General setting and final conclusions.

Private Capital in the USSR -1927
State publishing house

Translated from the Original- no omissions

General setting and final conclusions.

The transitional period to socialism and the sprouts of capitalism.

After the armed resistance of the capitalists and landowners is suppressed by the dictatorship of the proletariat, a comparatively long transitional period of economic preparation for building a complete socialist society begins.

In this transitional period, the form of economic connection between the various parts and units of the social economy is the method of trading, market exchange and settlement, in conjunction with the ever‐increasing planned leadership of the proletarian state, i.e., that system of relations which in the USSR since 1921 received: the name of the ʺnew economic policyʺ.

Even after the defeat of capitalism by the proletariat, insofar as simple commodity production still occupies a certain place in the economic structure of every country (i.e., private farming of small proprietors of the labor type), if there is a trade‐market method of economic relations from simple commodity production and on its basis continuously new capitalist elements must spring up and try to revive the shattered remnants of the former capitalist world.

The transitional period is thus turning into a history of the struggle of the ever‐growing planned socialized economy of the proletarian state with those capitalist elements that inevitably arise on the basis of simple commodity production thanks to the commercial and market methods of economic connection and calculation that are necessarily applied by the proletariat. . This is how the famous question of V. I. Lenin is put on the agenda: “Who wins?” Capitalists or Us.

The mastery of the main economic key points of the country by the proletariat;

the unity of the proletarian economic leadership; the enormous power of the united economic complex, which is in the hands of the working class, among the smallest scattered individual labor farms and weak capitalist sprouts and survivals; the political dictatorship of the proletariat;

bringing to his side as a strong ally the vast majority of simple labor commodity producers and finding acceptable ways for them to restructure their economy in the direction of approaching the socialist system (Leninʹs cooperative plan)

All this sufficiently ensures the certainty of the victory of the emerging socialist society over the dying and retreating remnants of the past during the transition period, and thereby the end of the transition period, the complete destruction of classes, and the cessation of the use of trade and market methods of economic communication.

Features of the USSR and the opposition.

In the USSR, the proletariat during the transitional period has to deal with additional difficulties. They stem, firstly, from the existence of the USSR as the only state in the world with a proletarian dictatorship in a bourgeois environment, which objectively and subjectively increases the resistance of capitalist elements within the country. They follow, secondly, from the peculiarities of the social structure of the USSR, where such a large part of the population is in the sphere of simple commodity production (the overwhelming majority of the peasantry) that the ground for the possibility of the emergence of capitalist elements is objectively quite broad.

The very competition between the proletariat building socialism, which applies trade and market methods in the transitional period, and between the capitalist elements growing up under the given structure, methods, and

surroundings, in the USSR, under such conditions, turns to a large extent into a struggle for the peasantry between us and private capital. In other words, in the struggle for how much more capable we will be, not only culturally and politically, but also economically, to satisfy, serve him and lead him by raising his standard of living and strengthening the economic security of such an increase.

The complexity of the work on the tasks facing us in the USSR is aggravated by the fact that in order to overcome these difficulties by the success of proletarian economic management, we have to overcome ours simultaneously and simultaneously, the proletariat of the USSR, lack of culture, low qualifications, poor armament with equipment, low productivity and intensity of our own labor and insufficient rationality. in all areas of its organization, largely filled with remnants of the past, which cannot be eliminated with lightning speed (like bureaucracy, etc.).

The totality of all these circumstances from the very beginning of the transitional period after the suppression of the armed resistance of the capitalists and landowners, i.e., from 1921, caused in the USSR in some, albeit small sections of the workers doubts and hesitations whether under such conditions the economic overcoming the newly emerging sprouts of private capital by the young and inexperienced proletarian economy, while the USSR continues to be alone among the world of states dominated by capitalist dictatorship. Each of the oppositions that have arisen in the party since 1921 and successively replaced and drawn closer to each other has been a reflection of these hesitations and doubts to one degree or another.

The proletariat of the USSR, led by its party, throughout the entire transitional period that began in 1921, waged a struggle against the emerging shoots of capitalist elements to a large extent by touch. There could not yet have been sufficient study,

nor sufficient experience in this respect, nor sufficient detailing of the general line of the Party for the utmost possible reduction in the role of exploiting elements in the economy of the USSR, while maintaining inviolability the commodity‐market methods of economic connection with the planned leadership of the state carried out in their form. The lack of study of the issue, lack of experience and detailing of the practical line led to unevenness in its implementation in different segments, time to the possibility of sowing panic and discrediting rumors without objective grounds for this.

Now, six years after the beginning of the current transitional period, the USSR has approached the first significant milestone

- in 1927, our country for the first time exceeds the limits of the pre‐war economy and, thereby, from the predominant healing of wounds, is approaching the beginning of the predominant direction of those who are now beginning to gather above the pre‐war level of accumulation to a new level. socialist building. That is why it was now timely and necessary to sum up the six‐ year experience of our relations with private capital in the USSR and observations of its role, and to give a summary worked out in particular, which would indicate the order and sequence of carrying out a common line in the fight against private capital in different areas, taking into account the uniformity and consistency in its practical implementation.

The results of six years of experience.

The predictions of the enemies and the fears of the friends regarding the overwhelm of the socialist elements by private economy and our construction have not been justified—such is the basic conclusion of the six yearsʹ experience, obvious to all, undeniable and illustrative. The role and importance of the private economy as a whole and in each of its main branches separately in the overall economy of the country have

noticeably given way to the leadership and role of the economy of the socialist state. Less in agriculture and the credit market, more in industry and trade, sometimes with temporary interruptions (as in the partial stabilization of private trade in 1925/26), but everywhere the relative and guiding importance of the socialized economy of the proletariat has increased over the past six years. This change in ratio is more significant which refers to the period of objectively most favorable conditions for private economy, because the sectors that were in the hands of the state (industry, transport, banks, foreign trade) entered the transition period at a much lower level compared to the pre‐ war state in comparison with the bulk of the countryʹs private economies. During the past six years, the state economy, developing at a faster pace, has completely covered this difference and, therefore, is relatively much more powerful in the coming period than in the past first six years of the New Economic Policy (1921‐1927).

Within the private economy as a whole, the inevitable emergence of capitalist sprouts turned out to be even less than the limits for which the public opinion of the party was prepared at the beginning of the NEP, and in no branch of the national economy did it acquire a threatening or, all the more, a decisive character. The share of private capital in industry is only about 10% of the output, in agriculture, and especially in trade and the credit market, a little more; in transport, it is absolutely negligible. Of the entire national property, private capital owns only about 5% of the annual accumulation, a little more, but all these shoots of capitalism are already beginning to feel the ever greater pressure of the growing state economy, which is capable of setting for the next few years the task of their complete planned subordination to itself.

Thus, the first result of the past six years is the fact that the inevitable emergence of the sprouts of capitalism and their

temporary absolute and partly relative growth took place in an environment of a general retreat of the share and importance of private economy over state economy.

The second of the most important results of the past six years is the fact that the sprouts of capitalism, even on a modest scale, appeared not as a result of a competitive victory over the corresponding state economy, but only where the state did not act as a competitor or itself found it expedient to plant them.

Thus, in industry, the production of private capital is concentrated mainly in the ʺdomestic systemʺ, where the state almost did not act at all, and in leased and concession enterprises, where private capital was specially attracted.

In trade, private capital occupies a serious position only in the procurement and sale of goods that are not products of the state industry (while the sale of the latter in the overwhelming majority, especially in the city, has already been concentrated in the hands of the cooperatives and government agencies).

In the credit market, capitalist‐exploiting sprouts are most apparent in agriculture (especially livestock loans), where state credit intervention is only in its very early stages of development. On the contrary, wherever the state acted as a competitor, private capital was defeated, as was the case in ousting it from grain procurements, from the wholesale trade of state industry, partly together with a retail network subordinate to this wholesale (which in the early years of the NEP was the main occupation of private capital) etc.

A further feature of the evolution of private capital during the NEP period was the circumstance that, pushed back, and partly outright driven out by the growing might of the state economy, private capital was increasingly compelled to seek employment in those branches in which the economic work of the state hitherto had little effect.

Thus, the center of gravity of the activity of private capital was gradually shifted from trade in the products of state industry to the production and trade organization of handicraft industry; in the procurement of those goods of peasant origin, such as meat, vegetables, firewood, etc., to which the work of the co‐ operatives has not yet reached the coverage; to the credit and in particular the money market and partly to local transport, especially water.

In agriculture, to this is added the transition to entrepreneurial lease, which, however, has not received, however, legally particularly great development, and trade relations with the capitalist of the city.

Forced to leave areas directly related to the state economy and its regulatory influence, private capital is trying to reduce the possibility of this regulatory influence by creating an uninterrupted economic chain of its own—capitalist procurement, financing, processing, and marketing, and partly even transport (water). These attempts are basically based simply on the use and temporary partial subjugation of simple commodity production (peasants, handicraftsmen), insofar as it has not yet been adequately serviced by the state. Therefore, in view of the forthcoming growth in such services, the attempt of exploiter capital to create for itself, as far as possible, a closed and therefore poorly controlled circle of accumulation unregulated by the state, cannot turn out to be a stable, lastingly successful attempt by exploiter capital.

The last main feature of the activity of private capital, as it has taken shape in the USSR at the present time, is the flow of a very significant part of it in hidden, disguised, or dispersed forms. In agriculture, usurious loans of cattle take the form of renting them out; the land economically rented by the entrepreneur is legally considered to be the actual farm laborerʹs own farm; even open farm work is sometimes masked by pseudo‐

collective farms and temporary admission to the family. In industry, activity through ʺlabor artelsʺ, which are in fact organizations covering the entrepreneurs, and the organization of capitalist production through its domestic system, masked by the selection of industrial patents by its workers as independent handicraftsmen, are developing significantly. In trade, the buying up of goods in Soviet retail through nominees, partly false cooperation (especially in the form of invalid and purchasing and marketing agricultural) and smuggling, import and export, are widely developed. In the money market, the operations of private capital almost completely escape the light, even in the form of such, however, rather rapidly growing organizations, as those provided specifically for the needs of the private economy of the Mutual Credit Society. The organization—instead of overt activity—of its hidden and disguised forms, partly the result of some inexperience and errors, tax and otherwise, of our legislation and practice, mainly serves the purpose of reducing control and getting away from those restrictions on the exploitation of labor and consumers, which the Soviet system imposes on private capital. The experience of accumulated observations should be fully used for practical measures in this regard in the future.

Practical setting for the coming years.

The common line must remain in full force. It consists in the possible complete replacement by the development of the socialist elements of the economy of those germs of capitalism which reappear under the conditions of our economic structure, bourgeois encirclement, and the necessary commodity‐market methods of the transition period.

The limits and sequence of this substitution in each period of time are determined by the national plan for the development of the socialist economy.

In the coming years, along with the continuation of the policy of substitution in areas of particular socio‐political and economic importance, the task should also be set of that share of the activity of private capital, which it is possible to maintain for this period, to put as an addition to the state economy, directed in accordance with the definitions of the state plan and moreover, subordinate in its main manifestations to state leadership and regulation, in particular in limiting the exploitation of labor and in protecting the interests of the consumer.

In agriculture, this means a significant increase in the replacement of exploiting elements in lending to the poor (especially through loan assistance to the collective mechanization and intensification of small labor farms) and in organizing the procurement and marketing of the main products of the middle peasant economy (especially meat, butter, vegetables, which are at the same time determining the real value of wages). , and industrial raw materials, with the intensification of agriculture, which constitutes an increasing share of its products).

The organization of open entrepreneurial agriculture with hired workers, carried out in some areas by a narrow capitalist elite of the peasantry, may not yet be suppressed by measures of non‐economic coercion, but measures for the protection of wage labor must be strengthened, and taxation must be brought into line with the actual capacity of such farms in direction of its increase. In industry, this means a different (differentiated) approach to different industries in the coming years.

The activities of private capital should be directed towards liquidation in those sectors where there is a shortage of raw materials and for state industry, while in terms of its equipment it is capable of satisfying the needs of the population (tannery,

vegetable oil factories, etc.) and in those sectors where this is necessary for special economic and socio‐political reasons (for example, the flour‐grinding and cereals industry, the mastery of which by private capital would enable it to take away the entire increase in wages from the worker by raising the price of bread).

On the contrary, it is expedient to increase the investment of private capital in such branches—for example, the production of bricks, the building of new houses, etc., where the available state industry and the new funds invested according to the state plan cannot fully satisfy the needs of the country, and the availability of raw materials, etc. allows further development of production.

It would be expedient to increase the attraction of private capital to such sectors where there are significant unused natural resources, the possibility of developing which far exceeds the effect of new state investments, such as the extraction of gold, ore, coal, etc.

Finally, there are a number of industries, such as clothing and others, where the state is currently not interested in either increased substitution or increased attraction of private capital, and where the totality of measures in the coming years should be directed primarily to the transition from hidden forms to explicit, controlled, to a corresponding limitation of exploitation and to the gradual involvement, to the extent possible, of handicraftsmen in the mainstream of the state economy.

In trade, within the next few years, there should be a possible complete replacement of private wholesale and semi‐wholesale by state and cooperative wholesale. It has been proved that it is precisely the large private trader, who keeps private retail as a dependency, who is the instigator of the rise in prices,

disrupting the real level of wages, harming the link between state industry and the peasant economy, shaking the purchasing power of the chervonets, and hindering the export and industrialization of our country.

The economy of the state and the co‐operatives has already grown strong enough to complete this substitution in appropriate gradualness over the coming years.

As far as retail trade is concerned, here, of course, the main line of a steady gradual increase in the share of cooperation in the total retail trade should remain in full force by reducing the share of private trade. At the same time, to the extent that cooperative retail cannot yet fully master the turnover of goods and to the extent that it will be possible in practice to subordinate private retail to the regulating influence of the state on the side of lowering prices and limiting profit, it is possible to insert the task of directly supplying private retail in order to conduct through it the corresponding the parts of the commodity supply of the country with state‐owned products are decreasing.

Exceptional attention, as already indicated, should cause the replacement of the private trader in supplying the main types of food to the working centers of the country.

The five‐year program of consumer cooperation should be substantially revised in that direction. The state of the credit and money market in the country was studied and controlled less than other industries; related work and control should be strengthened. The same applies to the real results of taxation in their social context.

The taxation of private capital should favor private industry more than private trade, and more overt forms than disguised and dispersed ones. As applied to the capitalist elite in the countryside, the question of income tax must be raised. The

general line both in town and in the countryside regarding the taxation of private economy as a whole is in the direction of reducing the severity of the tax burden for small‐scale labor farming at the expense of increasing it for the capitalist economy.

In order to improve lending to simple labor commodity production, the attraction of its own savings must be strengthened by more favorable conditions.

The practice of state loans should get rid of the pursuit of involving large private capital in them, as having not justified itself. Along with the intensification of repressions for currency speculation, smuggling financing, etc., in order to divert private capital from this area, its legal access to fairly profitable housing construction, the operation of newly built hotels, etc., should be expanded, and into those industries where its activity can be recognized as expedient or admissible for the forthcoming period. At the same time, the work of mutual credit societies should be streamlined with increased state control over its direction and with the concentration in them of all lending to the private economy.

In the field of general legal norms, it is necessary and timely to draw a distinction between private capital, which is able and willing to act under the control of the state in the areas allotted to it with a certain limitation of exploitation, and between that scum of the NEP, from which the key economic centers of the country and all state and cooperative bodies must be cleared.

The totality of a number of appropriate measures should put up in the future a barrier to the use of Soviet economic agencies for capitalist purposes and make it difficult to repeat the individual mistakes that took place in this regard.

July 4, 1927. Yuri Larin