Transcripts from the Soviet Archives VOLUME XIV SECRET REVIEWS 1934

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  Transcripts from the Soviet Archives VOLUME I  1903-1926   

Memorandum of the Deputy Chairman of the USSR State Planning Committee I.T. Smilgi I.V. Stalin. January 9, 1926

A source: Transcripts of the meetings of the Politburo of the Central Committee of the RCP (b) ‐VKP (b) 1923‐1938. Moscow. ROSSPEN.

2007. Volume 1 1923‐1926. P. 597‐599

Archive: RGASPI. F. 76. Op. 2.D. 431. L. 19‐23. Copy. Rotator.

General Secretary of the Central Committee of the CPSU (b) comrade Stalin

For members of the Politburo

Memorandum

The complexity, difficulty and responsibility of the economic situation forces me to turn to the highest party and government institutions with a statement of my understanding of the situation and those measures that, in my opinion, are dictated by this situation. I will dwell on the main reasons that led to the existing difficulties, on the nature of these difficulties and on the ways to overcome them.

Speaking about the reasons for the economic inconsistencies in the winter of 1925‐26, it must be stated that the current situation was clearly outlined in the spring of 1924. The sharp shift in grain prices towards an increase and aggravation of commodity shortage were signs of a new phase on the path of our development. In the summer, in connection with the good views for the harvest, one could expect a significant decrease in the grain situation and a general improvement in the situation. This, however, did not happen for two main reasons. Firstly, serious foreign exchange difficulties forced us to pay for export while the internal situation was not clear, and secondly, unfavorable weather during the harvesting and threshing of grain, insufficient saturation of markets with industrial goods (due to their shortage), largely caused by this circumstance increased domestic consumption of the village, revaluation, perhaps, our statistics on the size of the harvest ‐ all this in aggregate led to the fact that instead of the expected increased waste of grain, we met with an extremely restrained supply of bread. All economic incentives: tax, vodka, insurance payments, loan repayments under the agricultural system. credit did not have a significant impact on the situation. The tax is not heavy and is levied liberally, the correctness of raising the price of vodka has not yet been proven. (Personally, I think I did the right thing.) 

These circumstances, in the main, prepared the further. The rather significant drop in grain prices that was outlined in the fall was quickly replaced by stability and growth. Wholesale and retail scissors have dispersed menacingly. Our main export goods have become either unprofitable or downright unprofitable (which is especially dangerous given the downward mood of the world market). Because of the mistakes made in the licensing policy, we found ourselves unable to reduce our imports accordingly. The result is the greatest dangers with our overseas payments. A sharp outflow of funds from credit institutions in the countryside (procurement season, high prices), an increase in wages without increasing the cost of utilities, created an automatic reduction in loans and the danger of oversaturation of monetary channels

(inflation).

The main conclusion that I draw from the above is that the balance between industry and agriculture is sharply disturbed in the commodity market in favor of the latter. In other words, the villageʹs balance of trade and payments is too active. By this I do not mean at all that the man has achieved prosperity. I think that he is still very far from the most elementary well‐being. I just want to say that we are lagging behind with industry. I do not pretend to predict the duration of the state of imbalance. It is enough that even the seasonal disparity creates an intolerable situation for us.

We are in danger from both sides. On the part of foreign payments and on the part of monetary circulation. It is possible to successfully combat these dangers by eliminating the causes that give rise to them. In order not to go bankrupt with payments abroad, it is necessary to ensure successful export. ʺThe rise of the will to exportʺ will remain an empty sound if the state does not economically come to the aid of exporters. We are talking about compensation for losses, the issuance of bonuses in some cases, etc. The key to success lies not only in the struggle against the self‐supporting nature of exporting organizations. On the contrary, only having prepared an appropriate economic basis, one can count on the success of organizational and administrative measures. Without a quick positive solution to this issue, the export plan may be unfulfilled with disastrous consequences for our economy.

The Peopleʹs Commissariat of Trade alone is unable to do this. The scope of his internal maneuver is insufficient. We are talking about help from the budget. The budget does not provide for the corresponding expenditure. We must bring it there.

We came close to the central point. In a situation like ours, such a powerful instrument of economic policy as the budget must be fully used in the struggle against difficulties. Unfortunately, economic discrepancies were almost not reflected in the current yearʹs budget. The budget is drawn up in such a way that everything seems to be all right. Letʹs start with its dimensions. In the summer, when the prospects for the harvest were much better than in the fall, the State Planning Committee in its ʺcontrol figuresʺ named a figure of 3 billion 700‐800 million rubles. Comrade Sokolnikov considered this figure exaggerated. Then the situation with the harvest worsened. It would seem that this circumstance should have affected the budget figure as well. However, the budget has grown to 4 billion. I think that we cannot afford it, based on hard currency. If we assume that the chervonets has already become a falling currency, then it’s another matter.

The budget is large, there are too many ʺconsumerʺ expenses in it. They need to be cut. I prefer to be seen as an enemy of ʺcultureʺ and many more good things than taking risks in such a difficult environment. The budget is not only large, but also improperly designed. Too much has been allocated to agriculture. Throwing money there without goods, we cut ourselves. These funds should be cut. At their expense, you can support exports.

Reducing quarterly plans cannot be considered sufficient if the budget itself is not designed correctly.

The second danger threatens money circulation from loans for new construction (industrial and municipal). The building materials index increased by 37% over the year. This testifies to the complete impossibility of the building materials market to meet the demand. Being a resolute supporter of the development of industry, I nevertheless insist that spontaneous pressure should not push us towards inflation. The Supreme Council of the National Economy should stop the rise in prices for building materials. Industrial and communal construction must be introduced into the realm of reality.

Moving on to the state of the money market, I must first of all pay attention to the huge costs of foreign exchange for intervention in order to maintain the currency parity of the chervonets. In December, these expenses reached 20 million rubles. If we proceed from the assumption that the situation is only threatening, in the sense of possible inflation (my point of view), then some expenditure of currency is inevitable. I think it is possible to significantly reduce this cost. The economic nature of this phenomenon will consist in the fact that due to the lack of goods; it will take some time to throw out a certain amount of gold and foreign currency.

If, as others think, we are already in a state of inflation, then this expense is not only unnecessary, but directly harmful, as aimlessly emptying the state treasury. But then a completely different policy follows in the field of prices and everything else.

I think that for the present time my understanding is correct, although I do not hide the fact that the danger of inflation can easily turn into real inflation. I think that with the right policy, firmly pursued, the situation can be restored. I limited my task to the main one. Numerous practical conclusions are a matter of the current work of the SRT. My goal is to raise the question and outline the line of its solution.

January 9, 1926, I. Smilga