Private Capital in the USSR -1927, Yuri Larin
State publishing house

Agents and accomplices of private capital in the state apparatus

Agents and accomplices of private capital in the state apparatus

The first and simplest method of illegal activities to create private capital was the presence of its accomplices and agents in the state apparatus. In the composition of the state apparatus there was not a very wide, not very numerous circle of people, measured perhaps only a few tens of thousands of people, who used the beginning of the NEP in this sense. While serving in economic agencies themselves, they at the same time organized various enterprises either in the name of their relatives, partners, or even directly in their own name. And then they pumped into these private enterprises the state funds at their disposal from the state bodies where they served. Having made such a transfer, they usually left state agencies altogether and
ʺstand on their own feet.ʺ This phenomenon was extremely widespread. One could cite hundreds of examples of how various responsible and not very responsible figures, commercial directors and other figures of factories, various economic associations, railways, trade organizations ‐ state and cooperative ‐ organized parallel shops, parallel stores, parallel societies, parallel firms. , who allegedly began to deal with deliveries and contracts for state bodies and all sorts of transactions with them. But all this was carried out by direct transfer, in the form of abuse, to the private institutions they created of those funds that were at their disposal for service in Soviet institutions. trade organizations ‐ state and cooperative ‐ organized parallel shops, parallel shops, parallel societies, parallel firms, which allegedly began to deal with deliveries and contracts for state bodies and all sorts of transactions with them. But all this was carried out by direct transfer, in the form of abuse, to the private institutions they created of those funds that were at their disposal for service in Soviet institutions. trade organizations ‐ state and cooperative ‐ organized parallel shops, parallel shops, parallel societies, parallel firms, which allegedly began to deal with deliveries and contracts for state bodies and all sorts of transactions with them. But all this was carried out by direct transfer, in the form of abuse, to the private institutions they created of those funds that were at their disposal for service in Soviet institutions.

To illustrate how this was done, I will cite a few examples from the rich treasury of materials collected by Comrade Kondurushkin, established, verified, and confirmed by court verdicts. For example, employees of the Leningrad military port entered into an agreement with the private office ʺZavodopomoshchʺ organized for this purpose and stole 200 thousand pounds of fuel oil from the Leningrad military port, which they took out by a number of trains and tanks and handed over to the office. And Zavodopomoshch sold 50,000 poods of them to the Izhora plant and the rest to other government agencies in need of fuel oil. This private office did not have any money or any other means at the time of its foundation, but only a room in the passage room, one typewriter and a typist.

The director of the former Franco‐Russian plant in Leningrad, Lopatin, entered into an agreement with the private office of the engineer Evzerov, the Inzhbyuro, to which he transferred 35,000 poods of roofing iron.

Employees of the ʺTriangleʺ plant organized a private office called ʺMartynovʹs Officeʺ, from which they bought the cable. This was done in the following way: on the one hand, the stolen cable was taken out of the factory to the warehouses of
ʺMartynovʹs Officeʺ through one gate, and no payment was made for this, since all this was done in the manner of abuse, and through the other gate the cable was imported from ʺOffices of Martynovʺ, well paid by the ʺTriangleʺ.

The head of the supply department of the October Railway instructs his father‐in‐law Medovy to supply burners, lamp glasses and wicks for the railway. Medovoy has neither burners nor money ‐ the whole point is the availability of a responsible relative on the railway. Then Medovy receives samples of burners from the Leningrad Unified Consumer Society (LEPO), presents them to the supply department, where they draw up an inspection report and pay Medovy for the entire supply.

Engineer Zak, head of the restoration subdivision of the NKPS, organized a private technical office, Mosmet, which was supposed to supply exactly the materials that the restoration subdivision needed.
The head of the commercial department of the Leningrad branch of Transmostorg (government agency) organizes a private office ʺLakokraskaʺ and writes to himself as its owner, making various transactions with it (he pumped ultramarine out of Transmostorg especially a lot, which he then supplied through his brother to state agencies in Moscow).

The head of the department of the North‐Western Railway, engineer Lukyanov, himself makes deliveries to this department (through a figurehead, the former lawyer Zukkau) and himself makes the acceptance.

In 1922, Lvov, a consultant for the October Railway, was an almost monopoly supplier of various materials for this railway, submitting applications, etc., on behalf of the fictitious, non‐ existent person Shura. He supplied, for example, zinc cans,
ʺminingʺ them at the Fundkombalt, etc.
Khrapovitsky, the head of the North‐Western Railway, is personally negotiating with a petty TPO agent for the purchase of 100 pounds of Swedish nails (which are allegedly the property of this agent), issuing a note on payment of all the

money to him immediately. The nails are actually taken from a state abandoned barn.
The agent of the Leningrad Gubotkomkhoz, the son of a merchant, Belokrinitsky, who had already been sentenced to five years for association with bandits, is another supplier, an accomplice of Khrapovitsky.
Leningrad laboratory assistants in 1922 and 1923 for bribes, they received denatured alcohol from Rauspirt, which was then used by private merchants for perfumery. Having, thus, the material cheaper than TEZHE (Trust Zhirkost), they beat it on the market, selling their perfumes at 15‐20% cheaper.
Employees of the Baltic Fleet Konstantinov, Kurylenko, Zverev opened two stores, which were filled entirely from the warehouses of the fleet (ʺincluding up to brushes and wicksʺ).

Such examples, established by later trials (mainly 1923‐1925), but which took place in life in 1921‐1923, one could collect not hundreds, but thousands. In general, in the first period of the NEP, for the bourgeoisie, which had agents of private enterprises in the state bodies, it was precisely the existence of not the usual type of commercial economic transactions, even if profitable, but the presence of direct abuses, and these abuses were clothed only in the form of transactions. By ʺnormalʺ commercial operation, I mean one in which a private entrepreneur, although he profits, sells something that really belongs to him or buys something really at his own expense, and so on. In the cases cited, we are talking about the actual movement of state funds, only fraudulently passed off as private thanks to officials sitting in state apparatuses, who in fact are private entrepreneurs or agents of private entrepreneurs. When later this first period of ʺsquanderingʺ passed and they began to find out and take into account where what was stolen, hundreds of trials were organized for various

enterprises and large economic organizations, which found out in court the amount of losses of public funds in favor of private capital. Of course, this account is incomplete, but it is very indicative. found out in court the amount of losses of public funds in favor of private capital. Of course, this account is incomplete, but it is very indicative. found out in court the amount of losses of public funds in favor of private capital. Of course, this account is incomplete, but it is very indicative.
The results of only 56 such trials (according to the materials cited in Comrade Kondurushkinʹs work) show that in these 56 trials alone, state property worth about 54 million rubles in gold was transferred in this way into the hands of private individuals. But trials in cases of 1921‐1923. there were much more than 56. As a result of all these abuses, much more property was transferred into the hands of private individuals than 54 million rubles. ʺCompetent persons (comrade Lezhava, bodies of the Supreme Council of National Economy, etc. ‐ Yu.L.) determined the losses of industry for 1921/22 within the very large amount of 150‐200 million rubles in goldʺ (Zhirmunsky. Private capital in trade turnover, p. 18). This is for the first year of NEP alone.

It is especially interesting that these processes make it possible to identify the circle of those persons who were in 1921‐1923. agents of private capital and its accomplices in the ranks of our state bodies. Comrade Kondurushkin made a statistical calculation covering a number of major processes. For example, the process of the Leningrad military port, where there were
125 people. defendants; the trial of the North‐Western Railways, where there were 118 defendants; Rausspirt process, where there were 79 people. defendants; trial of the Main Marine Technical Economic Administration with 64 defendants, etc.

And now it turns out that of all the persons found guilty of these abuses by the court and who were our civil servants in 1921‐1923, 25% had a higher education, more than 50% had a secondary education and had only a lower education, or were self‐taught, or did not have none ‐ less than 25%. Thus, about three‐quarters of those civil servants who were active organizers of private enterprises and the transfer of state funds into them were technical, legal, and other intellectuals. The vast majority of them were not people who had already been private entrepreneurs before the revolution; we have before us the process of the formation of a new, post‐revolutionary bourgeoisie. These were people who turned into a real entrepreneurial bourgeoisie in the early years of the NEP, using their administrative position in state bodies to enrich themselves through the people they created in the name of nominees, relatives, etc. private enterprises, in order to then openly and themselves turn into independent entrepreneurs.
And indeed, according to a number of these trials, uniting several hundred defendants, there is an estimate of who the people who were convicted in the trials for the abuses they committed in the period 1921‐1923 when they were employees of state bodies became. Trials usually took place two or three years after the discovery of abuses (due to the large size of the trials, the large number of people involved, the complexity of the investigation, etc.). It turns out that of the persons who were civil servants, who organized all these parallel offices in 1921‐ 1923, etc., by the time of the trial, 53% turned out to be independent private entrepreneurs.
In addition, 8% were economic agents, and these agents were formally, as it were, civil servants, but in fact they worked on percentages, i.e. in fact, they were also private entrepreneurs. Further, clerical employees turned out to be 12%, accountants, etc. employees ‐ 10% and technical engineering personnel ‐17%.

Thus, of those persons who, as civil servants, committed major abuses in the early years of the NEP, more than 60% have already formally and openly turned into independent private entrepreneurs. Of course, they were convicted for the crimes they had committed. But we very often have amnesties, or even without amnesties, there is simply ʺunloading prisons.ʺ Our country has an insufficient number of prisons in comparison with the scale of economic abuses that have taken place, and therefore, in addition to any amnesties, prisons are periodically unloaded, during which only the most important criminals, such as murderers, are left in prisons, and less important ‐ thieves ‐ release. The convicts soon begin to operate again using stolen funds.
Comrade Kondurushkin establishes that there is almost no one among todayʹs large private entrepreneurs who has not previously been on trial or has not been expelled administratively on economic matters. Among private wholesalers, semi‐wholesalers and larger private manufacturers, there is almost no element that did not pass through the criminal stigma in the first years of NEP. They exactly followed Marxʹs position that private capital does not stop at any criminal offense if it finds material gain in it.
By the way, from the tables cited by Comrade Kondurushkin, it is clear that of the private entrepreneurs whose cases were heard by the court in 1924‐1926, until 1921, no less than 90% were in the public service. It should be added to this characteristic that only about 60% of the civil servants of 1921‐ 1923 who then committed crimes in favor of private capital, but who did not turn into formal private entrepreneurs in subsequent years, formally turned into private entrepreneurs‐ so, that part that did not turn, it again and again in 1924‐1926 often came across again in similar economic crimes.

Comrade Kondurushkinʹs conclusion from the economic data of 1925‐1926 is interesting. about the judicial past of those civil servants who were convicted for bribes and other economic crimes committed in 1924‐1926. And every economic crime in our conditions is a crime in favor of a private trader, connected in one way or another with the interests of the private trader.
It turns out that of all the employees who in the second period of the NEP, i.e. in 1924‐1926, committed economic crimes, about 80% had already been convicted earlier for economic crimes. In other words, we have a stable circle of economic criminals in our government agencies. Of those criminals who have been convicted over the past two or three years, four‐fifths have already been convicted several times (and some have even been convicted several times) in various economic trials, but then they were again recruited into the service ‐ other than a clever ʺirreplaceableʺ person, like a clever agent, or moved from one government agency to serve in another government agency, where they did not pay attention to the past, or there were friends in the apparatus who pulled them in again, or in general the authorities looked through their fingers at the past ‐ perhaps it will not happen again. One way or another, but the fact is that the thieves of the first period of the NEP, who were convicted by law because they did not turn into private entrepreneurs, quite often returned again to the state service. Of the newly convicted for economic crimes, employees of state bodies, as it was said, 80% are already convicted earlier, before that.

From this, by the way, it is clear that a special law should be issued that would prohibit all state bodies, and at the same time all cooperatives, from accepting into the state and cooperative service those persons who, at any time during the Soviet regime, were convicted of economic crimes, although if they were then amnestied, at least they served their sentence, at least

they were released in order to unload prisons. It is time, in the tenth year of the revolution, to do without patented thieves in the public service. You can allow them to move on to physical labor on the ground or in the trades, but do not trust them again with positions that enable economic crimes. Under tsarism, revolutionaries were forbidden to live in medium and large cities. We will act quite correctly if we prohibit living in cities from 50 thousand inhabitants of the entire ʺNep scumʺ, to all who have ever been convicted or administratively deported on economic matters. There are only 85 such cities in the USSR, and these are the key economic points of the country, where the
ʺcriminal bourgeoisieʺ has the most opportunities and does the most harm. This question has already been raised and is close to a positive resolution.

Pseudo‐state form of activity of private capital
The second method of bourgeois accumulation in the first period of NEP was the pseudo‐state form of activity of private capital. By the pseudo‐state form of the existence of private capital, I mean when a private entrepreneur develops his activities, formally acting as a public servant, being in the service and receiving official powers. He performs his actions ostensibly as a public servant, but in reality he carries out these operations as a private entrepreneur.
In fact, there is an agreement between a private supplier, a private contractor, a private supplier, and a government agency. But formally, this supplier, contractor, procurer, etc., being considered a public servant, does not act on his own behalf, but on behalf of a state institution. Thus, he enjoys appropriate benefits, for example, freedom from tax, or, in the case of firewood, a low foam fee, or, in the case of buildings, the low social security payment that is due to public institutions, etc. In a word, he enjoys all the advantages that belong to a state

body, but in reality he is a private entrepreneur, who is only in contractual relations with state bodies. This is the second stage of pumping state funds into private pockets.
The first stage, the first period of development, consisted in the fact that people in the composition of our state apparatus committed abuses as secret agents and representatives of the emerging private capital. The second form, the second stage, is expressed in the fact that they are no longer secret agents of private capital in our state bodies, but are private entrepreneurs acting legally as public servants. This form was distributed in the form of so‐called ʺauthorized with special contractsʺ, in the form of agents who were part of the staff, working on interest, and in the form of all sorts of ʺrepresentativesʺ, etc. Here are a few examples of this kind of activity.
In the past 1926, it was necessary to procure horses within the boundaries of the former Kyiv province for the military department. Various purveyors were found for this business, including one purely administrative state institution of a small town in this district acted as a purveyor of horses for the military department on such a basis. One private contractor received a mandate from this government agency that he is a representative of such and such a government agency, which authorizes him to purchase and prepare horses for delivery to the military department. The profit remained to him, but on the other hand, from each harvested horse, he was obliged, according to the contract, to pay this state institution 10 rubles. from the head for the use, so to speak, of the firm (from the materials of the Narkomfin, reported to the commission of the NC RCT).
Here we do not have direct abuse, as was the case with the first method ‐ here it is simply foolishness on our part, called the establishment of a so‐called auxiliary enterprise operating on the basis of self‐financing. We have a fairly large number of

such enterprises under state budgetary institutions, and many develop their activities in an extremely original way. But the common feature, the similarity of almost all these ʺauxiliary enterprisesʺ lies in the fact that they are usually a cover for the activities of private capital, a loophole that private capital exploits. The procurer is ready to pay something to the institution to replenish the budget of this state body in order to receive its sign. Under the brand name of a government agency, for example, it is easier for him to both procure horses and sell them, since people who deal with him think that they are dealing with a government agency.
Another example, of an earlier time and also very typical, is Loshinsky. He was our civil servant, authorized by our nationalized technical office, which before the revolution belonged to the once famous engineer Bari. Loshinsky was hired by the Tashkent Railway, which instructed him to procure timber materials (and then the Western Railway did the same). He had a power of attorney, from which it is clear that he is a completely independent person, existing on interest from the work received, and the railway pays this ʺagent for the procurement of forest materialsʺ the cost of harvesting forest materials plus 25% of this cost.
Loshinsky had the right, by proxy, to independently dismiss and hire employees, etc. ‐ in a word, he was a fully private contractor, and formally he was listed as an agent of the railway for the preparation of various sleepers, etc., a civil servant. As such, he ʺworkedʺ without collateral, without a penalty, without paying taxes and fees, which relied on private individuals, on road advances.
This practice was so common at that time that the road agreement with Loshinsky passed five instances without hindrance. First, it was approved by the road administration, then by the financial and technical commission, then by the

financial and control committee, then by the Collegium of the NKPS, then by the interdepartmental commission.
Logging in general was a favorite area for the appearance of private capital in a pseudo‐state form. There is not a single railway in our country where major abuses have not been discovered in the logging departments (they used to be called iron committees). The business of economic logging for the railroads was actually carried out on a large scale by private suppliers. They were accepted into the civil service, received mandates and loans as authorized procurement officers, but acted independently, with profits legalized in various forms in their favor (interest on cost, etc.).
I call this method the work of private capital in pseudo‐state form. Here it is no longer theft through direct abuse, but the legalization of theft (and work on our funds) on the basis of the use of our unreason. Since such cases still occur today, it is necessary to prohibit all state and co‐operative bodies from entering into contracts with any state or co‐operative employees, it is absolutely forbidden to have such employees who work on interest, under special contracts, are
ʺrepresentativesʺ or ʺauthorizedʺ of the specified type, etc. Of course, an exemption can be made for manual peddlers, like the Mossel‐promiscants, and for clerks in shops who receive a small bonus from turnover, but the general rule must be put into practice quite firmly.

Malicious competitor‐counter part
The third way of accumulating private capital in the first period of the new economic policy is the so‐called counterparties of state agencies, but malicious counterparties. They are no longer secret agents of private capital within the state apparatus and are no longer civil servants at all. They have already hatched out of this shell; they are already openly acting as independent

private contractors. But they are not counterparties performing actual commercial transactions, but counterparties acting solely on the basis of abuse. This is the band of counteragents that was especially widely developed from about 1921 to 1923 and was only partly preserved thereafter. These are such counterparties who, as their main capital, had only contacts and acquaintances in Soviet institutions and with the help of them arranged their affairs, and not by spending their funds in any equivalent accordance with the results achieved.
Their methods of action can be reduced to four main types. For example, they made orders to our state‐owned factories, providing themselves with a bribe, firstly, especially cheap order fulfillment, secondly, special speed of order fulfillment, and, thirdly, especially good quality of order fulfillment. Thanks to this, they received from our factories products that were better than those products that our government agencies and cooperatives got, and secondly, they had the opportunity to sell these products cheaper on the market and beat our own trade. In part, such methods are still successful, but less often.
The second type is this. They gave us an order for a large penalty in case our plant did not fulfill it by the deadline. Moreover, it was agreed in advance between this kind of private customer and the relevant commercial figures of our plant that the order, of course, would not be completed on time. Therefore, this private trader will receive a large penalty, which he will then share with whomever he should.
The third type of counterparty of this kind was such that they took various contracts for us, deliveries, procurement, without giving any collateral. Previously, before the revolution, under tsarism, when a contractor undertook to deliver something for the treasury, build a barracks or something else, they always took a pledge from him that he was really able to do it. They took a certain amount, he had to deposit a certain percentage of

the contract amount as a guarantee that he would do his job. With us, due to our inexperience, ignorance, due to the dishonesty of those commercial employees whom we received from the bourgeois apparatus and who did not tell us this, the bail system was not applied. We handed over contracts, orders, deliveries to a private entrepreneur and did not require any collateral. On the contrary ‐ and this is the fourth type of such counterparty, ‐ quite often we still advanced them, i.e. we gave this private trader funds: we give him a certain amount in advance, and he undertakes to produce such and such things for us. There were, and not infrequently, such cases when he took the money and did nothing or did not invest any of his funds in the business at all, everything was spent on our advances and made a profit directly at our expense.
These are the four methods that were especially widely used by the so‐called contractors of government agencies in the first period of the NEP (and to some extent have survived to this day). There is a list of private so‐called technical and transport offices, which were established in large numbers in Moscow and Leningrad in 1921 and 1922. Their main and only occupation was contracting with government agencies. Of these offices, there was not one that did not end up in a lawsuit. Therefore, the affairs of these technical and transport private offices can be well studied. Among the counterparties of the second period of the NEP, i.e. 1924‐1926, there are already real ones, but the contractors of the first period, 1921‐1923, were entirely individuals who, under the guise of commercial agreements with government agencies, organized the actual embezzlement of public funds. A characteristic feature was the duration of these thefts. For example, in the Leningrad port, this lasted six years, in the Leningrad customs ‐ five years, in Rausspirt ‐ three years, in the Main Military Warehouse ‐ three years, and so on. Each time, some private offices and a large

circle of employees were involved in the case, there were 50 and 100 people, with the help of which everything was done.
I will give just one example ‐ from Leningrad. There is a speculator in Leningrad named Semyon Plyatsky. He passes, as Comrade says. Kondurushkin, through a number of lawsuits of various government agencies. He is a millionaire, he was a millionaire, and before the revolution he was a metal dealer. Throughout the period of war communism, he was our civil servant.
In 1921, when the new economic policy began, he became a private entrepreneur, and since then he has been through eighteen business lawsuits. He was convicted in all eighteen trials. These trials took place in Leningrad in recent years in court, and the most abuses took place over the course of a number of previous years.
These include: the trial of the Franco‐Russian Plant, the case of the State Machine‐Building Trust, the case of the Krasny Putilovets, the case of the Mass Production Trust, the case of the Moscow Trust of the Medium Metal Industry, the case of the Leningrad Gubernia Inspectorate of Places of Confinement, the case of the Bolshevik plant, etc. Tov Kondurushkin writes about him: ʺConvicted in all cases, but alive and well in all cases. Twice he was in the Cheka and both times he was reborn like a phoenix.ʺ He paid us income tax. Its annual turnover was about
3 million rubles. He was associated with more than thirty government agencies. At the moment (April 1927) again in prison. So this businessman, for example, ordered the Bolshevik plant to roll 25 thousand pounds of steel from the materials of the plant. Plyatskyʹs price was set below cost. The order (shafts) was made of high‐grade steel, suitable in composition to tool steel.The order to Plyatsky was completed a month ahead of schedule, meanwhile, a similar order to the Sestroretsk Arms Plant was executed a month later, and orders

to Volkhovstroy were delayed. Orders to Plyatsky were carried out from the materials of the plant, but nevertheless Plyatsky received a wide loan for them in our State Bank. He used this bank loan for his other turnovers. Further, this order was branded with the letter ʺGʺ, which is a special responsible brand of the Bolshevik plant, indicating a particularly high quality of the goods, i.e. all of our government agencies in need of metal goods were especially willing to tear this product with their hands.
Finally, the manager of the plant, Serov, gave Plyatsky a mandate that Plyatsky was a ʺrepresentative of the plant.ʺ It goes without saying that the administration of the plant was largely at the mercy of Plyatsky, as the court later showed. When, in 1924, abuses began to be suspected and the Sevzapvoenprom of the Supreme Economic Council wrote to the Bolshevik plant a proposal to stop the execution of Plyatskyʹs further orders, Kapterev, head of the technical orders department, authored the following official report to this proposal: “Contracts have been concluded with Plyatsky in accordance with all the rules of jurisprudence. The irresponsible persons of Sevzapvoenprom believe that in Soviet Russia there are no rules and laws protecting the rights of private industrial enterprises. Plyatsky is a large and profitable customer for the plant, since he gives orders not microscopic and not homeopathic, which the Sevzapvoenprom plant stuffs. I am writing in defense of the moral principles that are obligatory for the plant in relation to the customer.ʺ Kapterev, who so defended ʺmoral principlesʺ, also our civil servant, as it turned out at the trial (this case was heard in the Leningrad Gubernia Court in 1925), received bribes from Plyatsky systematically for three years, from 1922 to 1924, and his moral principles cost the state 100 thousand rubles.

This example clearly shows the nature of counterparty agreements between government agencies and private individuals during the first years of the new economic policy. Contractual contracts of that time are contracts with private capitalists where they already openly figure as private capitalists, but when the contracts are based not on actual commercial transactions, but on transactions of a unilateral character, i.e. on pumping from the state pocket to the pocket of a private counterparty, without any equivalent.
The practice of all sorts of indulgences to a private trader so entered the minds of commercial specialists who worked in state bodies at that time that sometimes they directly spoke out in court. Here, for example, is the representative of the Central Asian Railway Ignatenko. He was asked at the trial why he never included conditions in contracts with private individuals that they make a deposit. Ignatenko replied that this would still mean only transferring money from one pocket of the state to another. When his court asked what kind of transfer is possible here, he answered: after all, if somewhere we charge a deposit from the contractor, then no more than 5 to 10%, while an advance payment is always issued when ordering not less than 25%.
With such a practice, of course, Ignatenko could consider himself not having made a particularly unforgivable mistake, if he was sincere at all, and did not play a simpleton.
In order to at least to some extent protect ourselves from that circle of contractors who have made such swindling of the treasury their specialty, absolutely without any equivalent, we must pay attention to the fact that in a long series of cases we are always dealing, in essence, with the same persons (as in the case of economic crimes of employees of state bodies). There are several thousand such ʺcriminal entrepreneursʺ who are persistently engaged in economic work with state bodies, and

there are a large number of state bodies that continue to work with them, continue to work with people like Plyatsky. Eighteen times he was tried, thirty state bodies suffered from him ‐ and yet he got the opportunity again and again to enter into economic relations with the same or other state bodies.
It is necessary that a private entrepreneur, when concluding contracts with state bodies, submit a certificate of non‐ conviction. It is also possible to establish the obligation of a certificate of non‐conviction so that a private entrepreneur can receive loans from mutual credit societies or other lending institutions. The prohibition of residence for convicts in large cities has already been indicated above. This does not mean that we exclude any possibility of existence for them. Let them move to the Far East and organize farms there, but without hired workers and at their own expense, because they have the means for this. Now a similar experiment is being made, though not with big Nepmen, but with small merchants ‐ I mean the resettlement of small Jewish merchants from the western cities of the USSR to southern Ukraine and the Crimea, where they are given land and where they organize labor agricultural farms.
This has been going on for four years, about 100,000 people have already resettled, and the results are good. People have turned into real peasants, so that this year many of them have already been given the right to vote.
They are under the control of local authorities, and it has been established that they actually work physically, live in dugouts, lead a hard life, but organize their household. And since the old bourgeoisie, which we will deprive of the opportunity to indulge in abuses, has young people, has children (and perhaps one of the bourgeoisie themselves will want to turn to working life), we do not close the way for them. You can give them

access to the empty lands of the Far East and allow them to engage in labor agriculture there, etc.
In addition to prohibiting government agencies from dealing with patented criminal elements, it is necessary, of course, to also prohibit the advance payment system, as a rule, the system of no collateral, the system of private orders to our factories with penalties, etc. As recent examples of the carefree linking of state funds in advances to private enterprises, one can cite a series of bankruptcies of private firms in Moscow in 1926. A private capitalist sells the products of his factory in advance to state agencies and cooperatives, receives large advances and then goes bankrupt. You won’t get anything from him, the money has gone irrevocably into the channels of private capitalist circulation. A report to the Commission of the Peopleʹs Commissariat of the RKI on ʺLinking State and Cooperative Funds in Private Affairsʺ (February 1927) cites, among other things, such examples.
The private firm ʺMoscow Textile Partnershipʺ took half a million rubles in advance from government agencies and cooperation for its future products and went bankrupt. The private company ʺUniversnabʺ, which has a cloth factory in Glushkovo, also collected advance payments for future sales, etc. and went bankrupt, causing the state a loss of 600 thousand rubles.
The private company of cloth factories ʺRusstekstilʺ, having its own capital of 200 thousand rubles, brought its turnover to 2630 thousand rubles by the system of advance payments from government agencies and cooperation.
The private company ʺRosstorgʺ (knitting factory), the private factory of combs and celluloid products ʺTriumphʺ, etc., etc. ‐ all this flourishes by working on state and cooperative funds in the form of advances. It would seem that there is nothing easier

than for government agencies and cooperatives to take over these factories and run them themselves with the funds that they are now giving out to private entrepreneurs in the form of advances. There would be savings on all the profit of a private trader. Moreover, among these factories there are a number of leased from government agencies. A private factory makes sense to us when private funds are invested in it. And in cases where the work is carried out with state funds, it makes no sense to organize this business as the property of the capitalist who profits from it. Such a system of advances would mean the creation of an accumulation of bourgeois capital at the expense of the state, and therefore must be abolished.
Illiquid Funds. Automobile and water transport
The fourth method of accumulating bourgeois capital is the use of what we call illiquid funds. The first form is secret agents of private traders in the ranks of the state apparatus. The second is a private trader working legally in state form. The third is the counterparty of private capital in relation to state bodies, based on abuse. The fourth is the use of illiquid funds (reserves of the state) in a commercial way, i.e., by acquiring them by private capital on favorable terms, resulting not from bribes, but from our own bungling. There are a lot of illiquid funds in our state. Everything that was confiscated in 1917 and in subsequent years from the bourgeoisie, since it was not processed later in production, since it was not distributed during war communism among the population, left to lie in a pile of very poorly accounted for illiquid funds in state‐owned enterprises. On the other hand, the illiquid fund was replenished with things of new origin, new production, or import (import from abroad), depending on certain orders of economic authorities. For example, in 1925 the Supreme Council of National Economy ordered that the illiquid funds of plants and factories be intensively sold; sell them to the side, in order to increase the

working capital of enterprises in this way. Then a directive was given in order to accelerate the turnover of capital and to invest it as little as possible in idle things ‐ to reduce the amount of stocks in our production and commercial enterprises. As a result, even in recent years we have had a whole wave of alienation of state property to private individuals at reduced prices, not to mention the first years of NEP.
Here are some examples. GUM in 1926 (data from a special survey of the RCT) from all imported haberdashery, i.e. from the haberdashery that was brought from abroad, which was paid for by us in gold currency for special saturation of the domestic market, GUM, in an effort to reduce the dead stock, sold 80% of imported haberdashery to private individuals. Of the wholesale sales of GUM in 1926, in general, 56% of all goods were sold to private individuals.
Leningradodezhda, when it liquidated its illiquid property, sold fully serviceable cars at prices ranging from 400 to 600 rubles a piece, and the price of a serviceable car is now considered to be at least 10 thousand rubles. Then Leningradodezhda sold suitable typewriters at prices ranging from 5 to 35 rubles apiece. She also sold 5 thousand barrels of cement she did not need at the price of 1 r. 25 k. per barrel, and in a barrel 10 pounds of cement. By the way, she later bought some of the cement back at a much higher price (from Comrade Kondurushkinʹs reports).
The sale of cars to private individuals has taken on noticeable proportions under the influence of the austerity regime. I received a certificate from the Central Administration of Local Transport of the NKPS dated January 14, 1927, No. 39, stating that up to now, 1,661 cars have been sold to private individuals by various government agencies, of which 1,218 are passenger cars, 422 trucks and 21 special‐purpose vehicles (and in addition, 4 thousands of motorcycles). These cars are sold at an

average price of 400 to 500 rubles for the car. The regime of economy called in all trusts, government agencies, etc. the desire to get rid of his car as soon as possible, so as not to be scolded at a meeting of the cell, in the newspaper, so as not to get caught on the tongue of some toothy speaker, and therefore did not chase the price, just to get away with it.
According to the same information from the Department of Local Transportation, repairing and bringing these cars into full order cost the buyer an average of 500 to 700 rubles. Consequently, the entire cost of a private buyer for a car up to bringing it to full readiness averaged about one thousand rubles. Since the car costs about 10 thousand rubles, it is easy to calculate that 9 thousand rubles. we donated state property on each car. And if you multiply these 9 thousand by 1,600 cars, it turns out that more than 10 million rubles. donated to a private owner only on one car. The net income of a private owner from a car, according to TSUMT, is about 2 thousand rubles. in year. As a result of the ʺrealization of illiquid fundsʺ, about 8% of the entire automobile transport of the USSR is now in private hands.
The sale of illiquid funds thus created in this case a new branch of the private economy—road transport. In the same way, private water transport was created as part of the sale of ʺlow‐ yearʺ and ʺsurplusʺ illiquid assets.
It was done in this way. For example, a former merchant of the first guild Legach bought from Fonkombalt in Leningrad for 5 thousand rubles. the following things (I borrow this example from the reports of Comrade Kondurushkin):
1) one towing steamer in 44 indicator forces;
2) one pontoons with a carrying capacity of 7 thousand pounds;

3) one boat 10 fathoms long;
4) one iron barge with a carrying capacity of 6 thousand pounds;
5) one iron barge with a carrying capacity of 10 thousand pounds; 6) one iron barge with a carrying capacity of 9 thousand pounds;
7) scow No. 71;
8) an iron barge with a carrying capacity of 7 thousand pounds;
9) a towing steamer, which alone costs much more than these 5,000 rubles.
It should be noted that this Fonkombalt was headed by specialist engineers. Having bought this small water fleet, this same Legach then began to compete with the State Shipping Company, receiving orders for transportation from the Oil Trade and other government agencies.
The legach continued to buy up illiquid property for next to nothing, which included steel and hemp cable, sheet iron, etc. He bought 40 thousand pounds of steel from the sides of old ships and eventually concluded an agreement with the former owner of the agricultural implements plant with the Leningrad Forestry Institute for six years for the exploitation of 18 thousand acres of forests of the institute in the Pargolovsky forestry for forcing turpentine, tar, and coal.
The same kind of sale of ʺilliquidʺ water transport took place in other places. As a result, we created a private river and sea water transport that did not exist in 1920, which then began to play a certain role in transportation in places. According to the Central Statistical Bureau, private water transport in 1923 was estimated at less than 3 million rubles, and in 1925 it was over 10 million rubles. According to the certificate of the TSUMORA NKPS dated February 4, 1927, No. ER / 3‐15, as of January 1,

1926, the price of a private fleet on the Black Sea alone was about 2 million rubles. (including 307 vessels over 20 tons, i.e. each over 1,200 pounds of carrying capacity) and in the Caspian Sea ‐ 600 thousand rubles. The main part is on the rivers. Transportation of the private fleet (sea and river) in 1925, according to the Central Statistical Bureau, amounted to about 3.6% of our total water freight turnover.
In the following year, 1926, the private river and sea fleet, according to preliminary data from the NKPS, transported even 7% of our entire river and sea cargo turnover.
Because of this, some of our vessels are laid up or work with a weak load. According to the Central Statistical Bureau (p. 419 of the ʺSpravochnikʺ for 1927), of all steam and non‐steam vessels of the river fleet of the USSR, in 1924, 15.2% belonged to private individuals, and in 1926 ‐ already 33% of their total number ( 13,469 ships in 1926). Of course, smaller vessels, mostly non‐steam ones, are owned by private individuals, so this is only about 5% in terms of cargo capacity. River and sea steamships and vessels owned by private capital bring a profit of about 2 million rubles a year. Of course, boats owned by non‐ capitalist labor carriers, etc., are not taken into account. Private water transport plays a significant role, in particular, in alleviating the difficulties for the private owner that are created for certain private goods (like bread) by special regulation of state transport. Narkomtorg writes, for example, in his note on this subject:
ʺDuring the navigation period, a private trader bought the best grain and transported whole grain in processed form by water on private ships along the Volga, Don and the Caspian Sea. Caravans along the Volga at one time transported 10‐15 thousand poods of grain cargo, making several dozen trips per season ʺ(p. 24 notes). On the Dnieper, in the Crimea, etc. the role of the private owner in water transport was no less. According

to a telegram to ʺPravdaʺ from Odessa dated May 26, 1927, the Sovtorgflot established that at present the private sea tonnage in the Black and Azov Seas is already 19% in relation to the tonnage of the Sovtorgflot.
I dwelled in more detail on the creation of private automobile and water transport by selling ʺilliquid fundsʺ on the cheap in view of the special significance of this type of sale. Here a link was created that was completely absent in private capitalist and private economy in general until then. But the practice of selling so‐called ʺilliquid fundsʺ cheaply into private hands is much broader and very diverse.
Rudmetalltorg, an organization that is currently being examined by the NK RKI, should be engaged, among other things, in the clarification and sale of scrap, i.e. metal parts of old, unusable locomotives, warships, etc. and huge stocks of metal in the case and not in the case (ʺshell cupsʺ, etc.), lying around at some factories. From this metal scrap and junk, our state factories, by melting it down, must prepare new metal. It turns out, however, that the analysis and fate of this scrap was sometimes determined by Rudmetalltorg in a very strange way. He sold as scrap suitable copper locomotive fittings ‐ sold to the private company ʺUniversnabʺ. Bar iron and thousands of poods of tool steel were sold from the railways at 4 rubles per pound, especially valuable since tools are made from it.
Sudotrest also ʺprofitablyʺ sold 70,000 poods of scrap iron and 9,000 poods of shavings. The Northern Railway sells for 40 kopecks per pood as scrap, good grade iron, and ʺthrough one gate imported grade iron obtained from the Supreme Council of National Economy, and from others this iron leaves as scrapʺ (Kondurushkin) and is sold as scrap at 40 kopecks per pood , etc.

Predatory rent
The fifth method of the initial accumulation of bourgeois capital in the first period of NEP was the development of the so‐called
ʺpredatory leaseʺ of state industrial establishments by private entrepreneurs. In 1921 it was allowed to lease inactive state‐ owned enterprises; the so‐called lease fund was formed. Throughout the USSR, its price, according to the CSB, is approximately 250 million rubles. This is the price of those factories, enterprises and plants that were intended to be leased.
We found it possible to pass off because we had them. What were the conditions for this pass off in the first period of NEP? Now we can draw some conclusions, it is possible to judge what came of it.
Those lease agreements concluded recently, say, in 1925/26, are comparatively decent, they ensure that the enterprises that we lease will not be destroyed and that, together with these enterprises, we do not yet transfer to a private tenant. large additional property in the form of stocks lying on leased plants and transferred free of charge to the lessee.
But just in 1925/26, very few enterprises were leased out, because the overwhelming majority of them were leased out in the first years of the New Economic Policy. And in the first years of the New Economic Policy, in most cases, enterprises surrendered with large reserves lying on them.
Nothing was taken for these stocks. These stocks were taken out of enterprises, sold by tenants who made a lot of money on them. Secondly, enterprises were rented out at that time on unfavorable conditions for the state, which did not even ensure that at least a normal percentage of the capital invested in them would be received, not to mention depreciation.

Recently, for example, there was a report on the rental fund of the MCHX, issued by the Rent Department of the MCHX. It can be seen from it that in the rental fund of the Ministry of Economic and Social Economy (Moscow and Moscow Province), which amounts to about 85 million rubles ‐ this is one third of the entire rental fund of the entire Union ‐ for 1924/25 only 1,992,000 rubles were received in rent. i.e. two and a half percent.
This is less than even the most minimal normal interest on capital, it does not give depreciation at all. There is a consumption of the fixed capital of leased state enterprises in favor of private tenants. Finally, repairs at leased enterprises are negligibly small. Even what was stipulated in the lease agreements is not being fulfilled.
Thus, the result of the lease of the first period of the NEP is such that there is an almost free plunder of state resources, a transfer from the state pocket to the private capitalist one.
I will give a couple of examples of what happened under the guise of renting an enterprise based on the materials of the trials, compiled by Comrade Kondurushkin.
In Leningrad, the Public Utilities Department leased an entire street to two entrepreneurs, Shustrov and Epifanov. In Leningrad there is Gorstkina Street, and this street with all the shops, with all the warehouses, with everything that is there, was entirely rented out to two owners.
Before the revolution, Gorstkina Street was the center of the wholesale trade in meat and vegetables ‐ it was the center for supplying Leningrad with them. These two enterprising people, Shustrov and Epifanov, received 800 thousand rubles in two years of net income.

In the same Leningrad, one of the best houses, the former Eliseev, a well‐known restaurateur, house number 56 on October 25 Avenue, was almost free of charge for six years, because the actor Ksend‐zovsky ʺgreasedʺ the head of Komotkhoz for good rental conditions. One lawsuit against tenants was then brought for two million rubles, which should have been received from them. Now it wonʹt be bothered.
We have two factories, one is called ʺLightningʺ, the other ‐
ʺBettaʺ. These are the best factories for the development of galvanic cells in the whole state. Even before the revolution they had no competitor in this respect.
Before the revolution, they were managed by a certain Geserich, who was a co‐owner of the factories, and since 1921 he rented them. Moreover, he rented them on the condition that the property be valued according to the lists of Geserich himself, which he amounted to less than one tenth of the actual value, as was later established in court. This made it possible for Geserich to sell the products of factories at 30% below the price list of state factories with the same products. By the way, it was a fairly common phenomenon that the products of rented factories, due to their cheapness, beat the products of our state factories on the market, because our state factories fully paid for the costs of production, and rented factories were often leased on such terms that materials and supplies were provided to them for a long time almost free of charge. .
The Okhtensky workshop of Petrozavod was leased with reserves that were not taken into account. The engineers who rented it sold in their favor the unrecorded, as if donated property: 89 thousand pounds of shell machines, hacksaws, drills, files, copper shavings, two‐tee beams, etc. All this was sold to various government agencies and state factories. At the trial, the lawyer of these tenants said: ʺThe state did not suffer

here, since everything returned to it.ʺ But only the state paid its tenants for what it itself gave them for free.
With regard to all this rental practice, the following should be said. We do not prohibit and do not seek to prohibit private industry in those branches where we believe that its work can be useful to us. Below I will dwell on the sectors in which we consider it currently acceptable. But at the same time, we want private industrialists to invest their own funds in the business, and not just pump state funds into their pockets through predatory rent. Therefore, the terms of the lease agreements must be checked ‐ those lease agreements that were concluded in the first period of the New Economic Policy. They must be modified to be commercially viable. At the same time, more widely than hitherto, transfer of these leased enterprises to cooperation unions (not lower than provincial or district unions) should be carried out instead of leaving them in the hands of the predatory part of the tenants. Our laws make it possible to revise and cancel any contract as soon as it becomes clear that it is socially inappropriate.

Repurchase System
The sixth way of accumulating private capital is repurchasing. By repurchase is meant the purchase by private trade enterprises of products of the state industry through nominees in retail state and cooperative stores ‐ in addition to what state agencies themselves legally sell wholesale to private traders. This system is now thriving.
According to the data of the Peopleʹs Commissariat of Trade for the past 1925/26, of all the products of the state industry entering the consumer market, the population bought 35% from private sellers. But state bodies (trusts, syndicates, local auctions, etc.) sold only about 15% of these products of state industry to private traders. The remaining 20% were bought by

private sellers from the retail shops of our state and cooperative network through nominees (the data of the Peopleʹs Commissariat of Trade were published by Comrade Dvolaitsky in the collection On the Ways of Socialist Construction, p. 135).
These nominees make up to a large extent the queues that can now be so often found on the streets. These 20% account for a corresponding part of the profit that private capital derives from its trading activity. In 1925/26, this profit from illegal repurchases, judging by the data on the entire trading profit of private capital, on the structure of private trade and on the role of trade in this part of state products in it, should have amounted to at least 25 million rubles. In its review for October‐ December 1926, the section of the private market of the GEM of the NKTorg of the USSR cites a long series of examples pointing to a peculiar feature in these repurchases. Precisely very often repurchases are organized by large private wholesalers. Through a whole network of agents, they buy so many goods in state stores and cooperatives that they then send it for sale to other cities.
If a small retailer buys, then he sells to the consumer here, and does not yet contact the private trade network of other cities. Here, for example, on p. 3 and 4 of the mentioned review provide such information about the trade in illegally repurchased manufactory. In Leningrad, through a network of agents, private capital buys up so much manufactory in retail state stores and cooperatives that then, firstly, it supplies the population with 40% of the entire manufactory bought in general by residents of Leningrad, and secondly, it sells the manufactory illegally bought in our retail even in Moscow, not to mention sending to other cities.
The resale of purchased goods to tailors and other handicraftsmen in need of manufactory is also especially common. Incidentally, such a supply of handicraftsmen with

raw materials is sometimes also accompanied by the handing over of handicrafts made by them to the same entrepreneur who supplied them with raw materials illegally bought through their agents. The scope of these operations, the dispatch of large consignments to other cities, the organization of supplies for handicraftsmen, even the magnitude of individual purchases in state stores—everything indicates that for the most part we are dealing here with the organized action of big capital, and not with a petty ʺlaborʺ dealer. These resellers operate primarily not at their own expense, but as hired agents of commercial capitalist entrepreneurs.
In Kyiv, private traders received batches of state‐owned manufactory mainly from illegally bought up in Moscow state retail and Moscow cooperatives. ʺObzorʺ NKTorg writes:
Kyiv private traders bought up factory manufactory through dealers in the Moscow cooperative of the GPU, in the Moscow cooperative ʺOktyabrʺ and others (p. 3); some were bought through agents in Kyiv cooperative and state stores. Obzor reports on the receipt of manufactory from the central cities in such illegal ways in relation to Sverdlovsk, Samara (by 90%), Minsk, Saratov, Tiflis, Dnepropetrovsk, and other cities. All this clearly indicates that the illegal buying up in the Soviet retail of manufactory is organized precisely by the capitalist merchant, and not by any manual peddler, for the latter would then be unable to organize the resale of the purchased goods throughout the country, and not even directly to the consumer, but to the provincial merchants.
In Rostov‐on‐Don, two private wholesale firms (Tekstilsbyt and Chernenko) were engaged only in buying manufactory from a number of retailers, received by the latter under an agreement with the All‐Russian Textile Syndicate, and then selling it with a premium of up to 50% against the prices of the syndicate (with
.4 ʺOverviewʺ). Here we have some of the tricks that private

capital practices to weaken the system of direct contracts between government agencies and private retailers.
This system was introduced just to exclude capitalist wholesalers from the trade chain and to limit the prices that the retailer will charge when selling the manufactory received by him under the contract. Apparently, this is what happened. The retailer received manufactory from the state agency under an agreement, bypassing a private wholesaler, then sold this manufactory at negotiated prices ‐ but he sold it not to the consumer, but to a private wholesaler, who then organized the sale ʺon his own terms.ʺ
In Tashkent, two‐thirds of private traders are not attached to government agencies. They receive the goods through ʺa whole series of illegal dispersers of the manufacture, such as, for example, all the cooperatives of the disabledʺ (p. 4 of the Obzor). And some private traders of this group also buy manufactory in other cities of Central Asia.
In Odessa, ʺalmost all private manufacturersʺ receive goods in small batches from Moscow, Leningrad, and even from Turkestan and Siberia, buying them there on the private market (from private ʺpurchasersʺ who organize illegal purchases on the spot through their agents in the Soviet state retail) 1 . Even such distances do not stop. Since it is known that a lot of manufactory for the procurement of bread was brought to Siberia and Turkestan, now a parallel “procurement campaign” begins there: private capital, through dealers, buys up part of this manufactory for reshipment to those cities of the country where it can be obtained a particularly high price for it, although if only they were as far away as Odessa.
It is difficult to establish with any degree of certainty how much of all the illegal repurchase from Soviet retail is organized by the capitalist part of private trade, and how much is practiced

at their own expense by small local kiosks and the like to replenish their modest stocks. One gets the impression that almost all illegal buying from Soviet retail is organized by a capitalist merchant, and not by a petty trader. From caution, in order to avoid exaggeration ‐ but quite arbitrarily ‐ I accept for further that the share of private capital in illegal repurchases accounts for no more than two‐thirds, and the share of local small traders ‐ one‐third. According to the results of surveys and materials of the NKTorg, as Comrade Dvolaitsky published, in total, in this way, 20% of all marketable state production for the wide market (means of consumption) passes into private hands. This means that out of all marketable output (not only means of consumption), not only state industry, but all industry, private trade receives 8% in this way, and of this, according to our assumption, about 5% passes through capitalist private trade and about 3% is bought directly by a small private retailer (for direct resale to the consumer, albeit at a premium price).
Products of the state industry, not sold by the latter to a private wholesaler, get to him, however, not only by buying through nominees in retail stores, there is often a kind of mediation of government agencies. Such a government agency buys goods from state industry ‐ the goods are considered to have safely escaped private hands, and then the government agency that bought it calmly (or with a restless conscience, as it used to be) resells it to a private wholesaler.
For example, in 1925, during the paper “famine”, the publishing house of the All‐Union Central Council of Trade Unions ʺProblems of Laborʺ sold paper to the publishing house
ʺLand and Factoryʺ, also a Soviet one. The publishing house
ʺLand and Factoryʺ resold this paper to private traders both in Leningrad and Moscow for cash.

The Gostorg representative in Kaluga receives 2,000 poods of rice from Moscow (and there is a big shortage of rice), and this rice is immediately returned to Moscow, where the Kaluga Gostorg resold it to a private wholesaler. The same thing happens with yarn, galoshes, paints, and other goods.
How to deal with the illegal buying of goods from our retail shops, organized by private capital through nominees? Apparently, the most effective way would now be the creation of a kind of closed distributors at large institutions and large factories. Of these, products should be sold only to workers and employees of the given enterprise and institution on the basis of trade union and cooperative books. But such an order, of course, does not give a complete guarantee. The solution of this question lies along the line of the general question of the ousting of private trade, which is only possible for a number of years.
1 . The other day, Pravda printed that a ʺqueueʺ of 50 people was suddenly surrounded and checked at one of the Soviet manufactory stores in Moscow. Of these, there turned out to be one real customer (a tram conductor) and as many as 49 ʺextrasʺ, i.e. dummy repurchasing agents hired by private capital.
Smuggling
The seventh method of illegal formation and accumulation of private capital is its activity in the field of foreign trade. The foreign trade of private capital primarily includes smuggling, and secondly, the possession of imported goods in various other ways.
As for smuggling, then, according to the information of the Main Customs Administration, for the last, 1926, smuggling was imported for about 60 million rubles. gold, counting at those wholesale prices that exist at the border. Of course,

getting to Moscow and other centers where these goods are sold in retail, they no longer cost 60 million rubles, but approximately 120 million. This is the turnover of smuggling on import.
What exactly is being imported?
The significance of smuggling for private merchant capital lies chiefly in replenishing the assortment of private trade with such kinds and kinds of goods as are necessary for the fuller satisfaction of that well‐to‐do circle of buyers with which private trade largely deals. The General Customs Department considers (I take the data on smuggling from the certificate submitted to me) that it detains approximately evenly one tenth of all smuggled goods.
In this assessment, it is based on its observations over a number of years and no other information. Therefore, if we judge the composition of all imported contraband by the tenth part that is confiscated, it can be considered that they are imported along the European border, through which the bulk of the smuggling passes, mainly the following items: leather goods and footwear
- 12%, haberdashery ‐ 11%, knitted paper products ‐ 13%, yarn and other paper products ‐ 12%, woolen fabrics ‐ 20%, other manufactory ‐ 5%, and everything else accounts for 27%. This means, for example, that only knitted paper products are imported for retail price of 15 million rubles—knitted blouses, stockings, and knitwear. If we assume that these knitwear are only jackets, and if we consider 50 rubles for the average price of these jackets in Moscow, then this would mean that 300 thousand such jackets were imported. If we assume that only stockings are imported, and count them at 5 rubles per pair, then 3 million pairs of stockings have been imported.

By these figures we can judge the scale of imported paper knitted products. This is only 13% of all smuggling; the rest is for other things.
Smuggling is smuggling only for us, for the USSR. And those foreign firms that organize smuggling into the Soviet state, they operate legally on the other side of the border, openly carry out their operations, and all this is subject to the supervision of all our bodies and anyone who wishes. Along our entire western border with Estonia, with Latvia, with Poland there is (on the other side) a number of so‐called ʺtransitsʺ. These transits stand almost at the very border line. They are a base, a warehouse for goods smuggled into our state, and at the same time they serve as a resting place for smugglers and a kind of labor exchange for them, where one or another company hires them to carry out an operation. These transit lines run at a distance of 20‐25 versts from one another along the entire western border.
Sometimes these otherworldly border points serve for very peculiar operations of enterprising people from our side of the border. Comrade Zalessky, authorized by the MSPO, who was sent to Batum at the end of November 1926 to purchase confiscated contraband goods, reports the following:
a pack of photosensitive paper (for photography) costs about a ruble (from 95 to 97 kopecks) with our money in Turkey, and is sold at auction for an amount of 10 to 14 rubles. Powder ʺKotiʺ on the Turkish side ‐ from 9 to 10 rubles, and at our customs Batumi auction ‐ from 54 to 60 rubles. dozen. Coverkot (woolen fabric on a coat) in Turkey ‐ about 6 rubles per meter, and at our auction ‐ from 33 to 34 rubles per meter. The GTU inspector, Comrade Stal, took an inventory of the confiscated items at the Batumi customs for keeping and calculated the cost at Turkish prices and the amount of the premium paid. It turned out that for goods that cost 2,400 rubles in Turkey, we had 3,000 rubles per premium. Thus, it is profitable to import contraband even

in order to declare its discovery yourself ‐ thanks to the difference in prices, the premium not only covers the costs, but also leaves a profit.
Abroad, there are special firms for smuggling trade with the USSR. For example, at one time there was a very widespread organization of the smuggling of tea to us by Vysotskyʹs firm from Warsaw. Before the revolution, it was a large tea company inside Russia, supporting, among other things, the Socialist‐ Revolutionary party materially. After the revolution, Vysotsky moved to Warsaw and from there organized the smuggling of tea into the USSR. In the southern zone, especially in Ukraine, at one time Vysotskyʹs smuggled tea dominated our domestic market. Vysotsky published his reports in Poland, as every large firm should. Now we have ousted it to a large extent, thanks to the fact that our state and co‐operative bodies have expanded the trade in tea and have lowered its price somewhat.
Open smuggling operations were accompanied by semi‐ smuggling in the form of so‐called ʺparcelsʺ. There was such a law, according to which it was possible to receive parcels of goods from abroad in the name of individuals. These parcels for 1925/26 were delivered for 10 million rubles. at foreign wholesale prices (according to the same certificate from the Main Customs Administration). These parcels arrived legally mainly at the Leningrad and Moscow customs. According to our domestic retail prices, their price was at least 30 million rubles. Five‐sixths of them were for resale and not for personal consumption. Thus, the total turnover of smuggled and semi‐ smuggled (parcel) private trade imported into the USSR from abroad amounted to about 150 million rubles over the past year at retail prices.
The amount of private capital circulating in all this trade is approximately 20‐25 million rubles, and the annual net accumulation is about 10 million rubles.

But not only nine‐tenths of the smuggled goods that they safely transport across the border fall into the hands of private capital, but almost all of that one‐tenth that, according to the GTU, was confiscated by us. All customs offices sell what they confiscate at auction, and auctions are usually only private traders who buy almost everything. The Main Customs Department delivered me a certificate for the period from October 1, 1926 to January 1, 1927, about who sold all the confiscated contraband by the customs. It turns out that out of all the confiscated customs, they were sold to private individuals: Batumi customs ‐ 66.5%, Baku ‐ 86.5%, Tiflis ‐ 50%, Shepetovskaya (on the Polish border) ‐ 85%, Kamyanets‐Podilsky ‐ 99.8%, Minsk ‐ 56%, Moscow ‐ 50.6%, Blagoveshchensk (on the Amur) ‐ 78%, Khabarovsk ‐ 75%, Vladivostok ‐ 77%, Tashkent ‐ 91%, Poltoratskaya ‐ 100%, etc. In a word, on average, up to 75% of all goods confiscated by us then end up in the order of auction sale again to representatives of smuggling firms who come to the auction and buy there what was confiscated from their agents. And then they send this part of the smuggled goods to various cities of the USSR already quite legally.
The participation of private capital in foreign trade, smuggled and semi‐smuggled, is accompanied by a special organization of the purchase by private firms of those imported goods that are imported by state bodies. For example, there are three private firms in Moscow, one of which is called Tekhinstrument, the other is Electrometal, and the third is simply named after the owner. They specialized in the purchase of instrumental goods throughout the USSR (from the corresponding targeted imports), for which they have a whole staff of agents traveling around different cities and buying up these imported goods in government agencies. And then these firms supply the purchased tools to both private traders and state bodies in need of them (details are published in Pravda of August 1, 1926).

A remarkable example of targeted imports for the Kara expedition.
Every year we send a special expedition across the Arctic Ocean from Arkhangelsk across the Kara Sea to supply goods to Siberia. For this Kara expedition without customs duties, some imported goods are brought from England (target imports). So, the priests of the Orthodox Church established an artel called Maslovosk. This artel aims, firstly, to supply the pilgrimage population with church candles, and secondly, in general, commercial operations of a profitable nature. At the present time there is a great hunger for quebrach tanning extract, which is brought from Canada and is necessary for leather dressing. It is expensive, little is imported, meaning, of course, state‐owned tanneries. And here is the artel of priests ʺMaslovoskʺ I bought 900 pounds of quebrach extract from the armored duty‐free fund (targeted import) from the Arkhangelsk Gubernia Torg. This is a very large amount for a quebrach extract (details are published in Pravda of June 29, 1926).
Bitumslanets (we have such a trust) sold three hundred thousand rubles worth of ceresinol (from imported rosin and wax) to a private trader, sold 10,000 pounds of imported harpius to a private trader, and so on. It is clear that such huge transactions do not occur with manual peddlers, but with large wholesalers.
Thus, in addition to smuggling and semi‐smuggling, private capital also buys up a part of those imported goods from our state bodies that were not intended for it at all. It has already been mentioned above that 80% of the imported haberdashery from GUM was bought in 1926 by private traders, who then sold it further.
In connection with the trade in contraband goods, an interesting phenomenon is observed: in border ports and other

cities that are the focus of smuggling, the role of private trade sometimes grows not only absolutely, but also due to the decrease in other types of trade (state and cooperative).
For example, Novorossiysk. In general, it must be said that the Caucasian coast, especially Transcaucasia, is a place with a highly developed smuggling. Especially Batum is one of its first‐class centers, but Novorossiysk is also not bad. In Novorossiysk, during the last half of 1925, the total turnover of trade increased by more than 60%. But at the same time, the turnover of private trade increased by 80%, while the turnover of state trade increased only by 53%, and cooperative trade ‐ by only 33%. In connection with this, the share of the private trader rose to 47% of the total trade turnover (details are published in Pravda of May 23, 1926). Since smuggled goods go through private trade, the role of private trade also increases at the favorite points of smuggling.
The last link in the chain of export‐import transactions of private capital is the import and export transactions of mixed joint‐stock companies, which are already completely legal, unlike all the ways described above. According to the calculations of our Berlin Trade Representation, for the first six months of 1926, of all our imports from Germany, approximately half went on special orders under the control of the Trade Representation of various organizations, mainly state bodies (Oil Syndicate, etc.). And in the composition of this half, about a fifth were purchases for import into the USSR of mixed joint‐stock companies, i.e. in relation to all imports from Germany, about 10%. At the moment it is difficult to establish how stable this ratio is and how typical it is also for imports from England and other countries. But if not 10%, then, nevertheless, a few percent of our imports must be allocated to the share of private capital (in the form of mixed and concession companies) already quite legally. In addition, within the USSR,

there are still deals of concession enterprises that bring various goods from abroad with the aim of reselling them further to the market (for example, the Aniltrest case in the Moscow Gubernia Court in 1926 over a deal with the Moscow branch of the German company Vostvag for the purchase of paints , 10 thousand pounds of dinitrochlorobenzene, etc.).
If we take the percentage of the import foreign trade of private capital in the USSR in relation to the turnover of all private trade in the USSR, on the one hand, and if we take, on the other hand, all imports into the USSR ‐ state, cooperative and private together ‐ in relation to to the entire internal trade turnover of the USSR (in state, cooperative and private trade together), it turns out that these two quantities differ little. If state and cooperative imports account for approximately 3% of the state and cooperative internal trade turnover, then private imports in their illegal and legal forms together also account for approximately 2.5‐3% of the private internal trade turnover of the USSR. Just as state and co‐operative internal trade has external trade relations as its supplement, similarly private trade has its external trade complement in approximately the same percentage.
The participation of private capital in import trade implies the participation of private capital in export trade as well, since it must somehow pay for what it brings. In part, payment is made by smuggling Soviet flax and other raw materials abroad, which are procured near the European or Asian frontier in the border areas, in part, by clandestine export of precious stones and other items, and, finally, by direct export of currency and gold. In this regard, it is characteristic that of all the smuggled exports that were confiscated by our customs in 1925/26 along the European border, 87% accounted for currency, and only 13% for goods (the same certificate from the Main Customs Administration). It is considered the subject bodies that for the

year not less than 15 to 20 million rubles. gold in its natural form, private capital sent abroad for smuggled goods, and paid for the rest with precious stones, platinum, the export of flax, the export of various artistic products, etc. At the same time, private capital uses both its old reserves of gold, and the part of consumer transfers of foreign currency from abroad that are not bought up by state credit institutions, and, finally, a new influx of gold in kind, both from private small‐scale prospectors in Siberia, and by ways, about which will be discussed in the section on foreign exchange transactions.
State monetary credit
The next way to form private capital is to supply it unilaterally with state money credits. If we were to lend to private capital an amount equal to what private capital itself invests in our lending institutions, there would be no one‐sided supply of private capitalists with state funds for the development of their operations. But in our country, as shown by a special survey undertaken by the NC RKI, there were other conditions in the field of bank money lending.
Such forms of lending to private capital exist at the present time in the USSR in general. Firstly, advance payment for orders, deliveries, and contracts ‐ this has already been mentioned above. Secondly, commodity lending by trusts and syndicates. There are branches of industry whose goods in some areas are difficult to sell without the participation of private traders, even wholesalers. It is difficult to sell because there is not yet a cooperative network, or it is still very weak, or this product is very difficult to move, it is difficult to promote it, for example, salt, kerosene. For goods of this kind, and sometimes, unfortunately, not only for such goods, private traders receive commodity credits from our industry. In 1925/26 such credit was given all the time for approximately 190 million rubles. For

the future, it will be necessary to limit the scope of commodity credit only to cases
Then there is public lending to private capital against loans. The state arranges state loans, issues securities, private individuals buy them and then pledge them in the State Bank or in other state institutions. This type of credit will be discussed in the next section, but now we will only talk about the supply of money to the private capitalist by the state in the form of issuance of money by the State Bank or other state banks, either directly against the bills of private capitalists, or against those bills of state and cooperative bodies that the capitalists represent for accounting, etc.
As of October 1, 1926, money lending to private capital by our banks, in excess of the sums that private capital itself invests in our banks, amounted to about 100 million rubles, as can be seen from the following certificates from official bodies. For the four main Soviet banks (Gosbank, Prombank, Mosgorbank, Vsekobank) with their provincial branches, direct commercial credit to private capital as of October 1, 1926, amounted to 4.4 million rubles. In addition, 31 million rubles were provided. state and cooperative money to private mutual credit societies for lending to private capital. Then 28 million rubles. bills of private merchants and entrepreneurs submitted by government agencies have been taken into account by our banks. Finally, up to 5 million rubles. amounts to direct and indirect monetary lending by all provincial city banks and other state credit institutions (Vneshtorgbank, Tsekombank, etc.). Total 108 million rubles (without loans against loans).
This is opposed by the deposits of individuals and enterprises in state credit institutions in the amount of 31J/2 million rubles. (also on October 1, 1926).

However, it turns out that when private capitalists later receive loans from there, it is not those who invest that receive loans. Very many persons from state employees, from persons of liberal professions, from handicraftsmen, from other ʺlittle peopleʺ invest in our credit institutions. They look at putting money in public lending institutions simply as a way to keep it safe, with a decent rate of interest.
And borrow money from there relatively few large private capitalist firms, which themselves invest very little in our banks. For example, according to a special survey carried out in Moscow by the NK RKI, it turned out that 1/3 of the entire loan in the Moscow branches of the State Bank, Prombank and Mosgorbank, granted on October 1, 1926 to all private individuals, belongs to only 69 firms. Moreover, these 69 firms themselves invested their funds in Gosbank, Prombank and Mosgorbank only five per cent of the amounts we lent them.
It turns out that we supply these wholesalers, these large industrial and private entrepreneurs with the means for their turnover without an equal equivalent on their part (in the sense that they also invest their free funds in us). The same ratio turned out for them in these banks as of December 1, 1926 (even less than 5%).
Here are a few comparisons for some individual private firms, how much they invested in our banks and how much they received from them on December 1, 1926 credit:


Invested Received Invested Received
65 p. 26988 p. 100 p. 13 586 p.
772 36409 184 15318
10 8328 ʺ 171 56141


2257 44238 105 36124
122 13 023 201 146847
186 17 087 68 11 000
0 25912 0 26000
16 3617 93 10000
0 7396 0 5000


This is opposed by the deposits of individuals and enterprises in state credit institutions in the amount of 311/2 million rubles. (also on October 1, 1926). However, it turns out that when the capitalists then receive loans from there, it is not those who invest that receive loans. Very many persons from state employees, from persons of liberal professions, from handicraftsmen, from other ʺlittle peopleʺ invest in our credit institutions. They look at putting money in public lending institutions simply as a way to keep it safe and earn a decent rate of interest. And borrow money from there relatively few large private capitalist firms, which themselves invest very little in our bank. Here, for example, according to a special examination carried out in Moscow by the NC RCT, it turned out that that the bulk of the entire loan in the Moscow branches of the State Bank, Prombank Mosgorbank, granted on October 1, 1926 to all private individuals, belongs to only 69 firms. Moreover, these 69 firms themselves invested their funds in the State Bank, Prombank and Mosgorbank only five percent of the amounts that we lent them. It turns out, therefore, that we are supplying these wholesalers, these large industrial and private entrepreneurs with funds for their turnover without an equal equivalent on their part (in the sense that they also invest their free funds in us). The same ratio turned out for them in these banks as of December 1, 1926 (even less than 5%). Prombank

and Mosgorbank are only five percent of the amounts we lent them. It turns out, therefore, that we are supplying these wholesalers, these large industrial and private entrepreneurs with funds for their turnover without an equal equivalent on their part (in the sense that they also invest their free funds in us). The same ratio turned out for them in these banks as of December 1, 1926 (even less than 5%). Prombank and Mosgorbank are only five percent of the amounts we lent them. It turns out, therefore, that we are supplying these wholesalers, these large industrial and private entrepreneurs with funds for their turnover without an equal equivalent on their part (in the sense that they also invest their free funds in us). The same ratio turned out for them in these banks as of December 1, 1926 (even less than 5%).
Here are a few comparisons for some individual private firms, how much they invested in our banks and how much they received from them on December 1, 1926 credit:
This list could be greatly extended. In general, out of 31 1/2 million rubles in deposits of individuals, there are no more than 8 million rubles in deposits of those capitalists whom we lend. Consequently, those private firms to which our banks lend money have received from us about 100 million rubles. over and above what was given to us.
This is the value of the net monetary credit that the state provides to private capital (in excess of the loan for government loans). This amount enables private capitalists to organize such activities that they could not develop without this credit. There are sometimes in this respect examples of a completely stunning quality.
For example, our Georgian comrades wondered for a long time how Borjomi ‐ Borjomi water is distributed throughout the USSR by the private entrepreneur Kebadze. This Kebadze is a

counterparty of the Georgian Kurupra (a body of the Peopleʹs Commissariat for Health in charge of Borjomi), and, according to their information, was a man without money, and meanwhile he distributes Borjomi in Siberia, Moscow, Leningrad, and other places. How does he do it? And itʹs very simple. He takes Borzhom from Kurupr, then pawns it in the State Bank, or even Kurupr takes into account the bills of this private owner in the State Bank, it turns out 200 thousand rubles. Kebadze takes Borjomi to Moscow, gets another loan in Moscow, and so on. (In general, a survey of the NC RCT found that often the same private firm receives a cash loan simultaneously in our different banks.) This turns out to be so profitable that the enterprising Kebadze was already counting on opening the export of Borjomi to large American cities and even sent a wagonload of Borjomi to Ford. In June 1926, a poster hangs at the Maly Theater in Moscow: ʺRepresentative of the NKZdrava ‐ Kebadzeʺ (ʺRed Evening Newspaperʺ of June 4, 1926).
The chemical plant ʺKaloriferʺ (private), allegedly producing overheated lard, wants to get credit from the State Bank. The State Bank instructs its agent to look at the plant. The plant turns out to be ʺworking at full speedʺ and receives a loan from the State Bank. It turns out later that this issue of fat was the only one in the practice of this plant for the whole year, it was released exclusively for an agent of the State Bank. This case was heard in the Moscow Provincial Court in 1926 (from the materials of Comrade Kondurushkin).
And another factory, a soap factory, worked ʺcontinuouslyʺ, but, as it turned out later, it always boiled the same mass. Whenever an agent of the State Bank comes to the plant, the plant always has a supply of mass for overcooking and a person on duty to cook it. But all this machination begins only when an agent of the State Bank comes for an inspection.

And here is an eighteen‐year‐old boy named Bravy; he organizes the partnership ʺDrevpromʺ with a capital of 100 rubles. This partnership receives a loan from the State Bank and, after two or three months, manages its affairs, delivers 75,000 shovels to railways, etc. Due to the practical difficulty of controlling how private capital is used by the loan received and to what extent there is a basis for lending, loans from the State Bank private traders sometimes turned into a means of additional feeding of private capital without benefit to the country.
Meanwhile, it must be said that the stamp of the State Bank means the same honorary brand in the commercial market, which was used on old gold and silver items as ʺsampleʺ. If a private entrepreneur delivers a certificate that he is credited with the State Bank, then this is already a guarantee of his solidity, he has a loan in a number of state and cooperative bodies, they deal with him as a reliable person, and his affairs are developing very well ‐ because it is supposed that the State Bank already knows what it is doing, and there is nothing to check further.
Comrade Kondurushkin tells how the private entrepreneur Petritsa and his partner Inglink, a former millionaire who did earthworks at the recent Agricultural Exhibition in Moscow, managed to get even a loan, but a letter of guarantee from the State Bank, and what came of it. He removed certified copies from this letter of guarantee and sent it to foreign firms and Soviet institutions. The effect is complete. They successfully started negotiations with foreign firms ʺAlyamerikoʺ and others, with a European timber concern, even with Nobel, received an order from abroad for 50 thousand sleepers, received a lease on the Nizhny Novgorod sawmill in Maykop, which was estimated at a million rubles before the revolution, almost managed to get a parquet plant in Batum, the former de

Guy, a bent furniture factory in Maikop ʺMaybukʺ, etc. ‐ when they suddenly got caught on an inaccurately given bribe of 100 thousand rubles and were arrested.
Petritsa is now already shot. By the way, at the trial it turned out that they started working with only a room in one room and a stamp with the name of their company, and under it there is a very long list of goods that they allegedly procure and produce at their own enterprises and factories. The State Bank, obviously, could not resist such a respectable appearance.
The conclusion to be drawn from all these examples is that credit to private enterprises, inasmuch as it is necessary (and in some cases it is still necessary, although much less practiced), must be concentrated in Mutual Credit Societies, i.e. in private credit institutions, which do not affix a stamp of the state (Gosbank) to a private firm by the fact of lending, do not inspire special confidence in these capitalist entrepreneurs. At the same time, the mutual credit societies themselves must be firmly subordinated to our instructions in order to make them an instrument for the credit regulation of private capital by the state. To do this, it is also necessary to concentrate all lending to private capital only in UWC, prohibiting simultaneous lending to one company in different banks.
Meanwhile, in 1926, mutual credit societies were their own credit network of private capital, which grew quite rapidly and whose activities were almost not regulated by the state, although they received a fair amount of their funds from the state. On September 1, 1926, compared with October 1, 1924, the number of mutual credit societies increased from 86 to 280— more than three times. Their membership increased from 20,000 to 87,200 members—more than quadrupling.
And the consolidated balance increased from 14 million rubles. up to 99 million rubles, i.e. seven times in two years (all data

according to the report of the commission of the NC RCT). It is indicated above that, among other things, there is 31 million rubles. state and cooperative funds for commercial lending to private capital.
It is quite possible that a representative of the State Bank be introduced to their boards, who would control that the money goes not to the procurement of leather or oilseeds by private traders, which we consider harmful, and not to such types of private trade and industry, which are recognized by the state as undesirable, and finally, not to further strengthen the big wholesalers*), but, on the contrary, to use them only in those branches of private enterprise that we now consider permissible, for example, in such a private industry that produces products from raw materials that we have in abundance , but such products that we do not have enough, etc.
Thus, the sums that we now invest in the work of private capital in the form of money credit will not be in our hands just a spontaneous anarchic financing of private capital, to a large extent for whatever it pleases, but will be a means by which we can to some extent to hold in his hands and direct his activity in the direction in which it is expedient. The very size of the credit should be reduced to the limits of the sums that private individuals themselves invest in credit institutions (except in cases of special state assignments by special decrees if such would be necessary).
Government loans
The next way of accumulating private capital during the NEP period is accumulation by participating in our state loans. Here we have an extremely interesting picture. As of October 1, 1926, the entire amount of our state loans amounted to 417 million rubles. (without a loan for economic restoration ‐ all data according to the certificate of the State Bank dated February 23,

1927 and the senior inspector of the NK RKI of the USSR, comrade Zangvil, dated February 25, 1927). Of these, 234 million rubles. constitute loans in which individuals participate. The rest of the loans are entirely placed exclusively among state bodies, for example, reserve funds of state industry are placed in them, etc. Of those 234 million rubles that private individuals can also acquire, on October 1, 1926, they had 126 million rubles. nominally, and at the graduation rate it was 115 million rubles. (the rest of these loans are placed among government agencies). But this does not mean that we actually received 115 million rubles from private individuals in the form of state loans. Part of the loan notes were pledged in the State Bank, and the State Bank issued about 70% to those who pledged. Letʹs say a loan bond (ticket) costs 5 rubles, the State Bank issues 3 rubles with collateral. 50 kopecks, which means that the owner himself spent only one and a half rubles on this matter. More than 35 million rubles of such loans were issued to individuals, and they invested about 77 million rubles of their own funds. But out of these 77 million rubles. part was invested by small holders, namely 45 million rubles, and they received loans of only about 7 million rubles. These are mainly employees, workers, freelancers, artisans, etc., who purchase loan tickets not for speculation, but as a way to deposit their savings. In the absence of loans, they put their savings in savings banks, where they receive 8% per year with tax exemption. (As of October 1, 1926, ʺnon‐labour elementsʺ and
ʺothersʺ together accounted for only 14.5% of the amount of deposits.) As of March 1, 1927, deposits in savings banks already amounted to 134 million rubles. (ʺFinance and national economyʺ of April 21, 1927, p. 3), and since then about 5‐10 million rubles have been added monthly. preponderance of deposits over return receipt. Thus, savings banks give the state a more significant inflow of real funds than government loans. Moreover, deposits in savings banks do not cause such large

expenses on the part of the state as loans. The accumulated unclaimed balance of cash in savings banks is usually replaced by government bonds, and the funds of the savings banks are transferred to the State Bank. The State Bank puts them into circulation to finance industry and other branches of the state economy. From the profit he makes, he pays the savings banks their 8% per annum for depositors. Consequently, the development of deposits in savings banks has the same significance for the state as the issuance of state loans, only under more favorable conditions, without any ʺpledgesʺ, etc.
But government loans were issued not for the petty labor holder, but in the hope of attracting private capital in this way and thus being able to use it for useful state purposes, therefore the profitability of government loans was set so high that they could attract private capitalists. In 1925/26, the average actual yield on a ticket of government loans was 36% per year for their holders (Comrade Zangwillʹs report of February 25, 1927, according to official data). With the involvement of real private capital in state loans (and not small labor holders), the situation, according to official estimates, is as follows.
The share of private capital accounts for only 32 million rubles. their investment in government loans. But of these, 14 million rubles. were invested in compulsory loans that existed before 1925. This was not a voluntary investment of private capital in our loans, and it did not give the capitalists any special benefits. Itʹs just that people from non‐working elements, who were found out that they have a large income, were obliged to buy the number of loan tickets assigned to them. Failure to comply was punishable. The capitalists who received the compulsory loan ticket did not have the right to sell it.
From the beginning of 1925, according to the idea of the then Peopleʹs Commissar of Finance Comrade Sokolnikov, it was decided to switch to a system of voluntary involvement of

private capital in state loans. To do this, the coercion of loans was abolished, it was allowed to sell to anyone already received loan tickets. The profitability of loans for those who want to buy them has been greatly increased. At the time of issuing new loans, their profitability was made even greater by various additional measures taken by the state financial authorities, and with some loans it reached up to ten percent per month (for example, when subscribing to the 2nd peasant loan). A practice was introduced in which the capitalist was given a state loan for 70% of the ticket price against the loan ticket he bought, so that the capitalist had to spend only 30% of his funds (and was considered the owner of the whole ticket and received income for the whole ticket). Finally, in order to prove to the capitalists what a profitable business it is to have state loan tickets, the Narkomfin organs began to intensively buy tickets for the former, before 1925, compulsory loans, spending state funds to raise their price. Thus, their owners were given the opportunity to sell them off their hands and make some money compared to the price they had before this Narkomfin operation.
This operation on both previous loans (the first winning and the second) unfolded during the first three months of 1925 and gave very favorable results for private capital. The price in cash at the exchange rate for one (five‐ruble by name) loan bond was:

January 1, 1925 April 1, 1925
1st loan 1 p. 94 k 3 p. 27 k
2nd loan 92k 3 p. 24k
On average, the price of each ticket (bond) rose by almost 1 r. 70 kopecks. This then made it possible for the capitalists, in the gradual sale of their old notes to the state (and to some extent to petty labor holders), to put into their pockets an additional

tens of millions of rubles or so and repay this part of their former expenditures on loans.
Thus, the profitability of placing its funds in government loans was clearly demonstrated to private capital, and then the issue of voluntary loans was started. Until October 1, 1926, private capital invested in them from 16 to 18 million rubles. (according to the estimates of various financial agencies) of their funds, while receiving about 30 million rubles more. state loans and all owning about 50 million rubles. It is easy to see that with an actual average yield of 36% and with a profit from the sale of old compulsory tickets at an increasing rate, private capital should have more than fully recovered all its expenses for the purchase of voluntary loans (from 16 to 18 million . rub.). And in the end, he also has tickets for state loans for ʺyou live greatʺ for several tens of millions of rubles, according to which the state, within the terms precisely established by law, will have to pay the loan holders the full amount indicated on the tickets. It should be noted, by the way, that state loan tickets and income from them are exempt from all state taxes.
Thus, in this practice of borrowing, private capital has found a very suitable means for profiting, without spending anything on it in the end and without paying taxes on the profit (in contrast even with the predatory types of private rent or trade). In a word, a goldmine. In relation to private capital, the voluntary loans made by Comrade Sokolnikov would be more correctly called not state loans from private capital, but state gifts to private capital. Our loss in this business is the price we paid for too high hopes for the role of private capital and for too ill‐conceived approach to business. Comrade Yurovsky, head of the currency department of the USSR NKF, on the results of this period of state loans, in his report ʺOn the policy of state credit and the tasks of the State Fund Officeʺ says the following:

ʺ1925/26 from outside the public sector did not give new funds, but some of the funds were returned.ʺ
In other words, in the form of interest and repayment, we paid more than we actually received ourselves. In reality, this means if we subtract our loans (up to 70%) from the nominal (by name) purchased amount of loans, which we issued to private capital to facilitate its purchases. Comrade Yurovsky reasonably adds:
“A reduction in interest is an absolutely necessary thing, because it was temporarily possible to issue state loans and pay for them much more than the state itself could receive for them, but this could only be temporary” (ibid.).
In other words, until sad experience has shown too clearly the enrichment of private capital established by this practice without real compensation for the state.
The first serious step was taken in the current 1926/27, when the Peopleʹs Commissariat of Finance changed the terms of the oncol (new loans) and others so that the real yield on the oncol on the previous loans was only 24% per annum instead of 46% (on the 1st winning, 2nd peasant) , and new loans in 1927 (10 percent) cost the state, according to No. 17 of Finance and National Economy, even only 14% (p. 7). It is necessary to reduce the yield on loans to no more than 12%, i.e., to the percentage that is normal in our conditions at the present time, and to stop the system of 70% loans to capitalists against the loans they buy; in a word, from the object of speculation and the one‐sided pumping of state funds into capitalist pockets, to make our loans a place for a stable and more intensive investment of funds by the same and somewhat wider circles than those used by the savings banks. Then we will receive less in name (the part blown up by our own loans, etc., disappears), but more realistically.

It should be noted in conclusion that the experience of placing part of our loans among the capitalists, even if the yield on these loans is very high (20‐30% per year), 3 has shown that private capital enters into our loans only on tour. In other words, he participates in the subscription to the loan, because the subscription is furnished with especially favorable conditions. And then, having removed the foam, he throws loan tickets back to the state, starting to sell them on the stock exchange and forcing the state to buy them in order to avoid a depreciation 4. And a depreciation of the exchange rate may have a harmful effect on the mood and confidence in the monetary credit of the state on the part of small holders, i.e., on the part of that basic non‐capitalist mass that really firmly invests its funds in our savings banks (mainly) and in our loans (partly) . In addition to all other disadvantages, by the practice of ʺenticingʺ private capitalists, we thus gave them a means of putting pressure on our monetary and credit maneuvering. The decline in the real yield of government loans, which has already begun, should make the participation of private capital in our loans even less stable. And therefore in the future we will have to orient ourselves in this respect firmly not to the speculating private capitalist, but to the saving private Trudovik. In the issue of his organ published for the IV Congress of Soviets of the USSR ʺ Finance and the National Economyʺ The Peopleʹs Commissariat of Finance sums up the experience as follows: ʺWe do not have to build our loans on any significant scale based on private commercial and industrial capital. For this group of capital holders, securities are an object of trade, interesting only from the point of view of the size of the profit derived from this, while we cannot, of course, give such a high rate of return on our loans as trading operations give ʺ(article by Comrade Epstein ʺ For two yearsʺ, p. 7).

3 . According to calculations in the body of the NCF ʺFin. and Nar. Khoz.ʺ, Voluntary loans cost the state a year: peasant ‐ 45%, 5% in 1925 ‐ 30%, 2nd peasant in 1925 ‐ 17% (p. 7 April 21, 1927).
4 . This was also repeated with the winning loan in October‐ November 1926, where private capital, according to Comrade Bryukhanov (p. 1, No. 17 of Fin. and Nar. Khoz.), first paid in real terms up to 10 million rubles. Having removed the foam, by now he had already managed to get rid of most of the tickets he had bought. The same thing happened later with the ʺ10% loan of 1927ʺ.

Foreign exchange transactions
Profiting from foreign exchange transactions is the tenth way of accumulating private capital by illegal and semi‐legal methods. I mean here first of all:
1) speculation on the rate of paper money during a period of large fluctuations in this rate,
2) trading in foreign currency and various operations with it,
3) buying up gold.
Playing on the rate of paper money refers mainly to the period before 1924. The well‐known ʺgive ‐ takeʺ filled in those years the so‐called ʺblack exchangesʺ of large cities in different parts of the country. Currency speculators carefully took into account the difference in the actual exchange rates of the Soviet ruble in different parts of the country and made transfers of large lots of it from Moscow to Turkestan, etc., using for such orders, in particular, our State Bank. And then they put the proceeds in their pocket. All these transactions with the Soviet ruble have been hit hard in recent years by the comparative stability of the gold coin. In four years (from 1923 to 1927) the purchasing power of the chervonets changed by only one eighth; according to the all‐Union retail index of private trade, according to the

market index of NKFin, it was 50 in 1923/24, 9% of the purchasing power of an equal amount of gold in the pre‐war period (report by Prof. Kondratiev at the Institute of Economics on March 11, 1927), and on May 1, 1927 it was 44.2% (and if we take the general trade index, which includes both cooperative and state retail, then even 49.7% ‐ see the next publication of CI in ʺEk. Lifeʺ). Meanwhile, before that, in just one year ‐ from 1922 to 1923 ‐ it had fallen by almost a third, and even earlier, the exchange rate of Soviet money changed by the same amounts, sometimes almost monthly.
This extraordinary reduction in the rate of fluctuations undermined the ground under the speculation on fluctuations in the exchange rate of our ruble in the domestic market as a special profession of a certain group of representatives of private capital. The focus of their activities has shifted to other operations ‐ foreign exchange trading and gold trading.
Suitable conditions have been created for foreign exchange trading by the revival of economic relations with foreign countries in recent years.
Part of the currency fell into private hands through consumer transfers and sendings from abroad (for example, emigrants who left for America under the tsarist system ‐ we are talking about millions of people ‐ sent dollars to their relatives living in the USSR, etc.); part of the currency flowed in from abroad in the form of payment for smuggling; part, as we shall see, came from public funds.
In addition to direct speculation in foreign currency on the spot, there are also various methods of speculative transfers abroad.
What is the volume of speculation with foreign currency in the private capitalist market at the present time ‐ it is, of course, impossible to accurately estimate. For example, I will cite excerpts from a report made to me on March 24, 1927 by a very

knowledgeable person about the speculative foreign exchange market in Transcaucasia for the 1925/26 financial year. This message is based on a thorough study of the issues and all available materials; therefore it can be considered quite typical for characterizing the activities of private capital in this area. Here is what my informant says, by the way:
ʺThe main points of the currency activity of Transcaucasia are several of the largest cities, namely: Baku, Tiflis, Batum, Erivan, Ganja, Leninakan, Kutais, Julfa, Nakhichevan, Poti. These cities, in turn, serve less significant points in the province.
Thus, in order to determine the approximate volume of illegal foreign exchange transactions on a Transcaucasian scale, it is sufficient to identify the general nature of the activity of the foreign exchange markets in the cities indicated above.
The main objects of exchange turnover are: British pounds, American dollars, Turkish paper 1 lira and a golden ten. In some areas, Persian silver cranes also participate in the currency turnover, transactions with which became quite intensive in the middle of 1925/26 on the Baku free currency market.
According to the available data, it can be estimated that 30% of all currency transactions go through one turn and settle in solid hands, 50% have two circulations and 20% ‐ mostly small transactions ‐ turn around three or four times.
The daily currency turnover for individual cities is presented in the following figures: Baku ‐ 40‐45 thousand rubles, Tiflis ‐ 20‐ 25 thousand rubles, Batum ‐ 10‐13 thousand rubles, Erivan ‐ 3‐ 4 thousand rubles, Ganja ‐ 2 thousand rubles, Leninakan ‐ 10‐ 13 thousand rubles, Kutais ‐ 1‐1 1/2 thousand rubles, Poti ‐ 1 1/2 thousand rubles, Julfa ‐ 1‐2 thousand rubles ., Nakhichevan ‐ 1 1/2‐2 thousand rubles. and other small points ‐ 5 thousand rubles, and in total within the limits of Transcaucasia the daily

currency turnover was expressed on average at approximately 100 thousand rubles. Although the average profit on foreign exchange transactions is very diverse, but even if we take into account the most minimal percentage (2‐2.5) and translate it into an annual calculation, we get a monstrously large profit on speculative private capital.
The latter circumstance was the reason why free private capital, in an extremely small amount compared to the possibilities available to it, participated in the Transcaucasian market in transactions with state loans.
A significant role in speculative currency transactions is played by the illegal export of foreign currency and gold. The methods of exportation are very diverse, and the main ones are the following: the exchange of gold for smuggled goods imported, re‐shipment through diplomatic couriers of foreign missions, through teams of foreign ships, etc. The export of precious stones over the past year was expressed in relatively insignificant figures, which is partly explained by a strong rise in prices diamonds (40% on average).
Along with the buying and selling of currency, a special place in speculative activity on the black exchanges of Transcaucasia is occupied by the so‐called ʺbaratsʺ ‐ illegal transfer operations of Persian merchants, which contribute to the transfer of significant amounts of foreign currency and gold to Persia.
Barat operations are developed mainly in Azerbaijan. The original clientele ‐ Persian workers in the oil and fisheries ‐ over time was replenished with Persian merchants. By means of barat offices, merchants transferred to their homeland the surplus currency, which was obtained as a result of the difference in the import and export of goods. In view of the obvious profitability of such transactions, most Persian merchants began to reduce the size of their commercial

commodity transactions and switch to intermediary, commission work. The center of gravity was shifted by them to fair trade, and by their activity they created sharp jumps in the relationship between the exchange rates of the chervonets and the Persian kran by artificially bringing the barats to 38 kran per chervonets.
The daily amount of barat transfers in the period following the end of the fairs reached 100 thousand rubles. If Persian merchants, using barats, received large benefits, then Persian workers, who transferred money to their families in Persia, lost from 25 to 30% of their salaries on the exchange rate difference.
In addition to transfers, Persian citizens gave money to the barat offices for safekeeping. The latter fact further strengthened the ability of offices to conduct large‐scale currency speculation. The successful fight against barat offices leads to a significant reduction in the excitement in the foreign exchange market of Transcaucasia.
Quite apart in the foreign exchange market are grouped internal operations of the usurious type ‐ pawnshop and discount. The profit received by private capital from the latter fluctuated per month from 10 to 15% for the first and from 8 to 10% for the second types of these operations. In view of the fact that the total amount of funds invested in them did not exceed approximately 500,000 rubles in the Transcaucasus, they could not exert much influence on the foreign exchange market.
The same kind of indicative estimates are available for other regions. It can be seen from them, among other things, that private capital, along with the already mentioned ʺtransitʺ (institutions for illegal foreign trade), also has in some places special institutions for illegal operations in the money market. In the chapter on ʺPrivate Capital in the Money Marketʺ we shall see that, given the present extent of credit given by private

capitalists to private industry and private trade, the appearance of such institutions can easily be explained.
Summing up various tentative materials and estimates, one can think that in general, up to about 20 million rubles are now circulating on the private capitalist foreign exchange market in the USSR.
Sometimes from here something casts on tours in state loans (for example, in those moments when the actual profitability of some of them reached 10% per month, and before the increase in capital by two and a half times per year). Sometimes, on the contrary, there is a temporary revival. But in general, these operations have become one of the permanent branches of activity of private capital in the USSR, where certain of its means are linked (with a certain accumulation). They perform those functions of servicing the general private capitalist turnover with foreign countries, etc., which it needs in this turnover, but which the state refuses to satisfy due to its sufficiently justified attitude towards such a violation by private capital of the state monopoly in the field of foreign trade and foreign currency. If it werenʹt for this generally successful counteraction by the state, private capitalist transactions in foreign exchange and foreign trade would have been many times greater.
Another branch of the foreign exchange activity of private capital is operations with gold. It should be noted that, as in transactions with foreign capital, here we are talking about the field of capitalist economy, and not private economy in general. Of course, even a low‐income person who is not a capitalist entrepreneur in the money market can sell a gold ten he has preserved from tsarist times or a dollar received from a relative from abroad. But to buy up all these gold tens and dollars, to buy them systematically and for large sums, which then make it possible to organize illegal transfers abroad, foreign currency

loans to pay for smuggling and other operations ‐ all this is the business of the capitalist. For such operations, the hands of a small person are short.
There are basically three sources of obtaining gold by private capital (for speculation):
1) the mobilization of reserves of gold coins left in the hands of the population at the beginning of the imperialist war of 1914, after which the legal circulation of gold coins in kind ceased in our country;
2) illegal buying of unminted gold mined in Siberia by the so‐ called ʺprospectorsʺ (small proprietors and handicraftsmen exploited by private capital during this buying);
3) an influx from the reserves of the state, which took place due to the erroneous line in this respect of the Narkomfin during the last year of Comrade Sokolnikovʹs leadership of it, which ceased with a change in the line, which was incorrectly taken by Comrade Sokolnikov.
Of these three paths, the first is not now predominantly of great importance. For a number of years, old gold coins have been gradually exported abroad to pay for smuggling and travel expenses and simply for the emigrants to transfer their wealth abroad. And besides, a peasant, an intellectual, or a petty employee who has a gold ten is not so willing to part with it for sale to a money changer. The role of the second method ‐ buying from miners ‐ is perhaps somewhat greater, but also cannot be taken into account at least approximately. One can more definitely judge the results of the so‐called ʺcurrency interventionʺ undertaken during the period from October 1925 to April 1926.
A fundamental discussion of the meaning and nature of
ʺcurrency interventionʺ can be found in the organs of the

Narkomfin. By ʺcurrency interventionʺ in this case we mean the sale of gold (and foreign currency equal to gold) carried out by state organs to private capitalists. Its purpose was to increase the supply of gold and foreign currency on the ʺfree marketʺ to lower their price there and thereby significantly change the ratio of rates in favor of our chervonets.
It turned out, however, as one would expect, that the purchasing power of the chervonets is determined by deeper causes than artificial manipulations in the private capitalist market with sums that are large in themselves, but do not matter in comparison with the volume of the main national economic processes. And before this ʺcurrency interventionʺ, and after it, and during it, the purchasing power of the chervonets generally remained at the same level, with slight fluctuations.
According to the indexes of the Market Institute of the Narkomfin, as Prof. Kondratyev cited in a report on March 11, 1927, the purchasing power of the red ruble in the ʺfree marketʺ in relation to the purchasing power of the pre‐war ruble was: in the 1924/25 financial year ‐ 44% and in 1925/26 business year ‐ 43.1% (and on May 1, 1927 ‐ 44.2%). Thus, there are no results, and the stateʹs loss of gold and hard foreign currency in favor of private capital is undeniable.
It is clear that Comrade Sokolnikovʹs line, which was incorrect in this respect, was cancelled. It cost us in the sale in private hands for seven months, from October 1925 to April 1926, gold for 29 million rubles. and hard foreign currency (dollars, etc.) for 21 million rubles, but only 50 million rubles. True, in the following period, in eight months ‐ from May to December 1926
- they managed to buy back 5 million rubles, but the bulk remained in private capitalist hands to finance smuggling and illegal transfers abroad and as an object of internal currency speculation.

In order to strengthen the Soviet red ruble, we are following a different path—the path of lowering retail prices. A vigorous reduction in retail prices, a vigorous reduction in the profits of cooperation and state trade, a struggle to limit price inflation by private sellers ‐ all this is tantamount to an appreciation of the ruble. This is the only real way to increase its purchasing power.5
5 . We will talk about pseudo‐cooperatives in connection with the activities of private capital in industry and agriculture; on tax evasion
- in the section ʺPrivate capital and taxationʺ.

 

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