Evolution of private capital

Private Capital in the USSR -1927
State publishing house

Translated from the Original- no omissions

Evolution of private capital

We have reviewed the history of the formation of private capital in the USSR, its current state and role in agriculture, industry, trade, and the monetary market (partly in transport), the dynamics, the relationship with private labor and the state economy in these areas, and some emerging they have perspectives, as well as the meaning and direction of the totality of measures of state influence.

In connection with this, four main features are outlined in the evolution of private capital in the USSR, as it took place during the six years of NEP (1921‐1927) and how it can be foreseen for the coming years. These features are as follows: 1) the evolution from serving the state economy to the predominant concentration of operations in the field of non‐state economy;

2) when private economy as a whole retreats from state (and cooperative) economy, within private economy there is a relative increase in the importance and share of capitalist economy; 3) the tendency of the capitalists to create a closed private capitalist economic circle, if possible, accumulation unregulated by the state; 4) the lack of solid ground for the long‐term success of this trend and the undoubted failure of the capitalistsʹ attempts at independent and independent economic maneuvering in the USSR.

The period of the initial formation of the bourgeois capital of the USSR (and the revival of the remnants that have been preserved from pre‐revolutionary times and partly accumulated under war communism) is 1921‐1923. At that time, more than 80% of private capital was occupied with the performance of all kinds of functions for servicing the state economy: trade promotion of state products between state production enterprises, trade, promotion of state products from state enterprises to consumers, all kinds of procurement for

government agencies and the execution of contracts for them . We saw above that at the beginning of this period, and of all the funds involved in private capital operations, up to 85% was accounted for by various forms of public credit.

Thus, both in terms of the nature of the means, and in terms of the sources of commodity supply, and in the direction of its activity, private capital at that time almost did not go beyond the framework of servicing the state economy. Performing some of the functions necessary at that time (for organizing trade in the country), he generously rewarded himself with a wide robbery of the state economy, various predatory means, pumping state property into his pocket.

By the end of 1923, however, the state had already managed to recover to a noticeable extent from the extreme decline to which the long and difficult war had brought the state economy by 1921 on the low economic base left as a legacy of tsarism. Labor productivity has risen, the size of agricultural and industrial production has increased, certain funds have been accumulated for the partial transfer of the organization of trade turnover into state hands, and it has become possible to lower prices for state‐ owned industry products. In this regard, private capital in 1924 and 1925. was pushed out of domestic circulation and partly from circulation between the state and consumers. According to the calculations of the State Planning Commission (pp. 190‐ 192 of the ʺControl Figuresʺ), the dependence of the ʺprivate sectorʺ on state agencies in the supply of goods in trade amounted to only 40% in 1924/25. And addiction on vacation is even only 37%. In other words, the “private sector” of all the goods it bought from government agencies already bought only 40%, and of all those sold, it sold only 37% to government agencies.

This process of gradual displacement of private capital from the direct service of the state economy and its connections

continued in subsequent years. From the data given in the section on trade, it is easy to see that in the financial year 1926/27 now ending, all private trade as a whole, of all goods entering it, deals with goods of state origin (even if illegally obtained) by approximately 20% of all circulating goods. goods in it. This is instead of about 80% in 1921/22 and instead of about 40%, according to the calculations of the State Planning Committee, in 1924/25. This can be compared with the calculation already given in the section on credit capital, according to which now, in 1927, from of all funds with which private capital operates in industry, trade and in the monetary market, only about 20% falls on state funds.

Consequently, the gradual transfer of the center of gravity of private capital operations in the USSR from the sphere of the state economy to that of the non‐state economy over the past six years can be considered a firmly established fact. In trade, this was reflected in the predominant development of operations with goods of non‐state origin. In industry, in the more rapid growth of other types of capitalist production in comparison with leased industry. For private capital as a whole, in an increase in its share devoted to lending to the private economy, and in a decrease in the percentage of state funds in the sum of all funds available to the capitalists for their activities.

Such a transfer of the center of gravity of their operations, as we have seen, was forced on the capitalists. It was explained by the fact that the strengthened state economy was already able to a large extent to push private capitalists out of the area of their state economic ties (relations between individual government agencies, between government agencies and consumers, between government agencies and labor producers). The private capitalists thus lost the possibility of exploiting the former state economy of the proletariat. For it turned out to be

able to do without them in the predominant part of its relations and ties. But the state of the proletariat was not yet able to serve all the private labor economy.

Objectively, such a transfer of the center of gravity of the operations of the capitalists means, therefore, a transition from the predominant exploitation of the proletariat (through sucking in and sucking out the state economy of the USSR) to the predominant exploitation of the small private labor economy (peasants, handicraftsmen, pedlars, etc.). In the chapter on the distribution of the national income, the corresponding numerical illustrations have already been given. In the first six years after the end of the war and the introduction of NEP, the proletarian state succeeded in getting rid of the exploitation of the proletarian state economy by the capitalists to a very large extent. The task of the next period will be not only the complete completion of this process, but also the gradual liberation from exploitation by the capitalists also of a vast area of private labor economy.

Thus, in practice, we have already moved closer to the task (“who wins whom”) that Comrade Lenin set in connection with the NEP—to the task of an economic competitive victory over the capitalists in organizing and servicing the economic ties of small‐scale labor farming. The very social content of our economic struggle against private capital, from the color of self‐ defense (purging the area of economic relations and the ties of state production from the performance of certain functions by the capitalists), will therefore increasingly begin to be painted in the color of an economic offensive (won back from the capitalists their influence and importance in the field of private labor economy) .

Concentrating thus, of necessity, more and more within the sphere of private economy, private capital within it naturally increased its role at the expense of small‐scale labor economy.

We have already seen above that not only private economy as a whole, but specifically the operations of private capital in this five‐year period have grown more slowly than the state economy.

Suffice it to recall (see Section Seven) that the entire aggregate of means at the disposal of private capitalists, with which they carried out their activities in industry, trade, and the money market, from 1921 to 1927 only doubled—at that time how state industry has quadrupled during this time, as well as state transport, the budget, etc.

But if private economy as a whole retreated before the state economy, then within private economy the capitalist still triumphed over private labor economy, subordinated it to himself or increased his share at its expense.

In agriculture, this was manifested in the formation during the past period of relatively few capitalist elements (up to 2% of households), which concentrated about a tenth of the entire gross agricultural output of the USSR. While exploiting their neighbors as farm laborers in this part of their economic activity, at the same time this narrow circle of capitalist households developed the exploitation of economically weak families by means of enslaving credit, in cash and in kind. Both of these manifestations of capitalist exploitation during the period of war communism were many times weaker, so that here we have an undoubted increase in the share of capitalist elements in production and an increase in the economic dependence of less powerful labor farms on them.

In industry, at the beginning of the NEP, private production was overwhelmingly labor‐based. During this period, private production in industry as a whole retreated quite significantly from state production. Instead of about 30% of the total industrial output of the USSR at the beginning of the period

(according to the calculations of the State Planning Commission, see the section on industry), it now amounts, as we have seen, to only about 20%. But within private industrial production, the same process took place during this six years as in agriculture. First, there was an increase in explicit capitalist production, which did not exist at the beginning of 1921 (leased, concession and own factories and plants). Secondly, private capital organized or subjugated a large part of small‐scale labor production in various disguised forms (the ʺdomestic system of capitalist industryʺ in handicrafts and false artels). As a result, instead of the former small share, the capitalists now directly dominate about half of the entire private industrial production of the country. It is characteristic that, according to the observations of the Supreme Council of National Economy (as comrade Zhirmunsky cites in the book cited above), the intensified organization of handicraft industry by the capitalists began in 1924, i.e., just from the time when the state achieved major successes in pushing the capitalists out of trade in state goods.

In trade we have already established in section five the same two‐way process as in agriculture and industry. On the one hand, the share of goods passing through private trade in general has decreased (and not only if we take only the trade in state products, but also if, as it should, we take the entire trade of the country). The state economy (including cooperation) has achieved here a clear competitive success over private traders.

But within private trade over the same period (and especially in recent years) there has been an increase in the role of big capital. This includes, firstly, the faster growth of wholesale trade compared to retail trade (the organization by private capital of its own wholesale trade instead of the previous intermediary and commission transactions between state

bodies, etc., as Zhirmunsky showed, generally began on a large scale only from 1923).

Secondly, this includes the growing dependence of private retailers on the wholesaler as a source of supply of goods (because state supply has been significantly reduced). The same is finally manifested in the role of private credit capital in the financing of private trade and industry (which has replaced the more than halved state credit).

Capitalists (they are also owners of wholesale trade establishments, owners of larger industrial enterprises and organizers of the ʺdomestic systemʺ) are beginning to invest an increasing part of their funds in credit financing of medium and small private industry, trade, and partly agriculture (through advances for procurement).

In this way, they ensure the alienation in their favor of a significant part of the profit that is extracted from the population by the enterprises financed by them. Here we can draw (with some simplification) an external analogy with the later emergence and then growth of the significance of finance capital under the dominance of bourgeois relations. But the existence of a proletarian dictatorship in the country, the impossibility of the functioning of independent private banks, etc., place rather narrow limits on this external analogy.

Being thus more and more ousted from the sphere of servicing the state economy, forced to shift the center of gravity of their operations to the sphere of extra state connections and relations, comparatively easily increasing their share and influence within the retreating private economy as a whole, the capitalists in a noteworthy trend. I wrote about it in the winter of 1926/27 in Pravda as a tendency to create a vicious circle of capitalist economy with accumulation, unregulated, if possible, by the state. Here is a kind of attempt to create an economic

ʺstate within a stateʺ, to create such a chain of connections in which some economic processes, from the origins to final consumption, would be completely organized capitalistically. Nowhere to come into contact with the state, not to pass it through the state apparatus at any link in the economic existence of a given object—such is the “ideal” schematic formulation. In life, this scheme is by no means fully implemented in all cases, but within certain limits, sometimes quite large, it can be observed all the time. Some private traders produce some goods, other private traders buy these goods from them and sell them to the consumer, third private traders lend them. For example, the following chain is widespread: first, the procurement of raw materials by the capitalists; then processing it in capitalist factories or handicraftsmen, whom the capitalist supplies with raw materials; then comes the organization by the capitalists of trade in the corresponding articles. And at the head of all this is capitalist credit, which finances and plays a decisive role.

There are a number of examples of such a vicious circle. A review compiled by the Private Trade Section of the Economic Administration of the USSR Peopleʹs Commissariat for October‐December 1926 gives such examples. In the field of flour business (p. 38 of the Review of the Private Trade Market), the private harvesting of grain takes place first.

At the same time, private buyers often buy it from the kulaks, who hold the goods from delivery to government agencies in order to get higher prices from the private buyer. The middle peasant is not in a position to wait, because he is more in need of funds. This was observed, for example, in the Volga region in 1926. Then grain was transported there by private water transport. We apply the so‐called economic regulation in transport, that is, we prevent private traders from transporting

their goods by rail, while they carry water on their ships; I gave data on this in the chapter on water transport.

The third stage is the grinding of grain in private commodity mills. The fourth is the sale to a private flour wholesaler, and then (fifth) to a flour retailer. The sixth is the supply of this flour to private bakeries and artels of bakers. The seventh is the sale of bread to the consumer.

To this must be added another eighth—the capitalist financing of this whole process.

A similar picture is observed, as reported by the same review of the Narkomtorg, for millet: a private trader buys up millet, sends it to a private mill, and then the private trader sells all kinds of cereals to the consumer.

In Moscow, according to the same review (p. 38), trading operations between private merchants and private manufacturers have begun to develop rapidly. This phenomenon has been noted by the Peopleʹs Commissariat of Trade especially since the middle of 1926. Goods that were previously sold by private manufacturers directly to a provincial private trader now first fall into the hands of a Moscow wholesaler. Thus, a new wholesale is created, but only within the “private sector”. With his credit pressure on both the private manufacturer and the provincial trader, the Moscow capitalist, who is also a wholesaler, forces them to carry out transactions through him that previously did not go through his mediation in order to reward himself for curtailing the wholesale sale of state products through him.

We have already spoken about the prevalence of the same

ʺclosed chainʺ in the field of organizing the supply of production and marketing of the handicraft industry. This is also indicated by the ʺReviewʺ of the Peopleʹs Commissariat of Trade. The same applies to the procurement of livestock, to its

resale to private butchers and then to the trade in meat, etc. The number of such examples could be greatly increased.

The meaning of all these aspirations to go into the ʺownʺ closed capitalist circle is quite simple. The point is to move away from state restrictions on capitalist accumulation. If the capitalist based his operations on legally obtained state products, the state could put pressure on him with a certain price policy and thereby limit the size and rate of accumulation.

From a tax point of view, moving into an area where one does not have to come into contact with the state economy also makes it difficult to control and the ability to regulate and limit accumulation by taxes. In our state economy, we consciously limit accumulation so as not to impose too heavy a burden on the population. And the capitalists, settling in a ʺvicious circleʺ, strive to secure for themselves a much higher and faster level and rate of accumulation.

Objectively, if such a line could triumph as something permanent, it would mean a continuous increase in the share of capital in the total property of the country at the expense of a decrease in the share of the proletarian state. The funds that the state does not take from the private labor economy in order to improve its situation would be siphoned off from it by the capitalists. This is the meaning of the tendency for the capitalists to create a vicious circle within private economy, which, if possible, does not come into contact with the economic activity of the state.

What pace capitalist accumulation can achieve in a “vicious circle” is shown by the examples cited by the same “Overview” of the Narkomtorg (on p. 26): “In Pskov, for two selected firms, the gross profit for the second half of the year and 13.07% of sales turnover; in Baku, firms received a net profit of 18.6% and 25.7% of the monthly turnover; in some cases, a private trader,

being a monopolist in the food and grain markets, ʺearnedʺ on bread much more than 12‐13% of the sales turnover. For comparison, we can say that for cooperation we consider the limit of one percent of the turnover, and here we are talking about 12‐13% and even 25%.

The capitalist White Guards of old Russia, who have emigrated abroad, place great hopes in the creation of a ʺvicious circleʺ, in a greater accumulation of private capital in this way in comparison with the state, and even in achieving in this way for private capital the opportunity to beat ʺstate‐owned industryʺ. In Economic Life, on April 16, 1927, Comrade G. I. Lomov, in the article “The National Economy of the USSR in the Coverage of the Conference of Economists and Industrialists of Old Russia,” gives such details about this.

In December 1926, a meeting was held in Paris of large manufacturers and bankers who had fled from the USSR abroad, in which Ryabushinsky (“the bony hand of hunger”), Tretyakov, Asmolov, Glinka and others participated. The most prominent White Guard bourgeois economists, such as Struve, Gefting, also participated etc. The meeting discussed first a report on the ʺcurrent state of industry in the USSRʺ (it was decided that the noticeable success ʺhas been achieved in spite of the Soviet regimeʺ thanks to the self‐acting work of ʺthe vital forces of the powerful economic organism of Russiaʺ), and then the report of V. Gefting ‐ on the role of private capital in the economy of our country. In this report, Gefting promises that private capital will economically defeat the Soviet economy, and indicates the following path for this: “To the extent that the Soviet government tries to free itself from the services of private capital by creating a state‐owned trading apparatus and stopping the sale of goods to private traders, the latter’s desire, by combining with its natural allies, to form a closed economic system, consisting of peasants, handicraftsmen, small

industrialists and a private owner, intensifies. The private trader relies on his own production base in the form of handicraftsmen and small industrialists, which means that his positions are being strengthened in the struggle against state and procurement agencies for buying up peasant raw materials. Private capital is leaning more towards its natural ally, the active top of the peasantry.

However, these bright hopes of the capitalist White Guards and their ideologists were not destined to come true. For they havenʹt seen through the little things—the same thing that our oppositionists donʹt see when they talk about the prospects for the degeneration of our economy and the Party, about the prospects of overflowing us with private capital and its political reflections.

Under a bourgeois dictatorship, as is the case in Europe, the small labor economy is left to its own devices. This means that all the power and all the resources of the state headed by it stand on the side of capital. And the small labor economy is doomed to disintegration, to subjugation to capital, it serves only to enrich and nourish capitalism. No other powerful force here takes and can take upon itself the defense of small private labor economy from exploitation and from its economic subjugation by capitalism.

It is a completely different matter under a proletarian dictatorship, as is the case in the USSR. The proletariat is vitally interested in preventing the firm subordination of small labor farms to capital and capitalist exploitation. On this depend on the strength of the power of the proletariat and the possibility of a firm advance towards socialism. Therefore, in the countries of the proletarian dictatorship, on the side of the small‐scale labor economy against capitalist exploitation, the power, and resources of the state power, which has concentrated almost all the most important nodal points (commanding heights) of the

countryʹs economy under its direct control and control, inevitably turn out to be. In such a country the attempt of the capitalists to create a ʺvicious circleʺ on the basis of small‐scale private labor economy is doomed to failure in advance. It can have only transient, temporary success for that period of time, while the means and attention of the proletarian state were diverted to other tasks, even more urgent and even more urgent. This is precisely what took place during the first six years of NEP we lived through.

First of all, it was necessary to raise industrial production and transport to the pre‐war level. This corresponded to the general interests of the country and the special interests of the bearer of state power, the proletariat, whose position, and consolidation depended on whether the industry and transport that already existed in the country would work in full, for the presence of which its very numbers were calculated. The rise of agriculture in terms of the sum of its production output was an indispensable concomitant condition for this and was supported and proceeded in parallel.

But the task of completely emancipating the small labor economy from the influence of the capitalist was not yet a priority in this period.

There were not enough funds for this yet. And during this period of time, the capitalist, ousted from the sphere of direct influence of state production, could not without success try to spread his elbows wider in the field of private labor economy.

But now the USSR has already reached the threshold of the pre‐ war level in 1927, stepped over it. The available funds and the accumulated accumulations—after the solution of the problem of ensuring productive labor for the entire available proletariat—allow us to set further tasks.

This is primarily the task of industrialization (and thereby expanding the number of the proletariat above the pre‐war level) and the related task of removing the capitalists from the leading influence on the small labor economy.

This latter is required to make industrialization cheaper and to ensure its greatest pace. Supplying the developing industry with raw materials, supplying its workers with foodstuffs, etc.—all this rests on the task of reducing the role of the capitalists in this matter.

And since industrialization—after reaching the pre‐war level— is the axis of the entire economic plan of the USSR, it is therefore inevitable that, in the period now beginning, significant funds and attention will be devoted to freeing the small labor economy from the exploitative influence of the capitalist. From this follows (unlike in bourgeois countries) the fragility of the economic base on which private capital in the USSR tries to organize its “vicious circle” (procurements and credit in agriculture, the “home system” for handicraftsmen, the supply of food to the labor consumer in cities and etc.).

Indeed, if we review the measures that have already been definitely outlined in this area, it will be revealed that they are of such a nature that they are capable of just “opening” the circle in which the capitalists would like to close small private labor economy with themselves, and thereby is capable of leaving the capitalists to maneuver only within the framework of direct capitalist production—without exploitative involvement in the area of their operations also of the products of small‐scale labor economy.

In agriculture, one of the most basic directives of the state at the present time is the development of Soviet credit and the co‐ operation of poor and middle peasant production.

The development of Soviet credit will undermine the soil under the enslaving dependence of the poor on the capitalist elements, and co‐production by increasing the intensity, profitability and labor intensity of the co‐operative economy will put a limit on the transition of the present‐day poor to laborers to the capitalist elite.

In industry, the task was definitely set by the state (by a well‐ known decision of 1927) of drawing handicraft industry into the state channel. Government decisions have already been published on including it in the production supply plan, on stepping up measures for real co‐operation, on allocating funds to strengthen the organization of its supply and the marketing of its products. The gradual implementation of these measures should smash both the ʺdomestic systemʺ and the buying up by the capitalists of the products of unorganized handicraftsmen. By the same token, the production base of capitalist trade is also narrowed. In addition, a number of measures are being taken to reduce capitalist production in such branches of the direct processing of small‐scale agricultural products as the flour‐ grinding industry, the leather industry, and the manufacture of vegetable oils.

In the area of special trade, the main paths are also very clearly marked. To wrest away the worker buyers from the capitalists, to wrest from the capitalists the main procurements of the products of small labor farms in the countryside, to wrest from the capitalists the entire sale of state‐owned goods—these are, schematically, the main tasks of the competitive economic struggle for the next few years. Above, we have already given the result of an approximate calculation that in order to fully replace the capitalists in these areas, about two billion rubles (state funds and cooperative contributions from the population) would have to be invested in trade in the course of a decade.

The totality of all these measures in agriculture, industry, and trade (along with the organization of small credits for labor producers and the working population) inevitably creates a new situation for private capital in the USSR. There is nothing left for him to do but either submit to the direction of state‐ controlled industrial production and construction (with restrictions on exploitation and accumulation) or lie idle and try to flee abroad, emigrate, and be alienated by the state for complete parasitic uselessness.

The economic plan of the USSR for the next few years will undoubtedly include a shift by the state of private capital, from the field of trade and credit to the field of industrial production (and construction) in enterprises subordinate to the influence of state bodies and controlled by them. For what was useful in its time in the role of private capital in the organization of commodity circulation is becoming more and more obsolete. The totality of conditions develops precisely in such a way that private capital will be compelled to submit more and more to this guiding influence of the state, until the time comes for the final transfer of all capitalist enterprises into the direct control of working society.