at least partly responsible."! A long article by Dolnikov inZalndustrializaciuof 19th March, 1933, contains the following: "It is disquieting that factory managers do not seem to be interested in reducing production costs. This .unfortunate fact is in no way due to indifference or sabotage, but quite simply to the system prevailing in the Soviet Union". 2 and also this: "the costs of production may be 5° per cent above the decreed sellingprices. . . . The factory managers lose interest in doing their best to reduce the costs of production, since they know beforehand that whatever happens they will lose 80-90 roubles a ton on the goods they· produce because ·of the large difference between production costs and the sellingprice fixed by law."3 It would be possible to quote many other similar statements con firming the arbitrariness of prices in the Soviet Union and the ensuing impossibility of real economic calculation, but there are other aspects of·the problem of calculation we wish to compare with experiences in Soviet Russia.

We have previously asserted that a socialist society has the means of satisfying its members' urge. to save. In Soviet 'Russia .this has only been partially exploited. W. B. Reddaway has this to say: "Both classes have suffered somewhat from the lack of. any reliable means of accumulating a store of value. It is possible for the individual to save .by hoarding cash, or depositing it in savings banks, or by subscribing to the State loan-the last being virtually compulsory. But all these involve exposing his wealth to the vagaries of the rouble, and the State loan is. not even readily saleable in case of need nor useable as security for a .loan from a bank. or pawnshop. As a result the individual generally tries to do his saving, so far as he does any, by purchasing durable consumption goods which he can, if necessary, pawn or sell through the State Commission shop."4 and further on: lOp. cit., p. 85.

2Prom Russlandi S01!.ietpressensSpeil, quotations collected by Victor Mogens, Oslo, 1933, p. 23· 30p. cit., p. 24. fOp. cit., pp. 69-70' 232 ECONOMIC CALCULATION IN THE SOCIALIST SOCIETY ". . . it is almost unnecessary to say that private money lending is a cardinal sin."1 There is ample confirmation that interest-rates in a socialist society become arbitrary and unconnected with either savings or investment. Barbara Wootton has had this to say: "In the absence of any capital market in the Soviet Union, however, the true cost of abstinence cannot be tested out . . . The Planning Commission stint the present for the sake of the future up to the point at which they presumably think that the increased future return justified the present sacrifice. . . . In a society whose savings were regulated by the price mechanism the correctness of this judgment would soon be checked by the response of the savers to varying stimuli ... it is quite hopeless to expect this to be shown in measuring the balance of outgoings and incomings of any particular enterprise."2 W. B. Reddaway tells that there is: "little or no use of the rate of interest, either as a controller of the volume of saving, and so a judge of the optimum total amount (a function which it (the State) performs very indifferently), or as a selector of the most eligible schemes (which it does better); in the distribution of raw materials, land and other factors between different industries; and indeed in the whole system of planning." 3 Calvin B. Hoover has stated that: "as important economic categories both rent and interest have disappeared." 4 .

Now, this does not mean that interest does not exist. Soviet Russia, too, has reckoned with interest of a kind, but the rate is clearly quite arbitrary and takes no account of fixed principles. According to Wilhelm Keilhau 5 the bank-rate for a number of loan-operations in 1922 was fixed at 30 per cent per month. Hoover himself says later in his book that Prombank (the bank for long-term industrial loans) takes from 6 to 8 per cent plus certain additions. He also says that the interest varies with the profitability of the industry in question (whatever is meant by that), but does not explain whether the most profitable industries are regarded as the best lOp. cit., p. 70. 2Plan or No Plan, pp. 98-99. 30p. cit., pp. 71-72." 4ThcEconomic Life of Soviet Russia, New York, 1931, p. 2. 5Europeisk,.ePengesystemer,Oslo, 1930, p. 148.

COMPARISON WITH EXPERIENCES IN SOVIET RUSSIA 233 credit objects and so given .the lowest rates, or whether they are penalized with high rates in order to help less profitable concerns. However, he does tell that the oil and textile industries pay 6 per cent, while the coal and metallurgical industries pay 2 per cent. 1 What the other writers have had to say is rather contradictory. Arthur Feiler explains that loans are in many· cases granted without interest being charged. 2 Against this L. E. Hubbard (1936) says that the interest on all kinds of loans is generally 6 per cent, which perhaps means that Soviet Russia is now trying to revert to greater unity in interest rates. 3 In a later book. Hubbard said that "Soviet enterprise pays no interest on borrowed capital, only on a short-term credit". 4 It will be noticed that there has been no talk of anything but interest on loans. Dr. Maurice Dobb who with his Marxist views tries to reduce the significance of interest as an element of cost and factor in calcula tion (though he "makes considerable concessions) tells us that no interest is charged on a concern's original capital. This, too, will obviously entail serious difficulties not only because capital items are not subject to turnover and market valuation, but also because of the inflation and the fact that at all times there exist different levels of prices. Dr. Dobb says: "Under the New Economic Policy in Russia the original capital assigned to be industrial trusts carried no interest charge, and accordingly no such charge entered into business account ing."5 How uncertain are the socialist economists' views on interest charges appears from the following quotation about S. Strumilin who seems in many ways to have influenced economic development in Soviet Russia. In Geld,Kredit undBanken6 Maicolm Campbell says: "According to Strumilin interest on capital is not to be taken into account, although to do so would also be both possible and perhaps useful in a socialist economy." 7 Regardless of whether interest is charged or taken into account in Soviet Russia, it is obvious that interest rates are fixed more or less haphazardly, that the imposition of interest charges is arbitrary, and the burden of them considered of subordinate significance as a factor lOp. cit., p. 190.

2DasExperiment des Bolschevismus,Frankfurt, 1930, p. 116. 3Soviet Money and Finance, p. 59. 4Soviet Trade and Distribution) p. 202. 5Russian Economic Development since the Revolution, London, 1929, 2nd. Edn., pp. 174-180. 6Supplement to Die Rote Wirtschaft, Konigsberg, and Berlin, 1932. 70p. cit., p. I 19. P 234 ECONOMIC CALCULATION IN THE SOCIALIST SOCIETY of cost and calculation. In order to throw additional light on the subject it might be mentioned-under reference to what has been said on lending rates-that borrowing rates lately carried interest of up to 7 per cent for government bonds and 10 per cent for saving accounts. (See Appendix B.) There is little about calculation of rent to be found in accounts of Soviet Russia. What there is tends to show that rent is charged even more seldom and more arbitrarily than interest on capital. Reddaway only mentions the subject en passant and rather evasively.! Hoover says: "A limited right of rental of land was permitted with the dual purpose of providing some income for landholders who were unable to cultivate their land and of increasing the harvest of grain by making it possible for the richer peasants to farm more than their own allotment." 2 It seems improbable that this possibility still exists after the purge of the Kulaks. (Hoover's book is based on studies made in 1929-30.) Hubbard has this to say: "The State (Soviet Russia) really gets in addition to economic rent a monopoly profit from its power to exploit the peasant.

Even so, the similarity to capitalist rent is somewhat artificial." 3 "Thus there appears to be little resemblance even between rent in a Soviet economy· and rent as determined in practice in a capitalist economy."4 Barbara Wootton came to a similar conclusion: "The Soviet economy, which recognizes no private ownership of land, and refers in most uncomplimentary terms to the pay ment of rent, has no similar scale by which to reckon. So far as I can learn, rent has no part,even as a purely accounting item, in the budget of Soviet institutions." 5 "I have never been able to find any evidence that a quantitative monetary comparison of the utility to be derived from its various possible uses influences these allocations."6 Failure to take account of ground rents, and thus of differences in composition and suitability of the soil, excludes the possibility of economic calculation and hence full rational use of existing resources.

To charge ground and farm rents is, in Soviet Russia, generally conlOp. it., p. 24. 20p. cit., p. 73. 30p. cit., p. 271. 4Ibid.) p. 272. liOp. cit.) p. 71. IIbid., p. 71 • COMPARISON WITH EXPERIENCES IN SOVIET RUSSIA 2.35 sidered one of the grossest forms of exploitation; for that reason it is interesting to see that Hubbard ends his chapter "Agricultural Rent" with the following: "It seems that the introduction of a free-price system must very considerably lessen, if not entirely end, the exploitation of the peasant in favour of the industrial proletariat."1 When both prices and interest-rates are hxed arbitrarily there remains no real basis for calculating depreciation. This does not preclude attempts being made. At the end of 193I a "Price Committee" was set up under the "Council for Labour and Defence" to determine and control price-formation in retail and wholesale trade. Among the factors of calculation mentioned by Contemporary Russia 2 as figuring in the standard rules there was depreciation or, in Soviet terminology, "accumulation". (However, this is not necessarily the same as deprecia tion; it might also mean reserves.) Professor Hoover tells us that there were regulations for the depreciation of various categories of buildings: the average was 6t per cent. In his opinion the rate of total depreciation in Soviet Russia must be considered a reasonable one, when the accumulation of capital (development of the productive apparatus) is taken into consideration.

This is a social view that .t?:1ayappear natural, especially for a·socialist society, but Hoover's assertion raises serious problems. Amongst other things one must know the aim of the society in question if we are ever to get a yardstick for· determining (I) the value of the capital to be depreciated, and (2) the value of the capital goods which are supposed to represent the depreciation quota. It is self-evident that means of production which possibly have no value (if the products are not in demand or have no contribution to make towards the end to be achieved) can not be reckoned as depreciation quota. Also, the mere setting up of an end to be achieved does not automatically provide a yardstick for valuation that can be used in practice. This question of depreciation is discussed in but few of the economic works on Soviet Russia. Barbara Wootton and Reddaway have not touched on it, as far as can be seen, and L. E. Hubbard dismisses it with the following sentence: "It is true that every enterprise is supposed to set aside from its revenue each year a certain sum for amortization, but· this, as far as is known, has no direct connection with the original con-' struction costs."s lOp. cit., p. 274.

2Vol. I, No. I, October, 1936, p. 70. SOp. cit., p. 316.

236 ECONOMIC CALCULATION IN THE SOCIALIST SOCIETY Dr. Dobb's book stands alone in that he has discussed the question with considerable thoroughness from the theoretical aspect. He has besides provided valuable practical illustrations. When it comes to the question of calculating with amortization quotas, Dr. Dobb is admitting more than when he was discussing interest. He says: "Ordinary wear and tear of plant and buildings is, of course, an ordinary cost, like the use of stocks of raw materials, to be covered by assignnlents to a depreciation fund and included in commodity prices."! To justify this charge Dr. Dobb adds: "In a socialist society that problem becomes solely a technical question of accounting, to be settled according to accounting convenience, and no more. The charging of interest on capital here loses its wider class significance as a payment to a rentier class without the rendering of any equivalent effort-service in return."2 Perhaps it was necessary to add this characteristic sentence for Marxists, but from the point of view of accounting theory it is un necessary and irrelevant. If amortization is an "ordinary cost", then whether one reckons with an amortization quota or omits to do so, is not "solely a technical question".

Dr. Dobb gives many examples of the use of amortization charges in Soviet Russia. 3 They give the impression that the theoretical con ception and the practical use of amortization quotas have both been uncertain and unstable. R. L. Hall also has little to say about amortization in Soviet Russia, but his discussion of the theory throws considerable light on the problem, especially when it is remembered that Hall believes in the possibility of economic calculation in the socialist society. After saying that "estimates" have been obtained for labour and capital, Hall continues: "A further guess must be made at the annual depreciation of the plant, and we have finally the net earnings, which are the quasi-rent of the plant. Capitalizing these at the assumed rate of interest, we have an estimate of the value of the fixed capital, erroneous to an unknown extent owing to the various guesses which have been made."4 lOp. cit., p. 175, footnote.

2Jbid., p 175. 3/bid., pp. 293-294. 40p. cit., p. 9I.

COMPARISON WITH EXPERIENCES IN SOVIET RUSSIA .2 37 Many people seem to believe that it is irrelevant to discuss profit as a factor in calculation when dealing with a socialist society. Profit is nevertheless a well-known calculation factor in Soviet Russia. Arthur Feiler says: "A normal profit-and-Ioss account, as in private undertakings, is also prescribed."! The Price Committee which was abolished by the Council for Labour and Defence in 193I (see p. 235) laid it down in its basic regulations that retail shops should calculate to make a profit. It is, indeed, very natural that the question of profit and loss should come up whatever the nature of the undertaking, and it is also discussed in most economic works on Soviet Russia. That profit does not seem to have any real significance in Soviet Russia is a different matter. As a risk-factor it has disappeared, since economic activity is based on quite different motives (what they are is usually very difficult to discover). That a concern works with a deficit is not in itself a reason for curtailing or giving up activities, if its con tinuation is otherwise considered feasible.

Nor is profit (or the maximalizing of profit) in any way a criterion by which efficiency of the managers can be judged. Stalin's recom mendation (see p. 225) shows how much more important political colour and sympathy have been. His recommendation may have been due to political considerations, but also to the fact that profit is a quite unreliable measure of a manager's capabilities, when price sand costs are fixed'arbitrarily as in Soviet Russia. Many of the attempts to solve the problem of calculation are based, as has already been shown, on the assumption that consumers' prefer ences, and thus production, can be determined in the socialist society from statistics supplied by the retailers, or what amounts to the same thing, from information on which goods are in demand, and which not. We had various objections against these proposals, one of which was that such data would only be reliable under conditions which it would be highly unrealistic to assume existing in a socialist society.

An investigation of conditions in Soviet Russia shows that the prerequisites for useable data have not existed in that country. In telling of what actually had taken place, Reddaway says: "there is no automatic device to secure the application of this test, and the shortage of goods has tended to stultify it. For if more of one commodity is being produced than is economically desirable the manager of the commercial shops will not insist on lOp. cit., p. 1I6.

238 ECONOMIC CALCULATION IN THE SOCIALIST SOCIETY reducing their purchases of it simply because they cannot make such a big profit on selling it as they do on other things-they will be too afraid of not getting an adequate substitute: whilst it is a decidedly cumbrous process to secure an increased amount of an article which is in particularly short supply. In the absence of a system whereby relative overproduction was made painfully obvious-e.g. by the appearance of a loss in the accounts of the producing organization-it is probable that decisions on what to produce will continue to be made somewhat at haphazard."l ContemporaryRussia says: "The ration system itself had a deteriorating effect on retail trade. The closed shops became little more than issue depots; the shop managers and assistants had little incentive to study the desires of their customers since all they had to do was mechanically to hand out the quantities of bread, sugar, tea, etc., marked on the ration books. And, since the workers could only buy at the shops to which they were attached there was no question of competing for their customers."2 And Hubbard has this to say: "every consumer, individual or enterprise, made a point of buying up to the last unit of the goods they were entitled to purchase at the fixed prices because these prices were lower than the natural market price .... Under open-market conditions prices would have afforded a much. more sensitive as well as earlier sign of over-planning. Added to this was the fact that the various price systems impaired the reality of cost accounting and caused all sections of the community, including, enterprise administrators, to lose confidence in and respect for the currency. "3 In his other book Hubbard gives another example of how the fact of there being a superfluity or scarcity of consumer goods is by no means necessarily an indication for production. He says: "The practical importance of these turnover periods is that no trading organization should at any time hold larger stocks of any goods than can be sold during the turnover period."4 When the goods in theory and according to the plan are to be sold out during the turnover period, which is the ideal generally aimed at, lOp. cit., pp. 85-86.

2Vol. I, NO.1, October, 1936. 3Soviet Money andFinance, p. 318. 4Soviet Trade andDistribution, p. 131.

COMPARISON WITH EXPERIENCES IN SOVIET RUSSIA 239 it is self-evident that there can be no statistics of remaining stocks to serve as basis. InreaHty the fact that shops in Soviet Russia were sold out did not only mean that sales had gone according to the plan, but that there was actual scarcity. To quote Hubbard again: ". . . during the last quarter of the year an inspection of 2.60 shops in the Province of Voronezh disclosed that 69 shops were bare of sugar, in.49 there was no confectionery, in 36 no salt, in 26 no cigarettes."! M. Yvon, a French communist who worked for eleven years in different places in Soviet Russia has confirmed that it was not only difficult to get the goods, quantities, and sizes one wanted, but difficult to get goods at all. The result was that people took wh~t they· could get in. the hope of being able to swop it later for something they did want. 2 The existence of this state of affairs is confirmed by Barbara Wootton.

She writes: ". . . one constantly hears it said by those who have lived in the Soviet Union that any Russian who has more than the lowest pay may be quite at a loss to know on what to spend his money. Thanks to the rationing system and the practice of fixing prices at lower levels than serve exactly to match demand to supplies, the goods run out before the money to buy them is exhausted. Consequently demand may be oddly distorted into certain channels which represent, not the true preference of consumers over the whole field of possible consumption, but their reaction to a situation in which a large part of their consumption is decided for them by authority, and in which, for the rest, they have to buy, not what they want, but what there is."3 Under such conditions it is self-evident that statistics of sales are valueless, giving no indication of the consumers' preferences, nor of what should be produced to meet their demand. The discussion of the degree in which price-formation and competition must be free before turnover figures can be of any practical use, will not be repeated -here.

The supposition that the socialist society will also have need of middlemen, is borne out by experience in Soviet Russia. Vide Stalin's lOp. cit., p. 208. The author refers his reader to Financial Programme for the U.S.S.R./or 1937, p. 18. 2Ce qu'est devenuela Revolution Russe, Paris (no date), pp. 16-18. 30p. cit., pp. 93-94.

240 ECONOMIC CALCULATION IN THE SOCIALIST SOCIETY recommendation (quoted on p. 225) that wholesale depots should be established to avoid uneconomic sending of small quantities over large distances. Also lack of rolling stock and deficiencies in the organization of transport led to the establishment of a kind of middle man called "pusher", whose job was to push forward deliveries.! Stalin's order dividing activities among smaller units is, however, not merely an admission that the middleman has a logical place in a rational economic system, but also that it is difficult to control large concerns. It was, too, a symptom of the reaction against the giganto mania that had obtained such a hold on Soviet Russia It would take us too far from our subject to do more than touch on the question of how far variations in the trade cycle are eliminated in Soviet Russia. It can be said that the volume of production is a very uncertain criterion for judging variations in the trade cycle in a socialist society, since it can be determined arbitrarily by the planners according to non-economic considerations. (This can, of course, be considered an advantage in the system, but that would be to bring up the question of whether we are dealing with a society of plenty or of scarcity, and, if the latter, what is the aim of its activity.) As far as Soviet Russia is concerned the question appears in a special light, since its production apparatus was but slightly developed, a fact to which Barbara Wootton also draws attention. When the Russian revolution was over, there was a shortage of factories of practically every kind. Under such conditions there is no risk of "exaggerated and unco-ordinated" expansion of the productive apparatus. It is the adjustment after such exaggerated or unco-ordinated activity that in. a capitalist society brings the depressions. It must be considered highly probable that Soviet Russia will be faced with similar problems when the rate of expansion eventually comes to be reduced. In any event, it will be necessary to have adjustment in the form of transference of labour to different employment.

Hubbard has the following to say on this point: "If an economic crisis be defined as an unpredicted disturbance in the orderly development of production and consumption, resulting either in a shortage of goods or a shortage of effective demand-th~t is, in the phenomena usually termed under production or overproduction-then the economic history of the Soviet Union, since planning superseded the relatively free market of N.E.P., has been a succession of crises, for at practically no period during that time has there not been a shortage of some thing; in 1932, for instance, a real shortage of food of all sorts, in lRUSJlandi Sovjetpressensspeil, p. 49.

COMPARISON WITH EXPERIENCES IN SOVIET RUSSIA 241 latter years shortages of boots, sewing thread, matches, etc. If planning is immune from some of the defects of capitalism, it seems to possess peculiar faults of its own." 1 It is often claimed that unemployment has been eliminated in Soviet Russia. That is not the case. In Brutzkus' book 2 there is a section "The Problem of Unemployment" in which he refers inter alia to countless hordes who besiege Soviet-Russian railway stations and who are con· tinually moving from one place to another. Later, it is explained that even in periods when manpower was in great demand, it was not possible to make use of this enormous mass of "raw workers". Also, it should be noted that the unemployment statistics pre-eminently refer to towns. Brutzkus draws attention to the paradoxical phenomenon that in the towns where the possibilities of finding work are least, there is the least unemployment, since people leave the towns and go into the country where they have a slightly better chance of making a sub sistence. Brutzkus also says the object of the passport law was to keep the peasants from the towns. "It was much more convenient to let them starve in the country."3 These pass. regulations were introduced by the Soviet Government on 27th December, 1932, and it is stated that as a result 800,000 people were discovered in Moscow who had no right to a pass and so had to take to the broad highway. As those who had work received a pass, this should mean that in reality the~e were 800,000 unemployed in Moscow alone, which is in crass contradiction with the assurances that there is no unemployment in Soviet -Russia.4 Before passing judgment. one must also take into consideration the fact that itis obviously easier to have people employed when they can be forced to accept wages as low as the employer cares to give. That forced labour and "compulsory enrolment" of workers exist to a greater or lesser extent in Soviet Russia is apparent from most accounts of conditions there. Such compulsion does not necessarily involve military compulsion. When a state is the one and only employer it has all the economic powers of compulsion it requires.

Hubbard throws considerable light on this problem of unemploy ment and forced labour in Russia: "A large proportion of the forced labour, employed in the undertakings referred to above, consists of peasants deported to the labour camps. It is believed that the total number of convicts and other forced labour is probably some four to five millions, lSovietTrade and Distribution,pp. 344-345. 21bid., pp. 222-226. 30p. cit., p. 225. 4See Russlandi Sovjetpressensspeil, p. 52.

242 ECONOMIC CALCULATION IN THE SOCIALIST SOCIETY though naturally no official 'figures are ever published. In any case, the peasants were presumably rendered superfluous to the needs' of agricultural labour by the introduction of machinery and the rationalization accompanying the amalgamation of peasant holdings into collective farms .... "1 "A large amount of free labour also is employed at a remunera tion that cannot be regarded by any standard as a satisfactory wage." 2 "There is no unemployment relief and the Trade Unions do nothing towards securing a decent minimum living wage nor to prevent the dilution of labour .... This is exactly the same state of affairs as prevailed in Great Britain at the beginning of the industrial revolution. It is evident that in the Soviet Union either a large proportion of the Workers are terribly exploited, or that the work they perform is so sterile that their output does not yield a living wage."3 Hubbard also has much of interest to say about the problems of unemployment and the trade cycle in Soviet Russia. In his first book he says, inter alia, that unemployment is not a condition likely to occur in a community in which there is a general shortage of commodities.

He also points out that Russia is a country where climatic conditions cause wide variations from year to year in the crops of foodstuffs and raw products. A bad· harvest will not affect the agricultural population alone, but also reduce the demand for industrial goods. Hubbard suggests that the same causes would have much the same effects even where output of consumers' goods is supposed to corre spond exactly with the demand. As a matter of fact, the reaction of the harvest on industry should be even greater than before the war, since a much larger proportion of the raw materials for industry is now produced internally instead of heing imported. "The more self-sufficient a country the more national con sumption depends on national production, and if for any reason production permanently or temporarily declines, consumption must be reduced." 4 Hubbard ends his examination of the subject from which we have quoted only very briefly, by saying: "In such circumstances if planning is to prevent unemployment, or more accurately prevent conditions arising which in a capitalist lSoviet Trade and Distribution, p. 328.

20p. cit., p. 329. 3Ibid., p. 331. . 40p. cit., pp. 281-282.

COMPARISON WITH •EXPERIENCES IN SOVIET RUSSIA 243 system would result in· unemployment, it will need to be carried out with almost superhuman prescience; in fact, with a perfection that human organization can scarcely attain. Of course, absolute unemployment can always be avoided by employing surplus labour at a loss on the principle of relief works in capitalist countries. But to substantiate the claim that planning can over come unemployment it must be shown that it is capable per manentlyoffindingremunerativeemploymentfor the wholebody of workers."! This statement is of theoretical interest and has.also general validity, i.e. it applies to non-socialist societies as well. This brings us to the end of our comparison between deduced conclusions and the experience of Soviet Russia. We have done little more than touched on the human factor, which many will· consider as the most important of all. There is, however, little evidence· that regard for the human factor has ever influenced the Soviet Government's plans; and so, strictly speaking, we are not justified in judging the result of economic activity in Soviet Russia by the degree to which the needs of the consumers have been satisfied.

To start taking the human factor into account would .mean con centrating on aspects that lie outside the scope of this book. We would have to ask the numbers of those who have been "liquidated" and who have died of starvation and under-nourishment. Not only that, but also the psychological results of spying, informing, forced labour, concentration camps, and other deprivations of liberty. Such things cannot be measured quantitatively, but there is available a fairly comprehensive literature on this aspect written by Russians and foreign socialists, or, rather, quondam socialists, and communists. 2 "If the first duty of a government is to provide its population with food, leisure and clothes," says· Professor Rougier,3 "then the Soviet Government has defaulted on that three-fold duty." This statement given after a trip to Russia in September, 1932, has since been corro borated by M. Dorgeles, correspondent of L'IntranJigeant,in January, lOp. cit., p. 283.

2professor Rougier's Peut-on savoir fa Verite sur I'Experience Sovittique? already mentioned, provides a good general picture and names most of the books that have been published in French and English. Professor Pierre Pascal who was in Russia as a member of the Bolshevik Party from 1917 to 1939, and then Professor of Russia at Lille University, says in an introduction to M. Yvon's book that those one can most safely believe are the foreign communists who have earned their living in Soviet Russia for several years. They do not much li~e talking about it, says Professor Pascal, but when they do, .it is astounding how their accounts agree. aop. cit., p. 42.

244 ECONOMIC CALCULATION IN THE SOCIALIST SOCIETY 1937. Professor Rougier sums up Moscow in the one word "misery" ("La misere"). 1 One objection frequently made is that you cannot compare con ditions in Soviet Russia with the countries of Western Europe, because Soviet Russia has remained such a long way behind. Professor Rougier in answering this, made a very interesting suggestion. He pointed out that the division of Russia which took place after the Great War really provides unique data for a comparison between the respective merits and demerits of the capitalist and socialist systems. On the conclusion of peace large portions of Russia were transferred to Finland, the Baltic States, Poland and Roumania. Professor Rougier's suggestion was that an impartial committee should be set up to examine conditions in the districts lying 20 kilometres to the west of the Soviet-Russian frontier and 20 kilometres to the east of it.

This would enable one to see what differences, if any, developments had brought to the different groups of people who twenty-five years earlier had lived under like conditions. There is one other point relating to the human factor that might have been discussed in more detail, and that is the rise of bureaucracy in Soviet Russia. Even economists like Dr. Lange, who otherwise have no great objection to the socialist society, are anxious on this point and of the opinion that bureaucracy is a danger to Soviet Russia and socialist societies generally. In giving vent to such fears the word "bureaucracy" must be used in its pejorative meaning, for the introduction of socialism necessarily involves setting up a large bureaucracy. That is an inevitable con sequence when concerns formerly run by private enterprise are to be managed by officials. In other words it follows from the definition that a socialist society will require an enormous bureaucratic apparatus.

The fear that a socialist community can easily get a bureaucracy also in the pejorative meaning of the word, seems to be borne out by what has happened in Soviet Russia. Arthur Feiler adduces as one reason for this, the fact that the severe punishments meted out in countries where there is a dictatorship, make people inclined to shift respon sibility on to others. 2 This leads to more and more officials being employed and to work being unconscionably delayed. As an example he mentions that during a reorganization of the Russian Finance Commissarist (R.D.F.S.R.), further dividing responsibility, it appeared that the number of officials3 could be reduced by over half, from 43,000 to 19,000. lOp. cit., p. 42. 20p. cit., p. 104. 31bid.) p. 105.

COMPARISON WITH· EXPERIENCES IN SOVIET RUSSIA 245 I-Iubbard has this to say on the subject: "A serious drawback to State bureaucratic administration is that officialdom as a whole always plays for safety. This is peculiarly the case in Soviet Russia, where the results of errors of initiative are apt to be gravely unpleasant." 1 Hoover speaks of a factor that is not a direct outcome of bureau cracy, but which is due to the state ownership in the socialist com munity. He tells us that a huge proportion of a manager's time goes on Party work and that much of his energy is expended on endless com mittee meetings. "The drain· on the energy of the executive personnel and the tendency to consider talk a substitute for work, which is occasioned by these meetings, is a serious handicap on Soviet Industry." 2 Just as there are disharmony-economists who consider ·it wrong to discuss the market-economy without adducing its defects, so there are socialists who consider it wrong to discuss Soviet Russia without mentioning the alleg~d advantages of its Five-year Plans.

Now, such production plans give little material on which to judge the problem we are discussing: the possibility of economic calculation. It has never been. denied that a society with sufficient resources can undertake a technical expansion, especially when other societies give it the advantage of their experience and experts. The question is whether a socialist community can calculate economicallY, so that its resources find the best and most rational use. Here we again come up against the question of the aim of its economic activity. It can be claimed that this aim is clear as regards the Five-year Plans in Soviet Russia, namely to achieve a certain industrial expansion. However, there is one fundamental distinction between the setting up of such an aim in a socialist as opposed to a private capitalist society. In the capitalist society the major part of activity will auto matically be directed to satisfy the effective demand of the population, as that is the way in which most members of the community earn their daily bread. But when a socialist society, where by definition the central authority is the one and only employer and entrepreneur, sets up such a single aim as technical expansion, there may be a risk that other aims, such as satisfying the demand of the people will be neglected. Acceptance of a.single aim in a socialist society means that the central authority can, if it likes, depress the standard of living down to, or even below, the minimum for physical existence. Logically lSovietTrade andDistribution,p. 106.

20p. cit., pp. 6-7.

246 ECONOMIC CALCULATION IN THE SOCIALIST SOCIETY speaking, however, no objection can be advanced against accepting such a single aim, so from a theoretical point. of view there is still good reason to discuss the results of the Five-year Plans. On .paper the first Five-year Plan was a success. According to the report of Gosplan industrial production was to have been increased by 133.3 per cent in the course of five years. 93.7 per cent of this increase was achieved, 1 and that within a shorter period than envisaged, namely four and a half years. This report, however, has one important flaw. The figures on which it is based ate figures of value. This simply means that no importance can be attached to them at all, since prices in Soviet Russia are fixed quite arbitrarily. "N0 reliance can be placed upon these figures, which are based on prices; such calculations belong to the sphere of that 'statistical demagogy' which is a feature of all reports issued in Soviet Russia under the Five-year Plan. The authorities want to show, for the benefit of foreign countries, the successes achieved by the planned economy; and it is possible to prove anything by mani pulating prices in an economy in which there is no ordered currency and no regular market business." 2 The inflationary rise in prices that took place during that period is in itself sufficient to make all calculation based on results measured in money quite unreliable. It was a standing joke in Soviet Russia during the Five-year Plan that the activity which had increased most and exceeded all expectations was that of the printing presses. The Plan had aimed at a maximum in circulation of R.3,200 million, but the actual figure was R.6,800 million. 3 Thus if we are. to be able to judge the success of the Five-year Plan we must disregard statistics, based on prices, and confine ourselves to the volume of production. Not even the figures given for quantities can be relied on, for as Brutzkus says4 at that time Soviet-Russian statistics were becoming more and more unreliable. The Institute for Economic Research had been closed, and later, in 1930, Gosplan and the Central Statistical Administration were "purged" of non-party experts. As a result, most of the economic periodicals ceased pub lication, while those that continued were filled with attacks against "saboteurs", etc. The statisticians had received their orders and were now to "play a practical part in Communism's fight against capitalism". 5 While the Five-year Plan had originally been worked out IBrutzkus, op. cit., p. 199.

2Ibid., pp. 199-200. 8Hubbard: SovietMoney and Finance, pp. 3°3-304 40p. cit., p. 24. 50p. cit., p. 134. Hubbard says the same.

COMPARISON WITH EXPERIENCES IN SOVIET RUSSIA 247 by the best brains Soviet Russia had at the time, these same people were now forbidden to express their views. However, it must be said that the Russian papers showed considerable liberality in the space they gave to complaints about the results of the Five-year Plan. It was even permissible to criticize the statistics. For example, lsvestia on I st March, 1930, disclosed that the actual figures for crops in certain districts were 40 per cent lower than the official ones.! There is also another reservation to be made:· a percentual rise in the total production does not tell much about the fulfilment of a plan, even if you are reckoning in quantities. A plan that aims at doubling the production of two commodities, is not fulfilled merely because the average increase is 100 per cent, if the production of one has increased by 2.0 per cent and that of the other by 180 per cent. To exceedthe increase aimed at is just as contrary to the plan as failure to achieve it. To produce in excess of what is planned means that transport, warehouse-space, etc., are taken up to the detriment of other uses planned.

Even though the first Five-year Plan was not wholly accomplished, the rise in production was enormous. To give an exact valuation, however, many factors have. to be considered. If production in the basic year was exceptionally small, a percentual rise says correspond ingly little. What is really required is a knowledge of the country's existing resources and possibilities, and to know how far they were exploited both in the basic and in the final year. Brutz~us says: "We must remember that Russia is still a young country, industrially. In such a country, assutning favourable trading conditions, industrial development can proceed at a much more rapid pace than in a country which has long been industrialized." 2 As' far as the speed of development is concerned, we may mention that the rise in production for the three years 1910-1913, that is when Russia was still under the Tsar, was neady as large as under the Five year Plan: 45 per cent for coal (from 25 to 36 tnillion tons), 57 per cent for pig iron (from 3.1 to 4.8 tnillion tons), and 5I per cent for copper (from 22.3 to 33.8 thousand tons).3 Then we must remember that the figures on which the statistics are based refer to the places where production took place, not to where the products were received. In a capitalist society the two sets of figures ordinarily coincide .. It appears that this is not necessarily the case in Soviet Russia. The explanation lies in transport condition. Complaints lRougier: Op. cit.) p. 34.

20p. cit., p. 2 °3 3Ibid., p. 203, where the sources are given. The figures relate to Russia's former territory.

248 ECONOMIC CALCULATION IN THE SOCIALIST SOCIETY about the deficiencies of transport in Soviet Russia are legion. To give one example, in 1930, a year when there was a bumper harvest, of the total 2.2..2. million tons some 5.5 million, that is circa 25 per cent, failed to reach the railway stations, having been either spoilt, stolen, or just never arrived. 1 . These in themselves serious objections to the alleged success of the Five-year Plan become minor ones when we come to consider the quality of the goods produced .. The Soviet Press is literally swamped with complaints about the poor quality of industrial products and the large quantities of commodities destroyed. 2 The figures given are such that one would consider them incredible, had they not been reproduced in the Soviet Press. "The percentage of sub-standard goods is enor mous", says Light Industries of 4th June, 1933, " ... in the stocking industry the wastage is 37-50 per cent". And in the issue of 2.3rdJune, 1933: "The industrial trusts and factories give such extraordinary figures (of wastage) as 80-90 per cent". 3 A report from the People's Commissariat dated 28th July, 1933, draws attention to the fact that several quarters had sent in reports' about agricultural machinery being delivered without motors, magnetos, and other essential parts. 4 In his Soviet Trade and Distribution Hubbard says the People's Commissar of Agriculture had admitted that the productive employment of tractors was no more than between 40 and 50 per cent of their technical capacity.s One more example, which shows how the system of fixed selling prices can make it more advanta geous to produce poor quality goods, than those of the best quality. In his article in Za industrializaciu of 17th March, 1933,6 Dolnikov says: "They (metallurgical factories) can often sell to outsiders, e.g.

building firms, coal trusts, etc., second quality rails at a higher price than they receive for fixed high quality rails from the People's Commissar for Traffic. "Thus certain workshops and even entire factories often find it in their interests to produce poor-quality rejects or goods below the contract standard. They get a specific premium for their inferior work or the poor quality goods they purposefully produce. "In 'Serp i Molot' rejected scrap-iron sells at twice the price of lOp. cit., p. 147. Taken from Sovietskya toyovlya,NO.5 5, 193I, p. 12. 2Jbid., p. 2°5. 3/bid., p. 205. 4Russlandi S01jetpressensspeil, p. 28 5Soviet Trade and Distribution, p. 328. 6Russlandi S ovjetpressensspell, p. 25.

COMPARISON WITH EXPERIENCES. IN SOVIET RUSSIA 2.49 mill-iron .. Thus it is in the interests of the factories to produce scrap-iron or to sell mill-iron as scrap. "The 'Zlotoust' Factory sells second-and third-class products at ~ very high price to smaller factories, artisans and combines, which pay cash for it. It happens that· first-class goods are sold as second'"-class,and such transactions are on a very large scale." Considering that the figures for the value of production are useless for judging the Five-year Plan (since prices are fixed arbitrarily), that both the percentual and the absolute increase in the quantitive figures depend on the extent of production in the basic year, that in most cases the target quantities were far from being reached, and that the quality of the products supplied was very low, there is little reason to claim either that the· Five-year Plan was accomplished, or that it was in any way a triumph for "the system".!

That quality did not improve during the second Five-year Plan is shown by the following quotations. There are many moreavailable: Pravda,8th August, 1936, reports that of 9,992 motor cars examined, 1,958. proved to be defective. Pravda, 23rd September, 1936, reports that of 2,345 chairs 1,300 were unusable. Pravda, 18th November, 1936, reports the main factory for gramo phone records in Nojevik should, according to. the plan, ·have supplied four million records during 1935. It delivered 1,992,000, of which 3 09,800 could not be used. There was an increase,in the number of scrapped gramophone records. during 1936: 15 6,200 in the first quarter; 259,400 in the second quarter; 614,000 in the third quarter; and in the month of October itself 607,000. In Pravda, of 23rd September, 1936, Professor Bourdenko com plains of the bad quality of surgical instruments. Pravda,of 4th November, 1936, reports that 99 per cent of the copy books produced by the factory "Labour's Heroes" were un.,.

usable. Isvestia, of 12th December, 1936, reports that eight million copy books had to be scrapped in Rostov. 2 An article by the New Commissar for Domestic Trade, Smirnov, lIt is quite a different matter that the rapid expansion of the apparatus of produc tion achieved by the Five-year Plans has aroused enthusiasm both in Soviet Russia and among socialists all over the world, at any rate during the first Five-year Plan, and that this enthusiasm has had great advertising value. Whether the outlay has been worth the advertisement is a matter on which we shall not attempt to express an opinion. 2These quotations are taken from Andre Gide's book: Retouchesa mon Retour de 'U.R.S.S., Paris, 1937. Q 250 ECONOMIC CALCULATION IN THE SOCIALIST SOCIETY that appeared in Pravda, during December, 1937,1 provides a certain picture of. the second Five-year Plan and particularly of the course developments were tending to take. According to him the Soviet Government intended in 1938, that is the first year -of Stalin's third Five~year Plan, "to make great changes in all spheres" . The Bureau cracy was to be done away with and the Soviets were to go over to "the same trading principles as are employed in capitalist countries" .

. "Trade, says Smirnov, 'remains the problem child of Russia's people's economy'. The Commissariat for Domestic Trade and the entire trading apparatus had hitherto been a complicated bureaucratic machine that had merely interfered with and ham pered _the expansion of trade. 'Trotskyist spies and noxious vermin' had been everywhere at work deliberately undermining the trade of Soviet Russia. Industry had produced goods that the consumers o neither .liked, nor wanted. In many districts there were far too many goods, which it was impossible to get rid of, while elsewhere there was nothing to be had. . . . "For example, furniture was sent from Moscow and Minsk to Krasnojarsk, where there was a surfeit of timber and wooden commodities, while Moscow and Minsk lacked timber for furniture factories. In many places goods to the value of millions of roubles rotted, while elsewhere the same goods were not to be had for love or money ....

"Hitherto Soviet trade had not functioned with the suppleness that is absolutely essential in the world of trade, and customers were often frightened from buying by the brutal impoliteness of the shop-assistants .... "Before the simplest matter could be arranged the papers had to pass through ten different persons' hands. . . . " Customers had been given short weight and measure in shops. The foodstuffs supplied for the canteens in factories, schools, etc. had often been. rotten, and there had been many cases of food poisoning, especially in the Donetz area. . . . "In the course of the next few months thousands of smaller shops were to be opened all over the land, in which trade would he done on the new principles." Competition in a socialist society can be no more than a p~eudo competition, but the fact that Commissar Smirnov wanted to return to the principles of price and competition which are found in capitalist societies, is interesting for our investigation.

There are many signs that this is the direction the Soviet Govern1Quoted from Dagens Nyheter, 9th January, 1938.

COMPARISON WITH EXPERIENCES IN' SOVIET RUSSIA 2. 5I ment wants to' take. Hubbard has told us that when rationing was abolished and people allowed to buy in whatever shop they liked, the Government exhorted the managers of shops to compete with each other, if not in price, then in service, quality, cleanliness 9f the shop, etc. >-""-=:,':"~~~-~ "This form of competition was in fact specifically recornmended by government spokesmen and in the newspapers. It is possible. that when the idea of competition on these lines has been assimilated, some latitude will be allowed in the matter of price."l and he also says that "it would be surprising if the open-market principle was not indue course extended to wholesale trade."2 On monetary development Hubbard has this to say: "The path tt:avelled by the rouble since the beginning of 1935 has shown a remarkable convergence towards orthodox capitalist principles. Even as politically the Soviet Government is visibly tending to become more democratic as the younger dictatorships become more despotic, so Soviet economic theory may soon be considered reactionary by the advanced advocates of social credit schemes and the manipulation of credit in Western countries."3 .

We began' this treatise by saying that the present tendency in most countries is in the direction of socialism, controlled prices and restric tions on competition. This statement requires to be modified. We must conclude by saying that this tendency exists in aU countries, except the one wherein socialism has been tried, Soviet Russia. lSoviet Money and Finance, p. 326. 2()p. cit., p. 322. 3Thid., p. 330.