STALINIST ECONOMIC MODEL

There is a misconception that the Stalinist model of the economy is not a market one. This misconception takes origin from Marxists who think that socialism is a special system that is not subjected to market laws. But as it has appeared, it’s impossible to circumvent the law of supply and demand. Then, in the early ’90s, we rushed to the other side, starting to build “market economy”. This misconception induced the spread of the liberal dogma about “the ineffectiveness of state economy”. Most likely, it comes from Mises, who viewed the economy as a system of exchange of information about prices. But production of anything under the plan doesn’t mean the abolition of the price (perhaps it would be correct to express it as the rate of future cost savings, future growth or minimization of future costs to current costs) of the manufactured product and the rejection of the exchange of information about prices, i.e. market in Mises’ understanding. The most important thing that Stalinist economy could make in the meaning of Mises – to see real values, to invest them into prices, to organize the exchange of information about them, to meet the main demand for guns, tanks and airplanes and to become the winner of the Great Patriotic War. To Stalinist economy we can oppose the situation in modern market, where false values dominate, wrong, distorted prices circulate, as Mises would have said, and, as a result, money is washed out of the real sector of economy to the financial one, inflating the financial bubble, the ultimate objective or which is to burst.

From these arguments you can make a deduction about the impossibility of communism as a state of society in which all resources are free, because the production of any recourse requires costs. We need to know this information, as well as to disseminate the information about the value of the resource in order to have an ability to focus the efforts of the society on the most important directions.

It’s easy to describe a compromise model of the Stalinist economy with modern economic theory. It is not an accurate reflection of the Stalinist economy, but it inherits its features which are important of our time. Compared to the liberal model, it differently relates to monopolies. If liberal model forbids them so that market subjects wouldn’t be able to assign monopoly prices, Stalinist model nationalizes them. In this case monopolies don’t prescribe monopoly prices for their goods and services either, but at the same time the society retains a huge economy of scale, which gets lost at the liberal decisions on the destruction of monopoly. And what is an efficient society if not a society that performs its functions with minimal costs? Thus, the model of Stalinist economy is more than the liberal one.

Under monopolies natural monopolies are meant – the monopolies formed due to economic reasons, in the conditions of the growth of costs and increasing competition. The purpose of the state governing such monopolies is to maximize the value of customer satisfaction (in other words, to maximize the output, it also provides maximum effect of scale and minimal prices –everything is very harmonious). Under the costs not only production costs are meant, but also public costs. For example, of course, a monopoly on the production of atomic weapons is a natural one.

The problem of monopolies also highlights the lack of logic of the liberal mantra about “inefficiency of the national economy”. Indeed, if the efficiency is measured by commercial profit, then it’s not clear at all why monopolies should be prohibited in the liberal model, while they have the highest possible profit, and, consequently, according to the logic of liberals, lead to maximum efficiency?,

The interesting thing is that the modern economic theory has left traces of a positive attitude towards the Stalinist economic model. These traces can be found in the section of technological choice in the economy, when it is decided that at the greater proportion of savings in comparison with the share of consumption the level of production capacity can be increased in the future. Apparently, this decision should give a theoretical justification for the unprecedented growth of the Soviet economy, but, unfortunately, the consideration of this question is excluded from economic theory. Such a shift in the direction of “accumulation” is impossible to imagine in case when the industry is divided into thousands of small businesses and the financial market is divided among the thousands of small banks, and all these subjects are led by their small private interests. It turns out that the decision about the transition to a new level of production capacity mentioned in the economic theory applies only to the Stalinist economic model. But how, in the Stalinist economy, the problem of displacement along the curve of technological choices in the direction of accumulation was solved?

If we ask now the Central Bank about the possibility of stimulating the economy with cheap credits, we will get an answer that, it can lead to inflation. At this point the considerations of the Central Bank end. In which case cheap credit lead to economic growth, and in which to inflation – our CB doesn’t know. Well, let’s see. Let’s consider the equation of monetary MV = PQ: quantity of money multiplied by the velocity of circulation should be equal to the volume of sold commodity weight. Let’s divide the increase of money supply into two components. The first component we’ll call conventionally “speculative” (the first agent who gets the new money supply have an advantage over all the others, that is, they pay by old, non-inflationary prices with less valuable money, i.e. they are speculating) – it doesn’t go into investments and, therefore, doesn’t serve for increasing the mass of commodities. The second component is called “investment” one – it is spent on investments and, therefore, serves to increase the mass of commodities. Speculative component leads to inflation, pure investment component leads to deflation, as in the conditions of qualitative investment the created mass of commodities exceeds the amount of investments. Thus, if the speculative part is greater than the investment part, then there is inflation in the economy. Indeed, if CB RF in modern conditions will try to stimulate the economy with cheap money, it all will go to speculations in the exchange market, because its yield now exceeds the yield of all the possible investments. As a result, the economy will experience a pure inflation.

In Stalinist economy such thing principally couldn’t happen, because the investment component was allocated in a separate cashless closed loop from which money could not get into the cash circulation, and was spent exclusively for the development and maintenance of the means of production. At the same time investment money received by the enterprises from the state was not even a loan to 0%, because it didn’t have to be returned to anyone. It was altruistic money. A separate investment money contour and planning of development have led to well-known results. Already during the time of the first Soviet five-year plan, from 1929 to 1933, about 1,500 large industrial enterprises were built, and the whole new industries were created, which didn’t exist before: machine-tool, aircraft, chemical industries; ferroalloys productions, tractor and automobile manufacturing, and others.

From the current situation at the exchange market the question arises: what is freedom? Concentration of funds for the realization of investment projects or the ability to speculate? If the first, then for such an economic system the state should monopolize currency trading, providing the citizens with an effective gateway for the free purchase of goods and services all around the world for national currency.

The destruction of the Soviet Union happened in accordance with the destruction of the institutions that ensured its growth. Gorbachev allowed the speculation and let the money from the investment contour flow into cash contour. As a result, inflation bust out, speculators began to hold goods and products, and the Soviet Union collapsed for the same reasons like the Russian Empire, as a result of inflation and the actions of speculators – there was no bread on the commodity shelves.

Let’s note that the model of the Stalinist economy affects with nationalization only large monopolies, without affecting small and medium businesses. Really, Stalinist economy included simple and effective mechanisms for the creation of small and medium-sized enterprises. At the time of the death of Joseph Vissarionovich Stalin there were 114 000 (one hundred and fourteen thousand!) of workshops and enterprises of very different spheres – from food industry to metalworking and from jewelry to chemical industry. About two million people worked at these enterprises, they produced almost 6% of the gross industrial output of the USSR, and artels and co-operatives produced 40% of furniture, 70% of metal utensils, over one third of all jersey, almost all the children’s toys. In the enterprise sector worked about a hundred of design offices, 22 experimental laboratories and even two scientific research institutes. More than that, in the frames of this sector its own, non-state pension system was operating! Not to mention the fact that artels offered their members loans for the purchase of livestock, tools and equipment, the construction of housing.

So how had effective Stalinist economy become ineffective, criticized by everyone, command and administrative, which led to the collapse of the Soviet Union? Political model of preserving the stability of the state under strong external pressure was imposed on the economic model. As I have already written in my previous article, Stalinist economy grew out of the Civil War and was ready to meet WWII. In these conditions a very cruel treatment of dissent formed, and the stability of the system requires an open attitude towards it. The movement toward openness started from Khrushchev’s “thaw”. To our misfortune, Khrushchev himself was a product of the Stalinist era. The fear of responsibility for the repression carried out under his leadership mastered him. For example, from the total number of victims of repressions in the years 1937-1939, 9579 soldiers in only one Kiev Military District N.S. Khrushchev had a hand in the repression of 1066 people. Perhaps, when he received a famous response from Stalin for his request to take measures to expand them (“Stop, you fool!”), a chill went through his body. And when Nikita Sergeevich came to power, he began to deconstruct Stalin, so beloved by people. To accomplish this, he had to offer in return to love to Stalin something else. And he offered communism!

According to the Marxist theory, communism should be built as a result of development of the productive forces. How this development is expressed, Marxism doesn’t reveal, any why Khrushchev decided that by 1980 productive forces will develop to such extent, is unknown. As a result, the country has taken the path of morphological development and hasn’t reached the main aim –intellectual openness, which ultimately led to disaster. With each new day of the words of the leaders were increasingly at odds with the practice. In 1956 the artels were officially forbidden and dispersed in the following several years. Over time such things developed like deficit and unfinished construction, attributed by the modern economic theory as the inherent properties of the socialist economy. But they can’t appear at the normal goal of production management – to satisfy demand, and only at the propaganda goal – the movement to communism, followed by a steady decline in prices. Technological gap developed. But Stalin’s hundreds of private engineering offices – this is the Soviet Silicon Valley, which the Americans set up only in the 60s, after the Soviet launch of first artificial satellite.

Eight years pass after Stalin’s death, and it turns out that the Communist Party headed by Khrushchev couldn’t respond to the differences of West Berlin. The only solution is found – to dissociate, to build the Berlin Wall, signaling the beginning of the end of the Soviet Union and the socialist bloc. Now the situation is reversed. The invisible wall blocking the view from Russia is built by the Western media. European politicians take a closed decision on combating “Russian propaganda”. Pro-Western users of social networks are closing their pages from the pro-Russian ones – they have simply nothing for answering to the logical arguments. Pro-Western friends don’t respond to direct questions. All of them believe that thus they are waging an information war. How will this end, we are all aware.

The chart below shows the qualitative changes in GDP growth of the Stalinist economy compared with the economies of the Russian Empire. The graph shows that the years of the NEP can be taken for the restoration of the trend growth of the economy of the Russian Empire. Unfortunately, the chart can not show that the economy of the USSR with the arrival of Khrushchev qualitatively changed. This can be seen from the table showing the change in the Soviet Union and the United States share in global GDP in %:

1950 1960 1970 1980 1990 (2000)
USA 28,79 24,38 22,52 21,36 20,73 20,59
USSR 11,12 14,47 13,18 11,71 9,22 4,12
Black denotes the dynamics of changes in the price of oil, blue - GDP change RI / USSR / Russia (in 2012 dollars).
Black denotes the dynamics of changes in the price of oil, blue – GDP change RI / USSR / Russia (in 2012 dollars).