The Revolutionary Russian Economy, 1890-1940

Ideas, Debates and Alternatives

Vincent Barnett

• Publisher: Taylor & Francis
• Year: 2004
• eBook ISBN: 9781134382309
• Edition: 1
• Topic: Negocios y empresa
• Subtopic: Negocios en general

The pre-revolutionary Russian economy was backward and stagnant. Whatever the criticisms of the economy post-revolution, the turnaround in terms of growth and output was staggering. This book looks at the alternatives to Stalin's reform program that had such tragic outcomes. Applying the ideas of orthodox economic theory, Marxism and also instituti

1 Introduction to Russian economy

I think it is a disaster for the idea of Planning that Russia should have been the country where it has first been tried out.¹

The aims of the book

The Russian and Soviet experience of attempting to create new types of economy is, perhaps surprisingly, still inadequately understood by both historians and economists. This is due to a number of factors – the Russian language barrier, cold war hostility, archaic forms of expression, difficulty in locating sources, the distorted priorities of ruling elites, incomplete conceptions of the subjects of history and economics themselves – to name but a few. This book aims to increase this understanding a little by providing an intermediate-level guide to the reality that unfolded, the debates which occurred and the alternatives which existed with regards to Russian economic development between 1890 and 1940, especially as economic thinkers conceived them at the time.² It utilises existing scholarship and published materials extensively – sometimes reinterpreting them – adding theoretical lucidity and employing new unpublished sources when this further enables understanding of the topic under examination. Originality is thus provided first of all in terms of approach, perspective and scope, with the important (but sometimes neglected) contributions of Russian economic theorists being considered at length. It is intended primarily to stimulate new thinking, rather than to enshrine empirical fact.

In general terms the book views both history and economics as sub-disciplines of an over-arching subject defined loosely as the study of human social behaviour, or more specifically the large-scale or macro-consequences of individual human behaviour at specific points in space and time. It also takes a much wider view of the significance of ‘economy’ in general and the actual range of knowledge required in order to begin the process of understanding it. The book does not assume that one single principle guides all human behaviour at all times. Rather it accepts that various different principles and motivations guide this behaviour in different places and at different times, these being partly culturally determined and partly genetically so in a continuous process of mutual interaction. Human behaviour is extremely varied and complex, and so are the particular economic manifestations of this behaviour.

Nor does the book accept that there is any such as thing as ‘the economy’ that can easily be understood by means of a single homogenous ‘essence’ that explains everything;³ rather there are only various cascades of ‘economy’ in all its multifarious forms and concrete specifics. The historically original manifestations of human behaviour in terms of economy that occurred (or were allowed to occur) in Russia between 1890 and 1940 are the subject of this work. As this is a rather broad conception of the subject under review, the reader will find that the book utilises a wide range of work not always encountered in Russian history texts. This is because in reality breadth is as important as depth to an understanding of human affairs, everything being ultimately connected.

Moreover the book examines ‘revolutionary Russian economy’ in two distinct but related senses. First, it analyses the economy of Russia in the revolutionary period – very broadly defined as 1890 to 1940. It was a ‘revolutionary’ economy not just in relation to the political events of 1905, 1917, 1921 and 1929, but more significantly in relation to various attempts at major industrial transformation from the time of Sergei Witte to Joseph Stalin and also in respect of the creation of new types of economic structures and mechanisms. Second, the book examines revolutionary new types of economic thinking, i.e. the original ideas of economists as to what a revolutionary change in the Russian economic system might actually mean and how economic forces in general are best comprehended theoretically. These two strands continuously interacted in the period under review, resulting in a period of world-historical significance for economic affairs. Indeed some post-1940 international economic developments could be seen as simply the unfolding of theoretical possibilities first conceived in outline in the period in question.

What is history?

E.H. Carr famously asked ‘What is History?’ One rather unconventional answer is that absolutely everything is history, including all the infinite number of historical possibilities that did not actually become manifest in our own unique timeline. History may consist in part of a corpus of ascertained facts selected from the world that is everything that is the case, but it should also involve consideration of how and why what is not the case (but could conceivably be so) came to be excluded from the totality of currently existing states of affairs.⁴ Such counterfactuals are not just academic exercises but help to explain how what did actually occur was the outcome of specific choices undertaken by various individuals such as politicians, economists, army officers, union leaders, crusading campaigners, grudge-bearing assassins and so on.

The philosopher David Lewis has recently advocated the startling notion of a plurality of worlds, or modal realism, an idea that he supported by arguments of serviceability and fruitfulness. For example in one such alternate world, which actually existed but was completely separate from our own world, all swans were blue and Cardiff was a suburb of Newcastle.⁵ Whilst not going as far as to suggest that such alternative worlds do actually exist, this book considers them rather as latent historical possibilities, for the purpose of enabling a greater understanding of the actualised historical process.

Consequently, this book in part attempts to reconstruct a few of such latent historical possibilities from among the many potential worlds with respect to the Russian and the Soviet economy between 1890 and 1940. It does so by understanding how historical actors at the time perceived the options open to them with respect to economic development policy and industrialisation strategy, these people being charged with strategy selection and implementation. It also highlights various competing interpretations of economic affairs, and attempts to demonstrate how ideas, events, policies, institutions and personalities interacted to form the nexus of possible alternative realities. How and why the actual path seen was manifest is certainly considered in detail, but in a less dogmatic fashion than is usual in more conventional accounts of Russian economic history.

For example, Carr cited the death of V.I. Lenin in 1924 as an example of an accident that modified the course of history, but then suggested that such incidents should not enter into any rational interpretation of history.⁶ The approach taken in this book disagrees fundamentally with Carr’s judgment on this matter, since such ‘modifications’ in the course of history are crucial to understanding why one path was taken and another forsaken. Alternative possibilities are part of the fabric of history just as much as Carr’s corpus of (allegedly) ascertained facts. In the case of Lenin’s death in 1924, this resulted in the neglect of his idea of basing future Soviet economic development simply on cooperatives. If Lenin had continued to live after 1924, then this might well have resulted in the realisation of a very different conception of a socialist economy than that promoted by Stalin. Thus the death of one man in itself was not historically significant, but the concomitant eclipse of an alternative view of Soviet development promoted by the highly respected founder of the USSR certainly was.

Carr himself was not particularly enamoured with the idea of historical alternatives, possibly because right-wing critics wanted to wish away the existence of the USSR itself. He wrote disparagingly on hypothetical counterfactuals:

Suppose, it is said, that Stolypin had had time to complete his agrarian reforms, or that Russia had not gone to war … or suppose that the Kerensky government had made good, and that the leadership of the revolution had been assumed by the Mensheviks or the Social Revolutionaries instead of by the Bolsheviks … one can always play a parlour game with the might-have-beens of history.⁷

In this book alternative conceptions of a socialist economy are examined, something that Carr might have been a little more sympathetic towards. The motivation of this is not necessarily anti-socialist, as Carr believed the motivation of those who examined alternatives to Bolshevism often was. Rather this approach attempts to establish whether and to what extent alternative conceptions of socialism itself were prevalent in Russia during the period under review, a completely legitimate topic for the intellectual historian, in order to place the Bolshevik experiment in its true context.

Another distinguishing feature is that the book every so often makes an effort to examine the topics in question from the point of view of three different traditions of economic analysis, yet provides no privileged metalanguage narrative from which to rigidly police the ‘correct’ interpretation of the history in question. Indeed it recommends that any such metalanguage narrative provided by one person for the unquestioning adoption of another should be treated with great suspicion, since it usually functions in the self-interest of specific groups or institutions, rather than that of every human being on the planet. Individuals must come to their own conclusions about the correct interpretation of history, this book being merely an aid for achieving this yet-to-be-accomplished goal for each individual who encounters it.

Three traditions of economic analysis

In this book the strategic questions addressed will periodically be examined from three points of view. The first is orthodox (or neoclassical) economics, the second is Marxist theory, and the third is institutional or evolutionary economics. A very short summary of the main elements of each approach is provided below, albeit with some unavoidable simplifications. Each of these three traditions has an understanding of existing reality and prescriptions for creating a better future. Each particular period will in part be examined from these viewpoints, and readers will be left to decide for themselves which particular approach or combination of approaches is ultimately ‘true’, if any.

From the point of view of orthodox economic theory, the aim of economic activity is to best utilise existing scarce resources. Socially optimal combinations of production and consumption, capital and labour, are achieved through natural market mechanisms, with the state playing only a night watchman role, and distribution is also best achieved through markets. Unrestricted free trade promotes international economic development, which should be left to high-flying entrepreneurs, while industrial protection hinders growth. Progress occurs through unfettered individual initiative and the natural selection of the fittest human specimens to occupy the top management positions. Private companies are the most efficient organisations for manufacturing commodities, and prices are best set through free competition. Economic rationality is defined in terms relating to the maximisation of the production of consumer goods and service output, and the (capitalist) economy naturally tends towards an equilibrium state of balanced growth. People get what they deserve, i.e. wages reflect people’s relative contributions to the economy, and consequently everything is right with the world (‘the real is rational’). Key economists: Adam Smith, David Ricardo, Leon Walras, Alfred Marshall. Key philosophers: John Locke, Jeremy Bentham, J.S. Mill.

From the Marxist point of view capitalism is an exploitative mode of production composed of a small ruling class – which owns the means of production, distribution and exchange – and a vast army of workers, who own nothing except their own labour power. These workers are subsistence wage slaves forced to provide the surplus product for the gluttonous satisfaction of a very small minority. The state is simply the executive arm of the minority ruling class, and international economic development is hindered by imperialistic rivalry. Private companies reflect the irrational desires of the ruling class, and the law of value regulates prices. Historical progress occurs through conflicts between the forces and the relations of production, or between new technology and old class structures. Within capitalism the organic composition of capital increases over time, resulting in workers continually being replaced by machines, and capital accumulation functions as a systemic compulsion. The capitalist mode of production is seen as severely limiting to human potential, but as a necessary if transient stage of economic development. People do not get what they deserve, i.e. relative wages reflect the class structure, which was created in an initial period of violent plunder and which is reinforced by both the ideological state apparatus and the repressive state apparatus. Consequently, everything is wrong with the world (‘the rational is not yet real’). Key economic theorists: Karl Marx, Freidrich Engels, V.I. Lenin, Rudolf Hilferding. Key philosophers: G.W.F. Hegel, G.V. Plekhanov.

From the institutionalist point of view economies are systems of power, control and mutual coercion, which operate through mechanisms such as markets and structures such as political and legal formations. Institutions, or socially constructed systems of belief and action, are the fundamental basis of all economic systems, but these evolve in piecemeal fashion over time. The state plays a mediating role between all the important actors in the economy, although it often reflects the existing structure of power. Economic doctrines and legal sanctions are just conventions which are conditioned historically and which are modified over time. Private companies are ‘going concerns’ which embody both technological and business knowledge, sometimes in non-harmonious fashion, and prices are fixed by administrative control. Historical progress occurs through the continual conflict between existing ceremonial patterns, or temporal-specific habits of thought, and new scientific and technological developments, which often clash with received conventions. People get what institutions allow, i.e. wages reflect historically conditioned conventions about the division of spoils between various interest groups. Consequently, some things are reasonable and some things are not reasonable in the world (‘the real evolves pragmatically over time, but not necessarily into the rational’). Key economists: Thorstein Veblen, John Commons, Clarence Ayres, J.K. Galbraith. Key philosophers: C.S. Peirce, William James, John Dewey.

In terms of the consequences of adopting these different approaches, an example can be given in relation to conceptions of what markets actually are and what they actually do. In the neoclassical view markets are mechanisms and/or places in which the free interaction of supply and demand produces a tendency towards the creation of equilibrium prices, and through which the real demands of the consumer determines production priorities. On the other hand in the socialist view, markets are irrational and exploitative mechanisms through which workers are drained of surplus value, and by means of which capitalism first generates and then overcomes economic crises. In the institutionalist view markets are exchange mechanisms governed by historically conditioned rules of behaviour, and through which the existing system of power determines production priorities. Other conceptions of market mechanisms exist also. For example in the Austrian view markets are processes actuated by the interplay of the actions of many individuals, and are constituted primarily through local knowledge and skills. It will be seen in what follows that adopting one or other of these views of what markets are has important consequences for designing economic policy and also for creating new institutions to replace them, and this must be an important factor to consider when various alternatives are being discussed.

The Russian economy in the eighteenth century

A background sketch of Russian economic history before 1890 is required as a base measure from which to gauge developments after this date. The two most important rulers in eighteenth century Russia were Peter the Great (1682–1725) and Catherine the Great (1762–1796). The main goal of Peter the Great has been identified as the ‘Europeanisation’ of Russia, and in the Petrine period large-scale manufacturing was first established in the Russian armaments industry (such as cannon foundries), together with economic self-sufficiency in iron production. Most-favoured-nation status was given to certain foreign states with respect to trading privileges, although protection was raised in relation to certain domestic manufactures. On the monarch’s command St Petersburg became an opulent European-style city of palaces, gardens and impressive buildings that had been constructed on the bones of the labourers, masons and carpenters that had been summoned by Peter the Great to build the new capital, this being one of his most enduring achievements.

Under Catherine the Great a significant reform of the military and civilian obligations placed upon various population classes occurred, and trade and industry (which had formerly been the preserve only of the nobility and the merchants) began to open up to those from more humble backgrounds such as the serfs. Throughout the eighteenth century the Russian government played a major role in the economy with respect to arranging monopolies, setting customs duties, raising taxes and procuring goods and services through market means. Military campaigns were also highly significant, both politically and economically, with important wars being fought against Sweden, Turkey and Prussia that stretched the resources of Russia significantly. Indeed military demands were an important stimulant to economic development.

With regards to financial development, private banking capacity in Russia began on a new course with the organisation of a Bank for the Nobility in 1754, which was granted permission to accept deposits from private individuals only in 1770. In 1772 other institutions were allowed to accept deposits and grant loans also, further enabling the growth of the Russian economy. On the negative side production costs in Russia were often higher than for corresponding goods made in Western Europe, due to deficiencies in areas like transport networks, the availability of capital and a shortage of skilled labour. Even so overseas demand for Russian goods such as flax, hemp, linen, grain and leather grew significantly throughout the eighteenth century.

For the Russian state budget various taxes were levied such as a sal...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• List of tables
• Acknowledgements
• Timeline: Economic ideas and political events in Russia
• 1 Introduction to Russian economy
• 2 Tsarist economy, 1890–1913
• 3 Revolutionary economy, 1914–1921
• 4 Bolshevik economy, 1921–1929
• 5 Stalinist economy, 1929–1940
• 6 Conclusions for future economy
• Notes
• Bibliography
• Name index
• Subject index