Does the existence of nationalized industry
prove that a country is socialist?

Preobrazhensky--ideologist of
state capitalism (Part 1)

by Joseph Green
(from Communist Voice #17, April 20, 1998)

.

--List of subheads (complete text follows afterwards)--

Introduction
The debate on industrialization

I. The state sector as socialist in and of itself
The growth of state industry will automatically bring socialism
The commodity-socialist economy
Political consequences--support for Stalinist state capitalism
Preobrazhensky reconsiders

II. Economic categories and the state sector
The state sector acts as a unified whole
Profit
Stock issued by state enterprises
Interest
Rent
Commodity production
The working class can't exploit itself

INTRODUCTION

. Evgeny Preobrazhensky's celebrated book The New Economics appeared in 1926, yet its influence is still felt today. It aimed at presenting a theoretical picture of what the transition to socialism looks like, and dealt with subjects such as planning, the role of the state sector, and "primitive socialist accumulation". Although Preobrazhensky (1886-1937) was a Russian communist who was part of the Trotskyist "Left Opposition" to Stalin in the 1920s and was murdered by Stalin's regime in 1937, his ideas on the state sector and industrialization (and those of the Trotskyist movement in general) have much in common with those of Stalin. Preobrazhensky held that, given that the old bourgeoisie had been overthrown, the nationalized industry and state sector of a regime were inherently socialist, no matter how the state sector and the government were run. He could not see that a new bourgeoisie could arise from within the state sector and, basing its power on the state sector, become a new ruling class, a state-capitalist ruling class.

. The New Economics presents a series of arguments to prove that the degree of socialism in the Soviet Union could be measured simply by the size and power of the state sector. Many of his claims echo today in the debates over whether the supposed "communist" regimes in China, North Korea and Cuba today, and the late Soviet Union and Eastern Europe yesterday, actually were socialist. The Marxist view that progress to socialism is measured by the extent that the workers themselves run the economy and the entire country, and that the state sector itself has to be judged as to whether the working masses control it, have been discarded by the apologists of these regimes. Dependency theorists, most Trotskyists, and many reformists have denied, and still deny, that these were state-capitalist regimes.

. Yet, if Marxist-Leninist socialism is ever rise again as the banner of world proletarian revolt, there must be clarity on the state-capitalist nature of the late Soviet Union and similar regimes. These regimes stole the term "Marxism" to prettify the capitalist reality of their countries; they were really revisionist regimes who "revised" the heart out of Marxism until there was nothing left of value to the working class. Neither the exploitation and oppression of these regimes, or the orientation they sought to impose on the world revolutionary movement, can provide any inspiration for a socialist revolt in the future. Marxism can only renew itself on an anti-revisionist basis, by showing that it provides the only scientific explanation of the state-capitalist nature of the revisionist regimes.

. Preobrazhensky's New Economics has turned out to be state-capitalist economics, and his legacy has served as ideological reinforcement for state-capitalist regimes. His significance is not that he was the only one in the Russian Communist Party in the 20s to put forward such ideas. In fact, Preobrazhensky shared a fairly common assessment of the nature of the state [sector] with, not only the "Left Opposition", but most of the people who he was polemizing against. So ironically, the main significance of his work today isn't so much how he differed from his opponents such as Stalin and Bukharin, but how he defended what he tended to share with them. He ended up providing the most elaborate and influential statement of this common, state-capitalist position in the name of communism. Many people who wouldn't think of citing Stalin for their views on this question, will ponder similar views by Preobrazhensky and his co-thinkers. Thus the well-known Trotskyist scholar Isaac Deutscher lavished praise on The New Economics, claiming that it provided

"the first serious and still unequalled attempt to apply the 'categories' of Marx's Das Kapital to the Soviet Union. . . a landmark in Marxist thought. . . . Many regarded Preobrazhensky rather than Trotsky as the author of the Opposition's economic programme--he created at any rate its theoretical groundwork."(1)

The debate on industrialization

. The New Economics appeared in the midst of the Soviet industrialization debate of the 1920s. By 1921, industrial production had been reduced to a trickle; the economy had been ruined by World War I, the Civil War, and the foreign intervention against the Bolshevik revolution. Simply to restore the economy to its pre-World War I levels would be a task requiring years, and yet moving towards socialism would require going way beyond that level. Indeed, Russia was still largely a peasant country, with individual or small-scale peasant production. Inducing the peasants to move towards socialism and modernizing agricultural production called for increased industrial production to provide machinery and consumer goods for the countryside. At the same time, providing food for a growing urban population, agricultural raw materials for industry, and grain for export required not only an increase in agricultural production, but a willingness of the peasants to supply these goods to the industrial economy. Debates broke out over whether the investment of scarce resources should be divided between industry and agriculture or center on industry; on the relative weight to give to providing consumer goods immediately versus investing in building up productive capacity for the future; on what relations to maintain with the foreign market; etc. Expressed this way, the issues resemble those faced by many underdeveloped countries. However, the Soviet debate was also over how to maintain workers' rule and move towards socialism.

. The Bolshevik Revolution in October 1917 had overthrown the capitalist government, but political power by itself does not eliminate the capitalist economy. There has to be a lengthy transition period in which the workers not only displace the capitalists from the factories, but also gradually induce the peasants and other small producers to join together in socialized,large-scale production. But it wasn't long before the plans of the new regime for a gradual transition towards socialism were cut short by Civil War and foreign intervention, which reduced industrial production to a trickle, and scattered the working class. To deal with this crisis, the Bolsheviks carried out rapid and extensive nationalization of all industry, seizure of the agricultural surplus, and emergency measures on all fronts: this was the period of so-called "War Communism". After the Civil War was won, it was found that the system of War Communism could not survive. The workers were not yet able to dispense with capitalist methods in running industry, and the peasants wouldn't accept the continuation of the agricultural requisitions. So in 1921, at the urging of Lenin, the Bolsheviks adopted the famous "New Economic Policy". This policy was a return to the idea of a gradual transition towards socialism and an admission that commodity production and capitalist methods could not yet be dispensed with.

. Under the New Economic Policy the economy had a state sector, a private capitalist sector, and petty-bourgeois peasant production. Private capitalists were particularly strongly entrenched in trade and commerce, while the countryside was almost entirely dominated by individual peasant production. Moreover, the state sector itself made use of many capitalist methods; for example,the various state industries were run on a self-financing basis. It was necessary to get the economy going and to restore production. But there was also an ongoing fight between several different forms of production.

. The NEP-type economy was clearly not a socialist economy. There was a transitional situation where the working class, if successful, might gradually consolidate its ability to run the economy. Lenin talked of the necessity of learning how to oust the private capitalists from their economic positions by learning how to carry out trade and other activities, and of the need to strengthen the state sector. But he also raised questions about the nature of the state sector in such a transitional situation.

. For example, in an article in January 1922 on the trade unions, he stressed that NEP-conditions would result in an "inevitable rise of narrow departmental interests and excessive departmental zeal" in state industry. Despite the fact that the working class controlled the state sector through the overall control of the communist party as well as through local control at each workplace, there would be "a certain conflict of interests in matters concerning labor conditions between the masses of workers and the directors and managers of the state enterprises, or the government departments in charge of them." The task of trade unions led by communists wasn't simply to support the state sector, but to protect the workers against "the blunders and excesses of business organizations resulting from bureaucratic distortions of the state apparatus."(2)

. Lenin did not introduce some new terminology to define this character of the state sector. And, dying in 1924, he did not develop this analysis of the different tendencies in the state sector beyond this point. But, despite his absorption in the urgent problems of strengthening state industry and state institutions, he didn't identify the struggle for socialism as simply enlarging the state sector.

. Indeed, aside from worrying about what was happening internally to the state sector, Lenin also held that the organizational forms needed to bring millions of small producers towards socialism involved more than just the growth of the state sector. Thus, in a key article in 1923 he worried about the lack of attention being paid to the collectivization of agriculture. He held that it was necessary to find forms of transition to socialism that would be "the simplest, easiest and most acceptable to the peasant" so that "every small peasant could take part in them." He believed that the spread of co-operatives, and particularly producers' cooperatives (or collective agriculture), could provide this transitional form.(3)

. The NEP didn't develop the way Lenin hoped. There was success in restoring the pre-war level of production, but bureaucratic features in the state sector, the communist party, and the trade unions deepened, while collectivization didn't develop very far. But his theorizing on NEP pointed out a number of the issues that should have been assessed practically in the debate over what economic course to follow.(4)

I. THE STATE SECTOR AS SOCIALIST IN AND OF ITSELF

. Given the debates taking place in the 20s, in which Preobrazhensky was a vigorous participant, one might expect that Preobrazhensky's New Economics dealt extensively with many concrete issues facing industrializing countries, and it was in that context that the book was first brought to my attention. Yet the book has little direct discussion of the various policy debates. Preobrazhensky stressed, in the introduction and elsewhere, that he was not dealing with particular policy decisions or government actions, but with obtaining a theoretical picture of the general nature of transitional economies in general and the Soviet economy in particular.

. Underlying his theoretical conception is that the state sector of the Soviet economy was socialist. By this, he doesn't mean that it was a transitional institution helping to move the society to socialism, but that it was already socialist. He argues that it only appears on the surface to be the case that such capitalist economic categories as rent, interest, separate enterprises, surplus value, and commodity production still exist in the state sector. He held that the state sector, no matter how weak and undeveloped, had already vanquished commodity relations in its internal workings. Commodity relations, in his view, only existed in the state sector insofar as it exchanged with external sources, such as peasant consumers(5), the merchants, the capitalists, and the world market.

. Actually, not just Preobrazhensky, but other major figures in the Russian Communist Party also regarded the state sector as already socialist and held that one could ignore the different class tendencies within it. Stalin made a point of this in rebuking a critic, Sokolnikov, at the 14th Party Congress in Dec. 1925.(6) And in fact, if a successful transition towards socialism were in fact occurring, the state sector would be that part of the economy that was most directly under the control of the working class and that most showed the features of a planned economy. Nevertheless, even in that situation, when the state sector is really under the control of a revolutionary working class, it is not socialist in the full sense of the word, but is only the most advanced institution of the transitional economy; it is not a socialist institution, but a transitional institution. Lenin, as mentioned above, pointed to the "inevitable" contradictions that would arise between the state sector and the working class under NEP. A key weakness in the debates in the Russian CP was that, instead of developing Lenin's insight further, they lost sight of it. Preobrazhensky, by arguing against any recognition that capitalist features remained in the state economy, in effect urged everyone to close their eyes still tighter.

. Thus The New Economics opened with Preobrazhensky reproaching some unnamed critics for thinking that the capitalist features remaining in the state sector could seriously affect how it worked (was "regulated"). His argument is that they must not really have recognized that the state sector was socialist, no matter what they said in words. He wrote that

"my opponents have been obliged, through acknowledging the law of value as the unique regulator of the economic system of the U.S.S.R., to deny utterly . . . that our state economy is socialist in type (however primitive this type may be) . . ."(7)

. His views concerning the law of value will be dealt with in part two of this article; what is important for us now is that Preobrazhensky reasoned about the state sector not on the basis of what it actually was at the time or what it inevitably is in a transitional period, but from the point of view that it was already socialist and so all its main features must be socialist ones. Moreover Preobrazhensky didn't argue this way out of the belief that everything was going well in the USSR. He was quite upset over what was happening in the party and the Soviet bureaucracy, as well as with the economic policy being followed in the state sector. But he didn't regard the actual situation in the party and the state sector as relevant to the character of these institutions.

The growth of state industry will automatically bring socialism

. Preobrazhensky's view of the state sector led him to think that the various problems of Soviet society would be solved "automatically", so long as long as the state sector kept growing. The problem was simply to secure as large an investment fund for state industry as possible. This would develop the productive forces as fast as possible, and

"the development of the productive forces must inevitably mean an increase in the relative weight of the production of means of production, and this increase quite automatically intensifies the tendency for commodity production to disappear in the state economy  . . ."(8)

. Elaborating on this, he discussed the issue of wage differentials, the distinction between skilled and unskilled workers, and other social relations among the workers of the state sector. His main conclusion was that

"Here we have a fresh extremely interesting example of the fact that under socialization of the instruments of production purely quantitative changes--in this case the growth of the productive forces and material wealth in the state economy--automatically intensify the process of dissolution of the categories of capitalist society."(9)

. Needless to say, the subsequent evolution of the Soviet Union has disproved Preobrazhensky's theory of "automatic" entry into socialism. Soviet industrialization, including the dramatic growth of heavy industry, occurred while the Stalinist state-capitalist order was being consolidated. This doesn't at all prove that industrialization was unnecessary--only large-scale production can serve as the basis for socialism--but it does show that the question of which class is able to organize this industrialization can't be ignored. Lenin pointed to the "inevitable" existence, during the transition period, of certain contradictions between the state sector and the workers, and history has shown that a new ruling class can develop on the basis of the state sector. If the proletariat is going to ensure that the state sector remains its revolutionary tool, it has to look frankly at the contradictions in the state sector caused by bourgeois methods. Only by recognizing these contradictions, and not by explaining them away, can the proletariat work to ensure that they are resolved to the benefit of the revolutionary cause.

The commodity-socialist economy

. Preobrazhensky's conception of the state sector is implicit in his characterization of the Soviet economy--he described it as the "commodity-socialist system of economy". This term might mean different things to different people, but what Preobrazhensky meant is that there were two different economies in struggle: the socialist economy, which was the state sector, and the rest of the economy, which was engaged in commodity production.

. The word "socialist" has been used in different ways. Sometimes it is used to mean the full socialist economy, in which there is no commodity production. Sometimes it is used to refer to transitional forms which are moving towards socialism. Since Preobrazhensky was, as he repeatedly stressed, making a theoretical analysis of the basic nature of the economy, he was careful about how he used terms. He seriously meant that the Soviet state sector was socialist. He mentioned "transitional relations" a few times, but he viewed the transitional character of the Soviet economy as being that the state sector was still only part of the economy. In his system, the degree of the transition can be seen by how far the state economy has absorbed all the rest of the economy.

. For Marxism, the socialist aspect of a transitional economy is the extent to which the proletariat has taken over the control of production and can run it as a planned, unified whole. The state sector plays an important role in this, but it is not identical with the socialist organization of the proletariat. One has to judge how far the proletariat has actually gained control over the state sector, and how far the state sector really runs as a planned, unified whole. This may sound like a small difference from what Preobrazhensky was saying, but Preobrazhensky's view of the state sector implied that the state sector should already be judged as if it were a consistently planned, completely unified whole, overlooking the protracted struggle and the material conditions needed to achieve this. His theoretical definition of the state sector led him to ignore or overlook the significance of the commodity relations engulfing the state sector, and to believe that they were purely external to the state sector.

. Thus, Preobrazhensky's view of the "commodity-socialist system" implied that there is no possibility that a new ruling class could develop from within the state sector. He could only see Soviet society degenerating into capitalism if representatives of the rich peasants or other capitalist interests took over; he couldn't see the new state bureaucracy replacing the old capitalist class as exploiters. The Marxist view, however, holds that this is quite possible, since it doesn't automatically identify the state sector with the socialist cause of the proletariat. While Preobrazhensky saw state industry automatically becoming more and more socialist as it grew, Marxism holds that the proletariat has to become more and more organized to ensure that this will take place.

. It is common to say that a transitional economy combines both socialist and capitalist elements, but this idea was taken to an extreme by Preobrazhensky's formula of "socialist-commodity" society. In fact, the characteristic institutions of a transitional economy that pave the way for socialism won't themselves exist, or will have to started to wither away, in what Marxism considers a socialist society, because they are designed to fight against conditions which no longer exist, namely, the existence of money, classes, several different modes of production, etc. In this sense, socialist society doesn't differ from transitional society only quantitatively (a bigger state sector, a larger party, etc.), but looks quite different. For example:

. Preobrazhensky's term the "commodity-socialist system" suggested, instead, that socialism already existed in part of the economy. It glossed over the differences between transitional institutions and socialist ones. Instead of highlighting the economic struggle that takes place within the state sector itself, it complacently suggested that the only danger of capitalist restoration came from outside the state sector. Because it walled off the state sector from the turbulent class contradictions of the transitional sector, Preobrazhensky could believe that the state sector automatically becomes more and more socialist as it grows.

Political consequences -- support for Stalinist state capitalism

. Preobrazhensky's view that the growth of the state sector would automatically bring socialism had political consequences. It would lead him to embrace the state capitalist system built up under Stalin.

. By the end of the 1920s, most of the participants in the debate over industrialization were coming to the view that the amount of investment in state industry had to be stepped up. The period where industry could advance rapidly by simply restoring unused capacity was coming to an end, as industry reached 75% of pre-war levels in 1925 while aging equipment required replacement. Some change in policy was likely, but what? In 1928-1930 official policy turned to rapid industrialization and forced collectivization under Stalin's First Five Year Plan.

. Meanwhile, the Left Opposition, which Preobrazhensky supported, had lost its positions in the ruling party by late 1927, and various Oppositionists included Preobrazhensky were arrested in 1928 and exiled to distant parts of Russia. But Stalin's turn to rapid industrialization, and his break with Bukharin's policies towards the peasants, seemed to most of the Left Oppositionists as their own program. Given Preobrazhensky's view that the growth of state industry would automatically solve all other problems, it was natural that he subordinated all other issues, including the brutal treatment of the opposition, to that of industrialization.

As the Trotskyist Deutscher himself describes it:

"When in 1928 Stalin accelerated the tempo of industrialization and turned against private farming, the Oppositionists first congratulated themselves on the change, in which they saw their vindication; but then they felt themselves robbed of their ideas and slogans and deprived of much of their political raison d'etre [reason to exist]. . . . If it is a galling experience for any party of group to see its programme plagiarized by its adversaries, to the Trotskyists, who in advocating their ideas exposed themselves to persecution and slander, this was a shattering shock. Some began to wonder . . .Was it not time, they asked themselves, to give up the fight and even to reconcile themselves with their strange persecutors?
. "Those who succumbed to this mood eagerly assented to Radek's and Preobrazhensky's argument that there would be nothing reprehensible in such a reconciliation, and that the Opposition, if it was not merely to grind its axe, should indeed rejoice in the triumph of its ideas, even though its persecutors gave effect to them. . . . he [Stalin] was carrying out so much of the Opposition's programme there was reason to hope that he would eventually carry out the rest of it as well."(11)

. The reconciliation didn't go well. The former oppositionists were still mistreated, and many ended up shot. Preobrazhensky himself was admitted back into the ruling party, expelled again in 1931, readmitted in 1932, arrested in 1935 and again in 1936, and executed in 1937.But,although the antagonism between Trotskyists and the Stalin regime reached fever pitch, the ideological affinity remained. Even in The Revolution Betrayed, written at a time when the state-capitalist system was rapidly solidifying in Russia, Trotsky insisted that the state bureaucracy in the Soviet Union could not have become a new ruling class because "the means of production belong to the state" and the bureaucracy "is compelled to defend state property as the source of its power and its income" and "in this aspect of its activity it still remains a weapon of proletarian dictatorship."(12) Indeed, to this day, the orthodox Trotskyist groups hold that the Soviet regime established by Stalin never became state-capitalist, due to the dominant role in the economy of the state sector. For example, even after the revisionist regime in Russia collapsed,the late Trotskyist theoretician Ernest Mandel still insisted that the Soviet bureaucracy had not been a ruling class and that the late Soviet Union had been a "postcapitalist" society, as he reiterated in 1992 in one of his last works, Power and Money: A Marxist Theory of Bureaucracy.

. Thus Preobrazhensky's theory had dramatic political consequences. His theory of the "commodity-socialist system" led him to believe that only representatives of rich peasants (kulaks) or other private capitalists could usher in the degeneration of the revolution, while the champions of the state sector were bound, whatever their errors, to defend socialism. When Stalin not only defended industrialization but attacked the kulaks, what basis was left to Preobrazhensky for opposing his policies?

Preobrazhensky reconsiders

. But although Preobrazhensky was readmitted to the party, he criticized the way the First Five Year Plan was carried out in an article he wrote in 1931 for the Soviet journal "Problems of Economics". This article, entitled "On the Methodology of Construction of the General Plan and the Second Five Year Plan", never appeared in print, but it is known through the extensive excerpts from it that appeared in the articles denouncing it in the Soviet press. It appears that Preobrazhensky's objection was that there was too much investment in heavy industry and that this was creating disproportions in the economy. He argued that the attempt to place the entire economy on a new industrial footing at the speed envisioned in the Five Year Plans would result in overbuilding heavy industry, so that there would be excess capacity in heavy industry once the basic industrialization of the economy was complete.(13)

. This idea of overaccumulation contradicted views Preobrazhensky had put forward in the 20s.So it turns out that, in order to criticize Stalinist economy, Preobrazhensky had to abandon some of his previous views. He had previously stressed that more accumulation in heavy industry was the solution to every problem, including the shortages of consumer goods. This had led to the article "Economic Equilibrium in the System of the USSR" (1927), where Preobrazhensky argued that even if a program of rapid industrialization might appear to put too much emphasis on heavy industry,

"What appears superficially as overaccumulation in heavy industry is merely a special form of underaccumulation throughout the state economy, taken as a whole." He stressed that "we arrive at the conclusion that overaccumulation in the state sector, given the tremendous task of rapid reequipment and expansion of the fixed capital of industry (a task that will take decades to complete), is an absolute impossibility."(14)

. But in 1931 Preobrazhensky found that overaccumulation in heavy industry was quite possible. He felt that this explained the fierce disproportions in the Soviet economy in the 1930s, which saw factories competing with each other to get supplies of raw materials and other necessities.Yet the Soviet Union did not end up with an overcapacity in heavy industry, thus refuting Preobrazhensky's prediction.

. The problem was that Preobrazhensky was criticizing Stalinism from a merely technical point of view. He wasn't dealing with how class relations evolved during the First Five Year Plan, just the planning numbers.(15) He still maintained his general views about the state sector, so he couldn't recognize that the blatant disproportions were a manifestation of the anarchy of production arising from within the state sector itself. From his perspective, it had to be only bungling that distorted the real, unified nature of the state sector. So he argued against mistakes in planning in favor of a different methodology of planning, not against the state-capitalist system that was being consolidated. In fact, in the post-World War II period, right up to the dissolution of the Soviet Union, there were many attempts to solve the problems in the Soviet economy by changing the methodology of the planning agencies, but none ever succeeded in overcoming the disproportions and anarchy that are always under the surface in a state-capitalist economy. This is because the ultimate cause of these disproportions are not mere technical errors, but the class reality of these societies.

II. ECONOMIC CATEGORIES AND THE STATE SECTOR

. Now let's examine some of the particular ways that The New Economics denied the state-capitalist features that were growing in the Soviet state sector. Many of Preobrazhensky's arguments were similar to those that can still be found in numerous left articles and books that apologize for the revisionist regimes, such as Kotz and Weir's recent book Revolution from Above which is discussed in the last issue of Communist Voice.

. We will see that often, in the name of getting a theoretical picture of the Soviet economy, he explained away what was actually happening as being supposedly only temporary and transient phenomena. He insisted on analyzing not what existed, but his idealized view of how things should be. He would label the state sector in accordance with what he would like to see in the future, and not what it actually was at the moment. This is what Deutscher praised as applying Marxist method to the Soviet Union.(16) Yet it is the opposite of Marx's method, which looked reality in the face and brought class contradictions to the fore.

The state sector acts as a unified whole

. On behalf of his theory of the Soviet Union as a "commodity-socialist system", Preobrazhensky wished to prove that commodity production, competition between enterprises, and other capitalist features did not exist inside the state sector. Such things only existed in a separate commodity sector of the Soviet economy or in the state sector's relations with that commodity sector, while the state sector was supposedly something of a model of socialist relations. He overlooked the necessity for the working class to struggle to gain mastery of the state sector, and instead presented the struggle in a transitional society as only the state sector growing and taking over the rest of the economy.

. To support this viewpoint, Preobrazhensky insisted that the state sector already acted as one unified whole. The problem was that under NEP and the self-financing system the individual enterprises were in large part on their own. How did Preobrazhensky deal with this? He insisted that this was only a surface appearance. Instead of analyzing what negative trends were developing in the very midst of the state economy and how the working class could fight them,he claimed that, from the point of view of the highest and most profound theory, these trends didn't exist.

. Indeed, he argued that the very existence of the state sector proved that it was a unified whole. He wrote:

. "The first and most important factor is that the state economy goes into action and cannot but go into action, only as a unified whole. An individual state enterprise,detached from the whole and hurled into the arena of competition would probably not survive, but would be crushed. But the same enterprise forming part of the unified complex of state economy has behind it all the power of this complex, and for this reason it is now not at all an isolated enterprise or trust of the old capitalist type, even when it has 'gone over to businesslike accounting' and to the outward eye looks like an individual enterprise in a commodity economy, or a capitalist trust [monopoly]."(17)

. It's not at all clear that no state enterprise could survive on its own, since state enterprises exist in countries all over the world. But even if one accepts that no Soviet state enterprise could then stand on its own, it still wouldn't follow that the various enterprises necessarily acted as a unified whole. The Soviet state could and did use various methods to prop up the state enterprises which still left them divided. Just as a capitalist country may use protectionism (tariff walls) and subsidies to foster certain domestic industries, without thereby eliminating the competition among the various national capitalists, so the Soviet government used the state monopoly of foreign trade and other measures that guaranteed a market for state enterprise, and these measures did not eliminate the self-financing system. Preobrazhensky proudly called these measures "socialist protectionism," but failed to notice that protectionism was one thing, unifying the enterprises was another.

. A key task of Marxist economic science today is to expose the anarchic forces and private interests that will exist in the state sector unless and until the proletariat really runs the economy as its own. Behind the veneer of state ownership, private interests can and do multiply. This is key to understanding the way the Soviet economy functioned right up to the collapse of the Soviet Union.(18) But Preobrazhensky argued that only shallow, vulgar or suspicious people would attach much significance to the capitalist forms in the state economy, saying that

"when our trusts were set up and passed over to businesslike accounting [the self-financing system--JG], the outward appearance of these trusts, their capitalist profile and capitalist methods of calculation, gave occasion to a number of vulgar economists to propound a sort of 'theory' of competition between individual state enterprises and capitalist enterprises--a theory which, in a suspicious way, united Marxists who were educated, or at least literate,with the smatterers and philistines of bourgeois 'science'."(19)

Thus he criticized people for studying the competition between the state and private enterprises, rather than urging them to go further and also study the competition inside the state sector itself.

. Backing down a bit, Preobrazhensky said that maybe the state sector wasn't unified back in 1921-2, but now (1926) it surely was. He wrote:

"the practical requirements of the state economy and its separate links . . . are a far more solid thing than these paltry philistine opinions, which are an attempt to represent as the normal type of relations among the trusts, and between them and the private market, what were only temporary and superficial phenomena occurring at the time of the transition of the state economy from War Communism to the period of socialist accumulation (or as we customarily say, to NEP), that is, phenomena of a certain disorganization and disconnectedness of the trusts, lack of direction of these trusts, and so on. However, as soon as the period of reorganization . . . was concluded, . . . there began the process of 'gathering together' of the state economy, as a unified whole, . . ."(20)

. Then, a couple of pages later, he admitted that the state sector still wasn't being run as a unified whole. He wrote of the great advantages "of a unified, organized complex". But he admitted that

"Attempts to utilize these advantages under the system of War Communism were unsuccessful, and their fruits were lost and fell down into that hole of general economic deficit which was characteristic of that economic system. Now these advantages would be very much more noticeable if we were at last to carry out the most urgent organizational task, which is also an important political one, of directing the entire state economy as a single entity."(21)

. So Preobrazhensky aggressively advocated that the state sector must always be regarded as acting as a single entity, while admitting that it actually didn't yet work that way. He pooh-poohed the actual features in the state economy, consoling himself that they were only "temporary and superficial phenomena". So here we have an example of Preobrazhensky characterizing the state economy theoretically not according to what it actually was, but in accordance to what he hoped it would be. No doubt he believed that if only the Left Opposition was running things, the state economy would be unified, and that in any case "practical politics, dictating economic necessity to this machine"(22) would force whoever ran the government to unify the state economy.

. Yet even when the mixed economy of the NEP period, with its overtly capitalist-style methods, was replaced by the more activist central state planning of the Five Year Plans, the clash of one state manager with another and other features of the anarchy of production remained. Based on his theoretical picture of the Soviet economy, he could not understand the deeper reasons why this was so, such as the class nature of the Soviet industrial management and its relations to the mass of workers. As we have seen, in his 1931 article, Preobrazhensky held that this was simply the result of a bad methodology during planning.

. This was a technocratic approach which hid the tasks facing the proletariat with respect to the state economy. He declared, in effect, that "the state sector is unified, or would be if it were just administered properly."

Profit

. The need to make a profit was one of the most visible and discussed features of NEP; the self-financing system meant that each enterprise had to look towards its own "bottom line". Yet Preobrazhensky insisted that the term "profit" didn't really apply in the state sector.

. His argument was that state planning reacted to profits in a different way than private industry did. It set prices differently, and decided where to invest differently. This supposedly proved that it would be superficial to think that "the term profit . . . strictly speaking and without qualification" could "describe relations within the state economy". Instead one should use some other term, such as "socialist accumulation". The state sector supposedly didn't make profits; it accumulated.(23) But changing the name of the process didn't change the reality. The form of state accumulation during NEP was through making a profit.

. This illustrates another way in which Preobrazhensky closed his eyes to the realities of the state sector. He believed that state enterprises had transcended capitalism when they acted differently from firms in a competitive free-market or from how they would have acted in "the classical epoch of capitalism". But capitalist monopolies and the state sector of capitalist countries also acted differently than competitive firms in the free-market, set prices differently, etc.; yet they were undoubtedly capitalist. If anything, monopoly capitalism was a higher development of capitalism than what it replaced. Capitalist methods evolved from the 19th to the 20th centuries. Therefore simply pointing out over and over that the methods used by the Soviet state sector differed from "classical" capitalism didn't show whether these methods had transcended capitalism. Indeed, some of the methods used in the Soviet state sector were later used by a number of bourgeois governments of developing countries.

. Moreover, while Preobrazhensky held that profit really had little to do with state sector because there was planning, he ignored--or explained away--that a good deal of the planning revolved around how to make a profit. The New Economics was indeed devoted to showing that the state sector should make more of a profit at the expense of the countryside than it was currently doing (oops, I'm sorry, it wasn't supposed to make more "profit", but to have more "socialist accumulation"). However important these profits were for expanding state industry or other necessary purposes, this does not change the fact that state industry was trying to generate a surplus through the form of profits. For the sake of accumulating these profits, Preobrazhensky recommended setting high prices on industrial goods, higher than those which Preobrazhensky believed would have been dictated by the law of value. For most people, this would show that profit-seeking was still alive and well in the state sector. But according to Preobrazhensky's upside-down logic, because the prices and profits were to be set higher than they would be in a free-market situation, therefore capitalist categories like "profit" didn't apply.

Stock issued by state enterprises

. In discussing profit, Preobrazhensky mentioned that

"we already have a fairly large number of joint-stock companies, which are mostly state concerns, and a small number of mixed and private ones. It would seem that in respect of the distribution and investment of new productive resources we are following in the footsteps of capitalism."(24)

. Well, if there were joint-stock companies, it would seem that profit really was still an important category. Preobrazhensky however immediately adds that to be concerned about the existence of joint-stock companies would be "to take the external form for the essence of the matter." He argued that only a small amount of new investment funds was raised by these companies issuing stock to private sources, and that most of the funds came from the state. He claimed that

"the very structure and method of work of joint stock companies with state capital are hardly to be distinguished from the activity of any [state] trust, and the method of collecting capital is by getting subscriptions from state institutions for state or municipal (which are one and the same) enterprises or groups of enterprises."(25)

. In brief, Preobrazhensky simply waved his hands and said that all distinctions in the state economy were irrelevant. State enterprise or municipal, funds raised by subscription or allocated from a central source, no matter, it was all "one and the same". He never proved this; he simply asserted it over and over. For Preobrazhensky, there wasn't any economic reason why various forms persisted in the state economy; they weren't connected to objective causes, such as how far commodity production still had a hold on the Soviet economy or how far the working class still was from directly managing the economy. So Preobrazhensky corrected reality by asserting that really, on the theoretical plane, it was as if these capitalist forms didn't exist. The economic essence of the matter, he thought, was that the different types of enterprises and transactions -- joint-stock company or not, self-financed or not, etc. -- were all mandated by the state. Therefore, in his conception, presumably the state planners could arrange or rearrange these things as they liked, if only they had more experience and better understanding of economics. Preobrazhensky's theoretical picture of the economy simply ignored the objective problems that would have to be dealt with if the capitalist-style methods of NEP were to be eliminated.

. Thus Preobrazhensky believed that he could show that profit, joint-stock companies, self-financing and other capitalist methods were insignificant if he could show that the state exercised some planning; he held that profit and planning were polar opposite categories. So he exaggerated the extent and effectiveness of the Soviet state planning of that time. He argued that since the state set certain goals with regard to production, this must mean that, no matter whether stock was issued or not, the investment funds for industry were obtained in a unified, centrally-planned way. He thus replaced the factual question of whether the investment funds were obtained in this way by a theoretical argument that the nature of the state sector proved that they must be obtained this way, and so any facts to the contrary must just be a surface appearance. True, he said, on the surface these funds went through "our Soviet banking system" and even a "joint-stock company for new industrial construction" (which he regarded as unimportant because, "let us hope", it would be temporary). But he insisted that the

"distribution [of resources] cannot be otherwise than planned, because it is completely absurd to suppose that the process of expanded reproduction of state industry and transport, all new construction, etc., can proceed in a planned way in the sphere of fulfilment of production programmes and yet can be unplanned, relying on some process of self-activity and spontaneity within the state economy, when it is a question of collecting resources for expanded reproduction."(26)

. But, having said that it was completely absurd to imagine that the distribution of investment funds in the Soviet economy could have been anything but planned, he then had to admit that, after all, this absurdity was--at least to some extent--the current reality:

"It must be observed in passing, however that our state economy has not yet found completely satisfactory organizational forms for servicing the process of expanded reproduction in this way . . ."(27)

. So it turns out that the state sector would have allocated its investment funds in a planned, unified way which made all financial transactions into a mere formality, except for one teeny, weeny little problem--the state sector hadn't yet found the organizational forms to do so. But why worry about this problem? All it allegedly showed was that

"The existing structure of our state economy often proves to be more progressive than the system whereby it is managed economically."

The "existing structure" referred to Preobrazhensky's theories about how the state sector should work, while the "system whereby it is managed economically" referred to how the state sector actually worked. The real absurdity here is Preobrazhensky's building up of a theoretical picture of the Soviet economy not on the basis of what was actually happening in it, but only in accordance with his hopes, wishes, and dreams about what it might yet turn out to be. Such a method of characterizing the various parts of the economy was called by Preobrazhensky,"anticipat(ing) the tendency of development".(28).

Interest

. Preobrazhensky also wanted to prove that the category of interest on loans didn't exist in the Soviet state sector. The problem is that interest obviously did exist; it appeared not only on loans that the state sector floated from the general population, but even with regard to transactions between state enterprises. How did Preobrazhensky deal with this? Once again, he insisted that what was actually going on in the state sector was fictitious, while his theorizing was reality:

"As regards interest merely so-called, interest as one of the imitations of capitalist forms . . . the fictitiousness of this category leads to the eye. From behind the miserable curtain of capitalist form and bourgeois terminology and phraseology (which some specialists indulge in with a most serious and important air) the body of reality sticks out in all its nakedness."(29)

. Why was the category of interest "fictitious"? It was because Preobrazhensky regarded every financial transaction inside the state sector as merely formal, like shifting papers from one cubbyhole to another. He argued that since the state sector was completely unified, paying interest from one part of it to another amounted to a meaningless operation that changed nothing. He made a comparison to

"an entrepreneur who works with his own capital and does not pay interest to himself, though he may, for the salving of his book-keeping conscience, attribute some interest to himself in his ledgers."(30)

But here we have a circular argument: such categories as "interest" were merely fictitious, because the state sector acted like a single entrepreneur; but how did one know that the state sector was completely unified--it was because such categories as "interest" were merely fictitious. In fact, the continued existence of "interest" might suggest that the state sector wasn't so unified after all, and that's why Preobrazhensky had to argue that "interest" was merely a ghost.

. For Preobrazhensky, even the financial transactions between the state sector and its employees was only a formality. For example, he took up the question of loans floated by the state to the general population (something like U.S. savings bonds), and considered what happened when workers bought them. He wrote, with respect to "that part of internal loans which is subscribed by workers and wage-workers in the state economy" that "the workers and office-workers set aside part of their wages and give it back to the socialist accumulation fund; they receive in return for it not interest but something in the nature of a bonus for reducing their personal consumption."(31) Does it change the nature of this interest to call it a "bonus" for foregoing consumption? Isn't that how vulgar bourgeois economists describe interest?

. As regards credit given by one state enterprise to another, Preobrazhensky wrote that:

"We have here simply a redistribution, within the state sector, of new, free state resources. It is nothing more than an imitation of the form of capitalist relations, an imitation which will cease when the state economy finds from experience and gives organizational form to new methods of planned redistribution, methods which will conform better to the state economy's whole internal structure."(32)

This was the same argument as before: if the state sector really was just one big enterprise, then such credit really was "simply" moving chairs from one side of the room to another. And once again, Preobrazhensky evaded the question of why, in this case, these capitalist forms persisted. He simply assumed that it was due to a lack of imagination on the part of the state planners, and that the form of credit actually contradicted the existing structure of the state sector. He gave no proof of this; he didn't suggest another organizational structure or, better yet, point to an alternate organizational form that had already been used in part of the state sector with excellent results. He simply asserted that, as credit and interest violated his picture of the state sector, they must be insignificant.

Rent

. Preobrazhensky also denied that land rent existed in the Soviet Union. This may seem strange, as it mainly concerned peasant production in the countryside, and his theory of the "commodity-socialist" system apparently emphasized that commodity production and its categories still existed in peasant production. So what threat did the concept of "rent" pose to his theoretical system? The problem was that land rent would now be paid in the form of various taxes to the state, and Preobrazhensky didn't want to admit that the state sector could have anything to do with such a capitalist category as rent.

. So Preobrazhensky ridiculed that

"People have often discussed, and continue to discuss, with serious mien, the question whether the peasants pay absolute or differential rent (in Marx's sense of those categories) to the state in the form of the food tax, or now in that of the single tax, what rent a state enterprise pays to the local Soviet on whose territory it is located, and so on."(33)

. Preobrazhensky's argument was that

"rent, in Marx's sense of this term, is a category of the capitalist mode of production in its developed form, when it has conquered the sphere of agriculture. In other words, Marx analyzes in his theory of rent the production and distribution relations of pure capitalism, when the whole land is cultivated by capitalist farmers, while the ownership of it is in the hands of another class, the class of landowners."

Russian agriculture was, however, predominantly small-scale peasant production, so Preobrazhensky's triumphantly concluded that Marx's analysis didn't apply.

. Preobrazhensky then cited several quotations from volume III of Capital in order to prove his point. The problem, however, is that Marx went on to say the exact opposite from what Preobrazhensky wanted him to say. Marx specifically pointed out that differential rent existed in small-scale peasant production where the peasant owned his own land and where capitalism was "relatively little developed" in the country. He said that differential rent "must evidently exist here much as under the capitalist mode of production."(34)

. Whoa, one might say. If the peasant owns his own land, then how does he or she pay rent? In this case, differential rent refers to the extra profit or surplus which a peasant makes when farming land which is especially fertile or otherwise advantageous compared to the land used by other peasants. Peasants who pay rent to a landlord or to richer peasants would usually be charged more for such land so that the land owner would capture this differential rent (hence the name, differential "rent"). Peasants who own the land, however, might get all this extra profit for themselves. But if there are various taxes on the peasantry, then, depending on how the taxes are assessed, they might amount to the peasant handing over the differential rent to the state. If the tax is the same for each peasant, or for each hectare of land, then it has nothing to do with differential rent. But if the tax has some relation to how good the land is (such as a tax on agricultural production), it might in part come from the differential rent.

. Preobrazhensky however not only claimed that it was absurd to imagine that differential rent could exist in the countryside, but he also denounced the idea that land rent existed when a state enterprise paid some level of government for the land it uses. Here again was his argument that all transactions inside the state sector were fictitious. He asserted, as always, that it only looked like the enterprise was paying rent. It had

"only the outward appearance of a relation of capitalist society, copying only the form and title, and in fact being one of the ways in which planned distribution is misrepresented. If we transpose the corresponding graphs in the local and state budget, and also in the balances of the state enterprises subjected to [land-] tax, then all this rent will disappear like smoke; without the slightest change in the spheres of production, or that of distribution between classes (not merely between departments of one and the same class)."(35)

. He didn't say, however, why the state sector bothered to go through the bother of charging a land-tax (ground-rent), if it really made no difference. It took time and effort to bother about this tax, and if it was a charade, why didn't Preobrazhensky simply propose to abolish all land-taxes? Why not "transpose the graphs" and see if it really made no difference? But since under the self-financing system each state enterprise had to made a profit, it would seem that it would matter quite a bit to them whether the land-tax was on their "graph" or some other agency's graph. It might affect what and how much they could produce -- contrary to Preobrazhensky's assurance that it would have no affect on production. Whether the land tax was in its budget would also affect what services a government body could provide to the population.(36)

Commodity production

. Preobrazhensky had to declare that profit, interest, rent and so forth were illusions, as far as the state sector was concerned, because he denied that commodity production itself existed in the relations between various state enterprises. This led him to try to prove that the use of money and prices was also a mere formality in a large part of the state sector. If he could show that money was a mere phantom, then he could declare every category based on money was also "fictitious".

. To show that money was fictitious, he isolated certain types of financial transaction among state enterprises, and then ignored their relationship with all other transactions. Any one financial transaction, when taken as self-sufficient in itself, can be regarded as merely formal. Thus, Preobrazhensky declared:

"In these cases where the state appears both as monopolist producer and as only buyer of its own monopolized production, relations between state trusts are similar to the internal relations of a single combined trust. Here the category of price is purely formal in character, it is merely the title to receive from the common fund of the state economy a certain sum of means for further production and for a certain level of expanded reproduction."(37)

But isn't one of the functions of money to be a "title to receive . . . a certain sum of means for further production"? One would have to show how this "title" differed in some essential way from the "title" usually conferred by money in order to conclude that its existence as money was purely formal. Otherwise Preobrazhensky's argument is as if one were to say that a passenger jet isn't an airplane -- that's a purely formal name for it -- really it's a machine for moving people from one place to another.

. In fact, when one examines the chain of transactions of which one state factory supplying another was only a part, the reality of the money-function becomes clear. When two state enterprises in NEP Russia bought and sold from each other, the financial accounting didn't stop there. The financial balance that resulted affected whether each enterprise made a profit, and so survived under the self-financing system. The enterprise that sold goods in turn used the money it received to buy raw materials or to provide benefits for its employees. The enterprise that received means of production used them in its production, and the price of the means of production affected the prices it charged for its finished goods. This chain of consequences existed even in the case of those transactions between state enterprises which were mandated by some planning agency or other. When Preobrazhensky considered one single transaction between two state enterprises by itself, he cut this continuing chain of transactions. But having done so, the individual transaction naturally looked isolated and purely formal. It wouldn't matter what price was charged, or if any price was charged, until one looked at the other links in the chain. To really show that money and the category of price was "purely formal in character", it would be necessary to show that one could dispense with them in the whole chain of transactions.

. Preobrazhensky could not show that price and money were purely formal in this chain of transactions; that's why he had to concentrate on a single link. That was the only way he could ignore the fact that, in the self-financing system then in use, financial calculations clearly made a big difference to what happened. Whether the enterprise made a profit played a direct role in whether the enterprise could make other transactions, in whether it could raise or lower its prices, in whether it could provide more benefits for its employees, in whether the management was regarded as successful, and even in whether the enterprise was regarded as viable or was a candidate for being shut down. Indeed, most of Preobrazhensky's economic work was devoted, directly or indirectly, to arguing about the level of prices that state enterprises should charge for their goods. He concentrated on what prices the peasantry should be charged for the industrial goods of the state sector. However, these prices were connected to what the state enterprises charged to others, and to what prices they used among themselves. It would seem that money and prices weren't such a fictitious category for state industry after all.

. Nevertheless, later on in The New Economics, Preobrazhensky repeated the claim that money relations in the state sector were purely formal, and with less qualification than before. He stated that

"in relations within the state-sector, . . . the money relations have assumed mainly a role confined to calculation and accounting in relation to the means of production, while money is dying out in its role as one of the instruments for achieving spontaneous equilibrium in production."(38)

. Preobrazhensky also argued in general that the prevalence of money relations in the Soviet Union didn't necessarily indicate commodity production. He argued that "this form of exchange of goods for money, which is almost universal in our country, and the monetary calculation which goes with it, are taken by many as an index to" the extent of commodity production in the Soviet Union. He held that such a conception

"was undoubtedly . . . at the root of all that over-estimation of the role and significance of the laws of commodity economy which has prevented and still prevents many from grasping the true essence of our economic system. However, it is quite wrong to say: the field in which exchange of goods for money prevails=the degree of importance of the law of value. This is wrong even in relation to simple capitalism, in so far as in the monopolistic period of capitalism the law of value has already been partially abolished, along with all the other laws of commodity production which are connected with it."(39)

. Here Preobrazhensky argued that monopoly and the state sector in general, and not just the state sector in a transitional economy, partially transcended commodity production. To make this claim, he identified commodity production with certain particular laws of pricing (which he regarded as the law of value). We will discuss the law of value in part two of this article. For now, what is important is that he regarded capitalist monopoly and capitalist state-monopoly as having, in part, replaced commodity production, rather than being its latest and highest phase.

. True, the planning of vaster and vaster enterprises that occurs in monopoly capitalism helps show that economic planning is now feasible. Capitalist large-scale production wins one position after another, inadvertently creating better material conditions for socialist large-scale production. At the same time, monopoly capitalism has spread capitalism into every nook and cranny of the world, commercialized the last fields of endeavor that might have seemed resistant to the full dance of the dollar, and expanded commodity production immeasurably. It transforms and modifies capitalism, but it doesn't overcome the laws of commodity production; instead it intensifies the contradictions of commodity production to fever pitch. For example the planning capitalist monopoly introduces in some fields is complemented by new crises of immense proportions appearing unexpectedly in the national and global economies.

. Preobrazhensky's views about monopoly capitalism shed some light on his discussion of the state sector. He repeatedly argued that whenever a price in the state sector was not set spontaneously, or an economic transaction differed from what would take place in a classical free market, then it was a sign that commodity relations were being overcome. But by itself, this only showed that the Soviet state sector was similar to capitalist monopoly. Such arguments miss the fact that commodity relations can only be ended by eliminating the multitude of conflicting private interests, and only a true social control over the state sector could accomplish this. Monopoly capitalism, despite its planning of ever vaster enterprises, continually gives rise to a clash of private interests. To truly judge whether commodity relations were overcome, Preobrazhensky would have had to lay emphasis on the differences with capitalist monopoly.

The working class can't exploit itself

. Preobrazhensky's theories led to a merely formal approach to the problems the working class faced in controlling the Soviet government and state sector. He argued that, as a matter of theory, the workers couldn't be exploited by the state sector. Why?

". . . The working class cannot exploit itself. The division of the proletariat between those workers who fulfil organizing functions and are better paid, and the rest, is a division within a single class, and in principle is not distinguishable from the division of this class into skilled and unskilled workers."(40)

. Thus Preobrazhensky assumed that, because the proletariat seizes state power and the state sector during the socialist revolution, an equal sign could be put between the state sector and the proletariat. Perhaps he would have replied to anyone who doubted this with the same sarcasm with which he replied to anyone who felt that commodity production still permeated the Soviet Union,

"Perhaps the replacement of private ownership by social ownership on all the commanding heights is merely a formal juridical act which involves no change in the essence of the system?"(41)

. But in fact the proletariat has to devote tremendous effort to ensuring that the state sector acts as its revolutionary tool. The revolution ushers in a period during which the working class strives to take over the direction of the economy through a variety of means--through its party, through a workers' government, through workers' control at the workplace, through replacing the old bureaucracy and state apparatus with a system based on the masses, etc. It not only strives to build up the state sector, but to build it in a way fundamentally different from the old capitalist monopolies and state monopolies. Only thus can the state ownership of the commanding heights of the economy be regarded as a social ownership.

. Preobrazhensky claimed that the managers and directors of the state sector (who he delicately called those "who fulfil organizing functions and are better paid") were just another part of the working class. But in fact one of the most profound struggles facing the socialist revolution is transforming the way production is directed so that these positions really do become just another function of the working class. Without this transformation, when workers enter into these positions, it may simply result in their leaving the working class and filling the ranks of a new exploiting class. In fact, as the Soviet Union degenerated into a state-capitalist society, a new ruling class did develop. The former capitalist class had been overthrown, and eventually large numbers of cadre of working class and peasant origin filled up economic and state posts. But a new ruling class was generated from the executives in state industry and the bureaucrats in government and party posts. According to Preobrazhensky's and Trotsky's theory, this is impossible, but it is what happened.

(to be continued)

.

NOTES:

(1) Deutscher, Isaac, The Prophet Unarmed--Trotsky: 1921-1929, 1959, p. 206. (Return to text)

(2) "The Role and Functions of the Trade Unions Under the New Economic Policy," Collected Works, vol. 33, pp. 184-196. This statement was adopted as a decision of the Central Committee of the Russian CP on January 12, 1922. The quoted parts are from Section 3. (Text)

(3) "On Co-operation," Collected Works, vol. 33, pp. 468. (Text)

(4) I am not saying that everything went right with NEP before Lenin's death. Near the end of my article "The question of 'state capitalism under workers' rule'" (Communist Voice, vol.3, #3, Aug.10, 1997), I also pointed out that Lenin never dealt with the issue of what to do if the Bolshevik government could no longer maintain itself as a revolutionary one. He always assumed that the Bolsheviks still had sufficient support to justly regard themselves as the party of the proletariat and the basic masses. (Text)

(5) He regarded the sale of goods to workers and office employees in state enterprises as an internal transaction of the state sector. (Text)

(6) See Stalin's "Reply to the Discussion on the Political Report of the Central Committee, Dec.23", sec. 7 (On the Opposition, Foreign Language Press, Peking, 1974, pp.244-6). Stalin rebukes Sokolnikov for referring to various state agencies whose function is to deal with the private or foreign capitalists and with the peasant economy as "state-capitalist",although this term had been used by Lenin to refer to state-regulation of capitalism. Stalin refers to "the socialist nature of our state industry" without qualification and denigrates the idea that the capitalist methods used in the state sector had any affect on its character. Thus Stalin declared the "methods of 'capitalist economy'", such as the monetary system, aren't really capitalist anymore when they are in the hands of the state. Instead, "the functions and purpose of those instruments of the bourgeoisie change in principle,fundamentally; they change in favor of socialism to the detriment of capitalism." (Emphasis as in the original) He makes no mention of contradictions with the working class that might arise because of these methods, nor of the tendency of bourgeois methods to foster separate private interests within the state sector.

. Meanwhile, Sokolnikov, although in 1926 a member of the "Left Opposition", had gone through a rather distinct political evolution. As we shall see , it is unlikely that the "Left Oppositionist" Preobrazhensky would have agreed with Sokolnikov's point either. The New Economics reads like a polemic against the point that Sokolnikov is apparently raising. (Text)

(7) Preobrazhensky, Evgeny A, The New Economics, translated by Brain Pearce, Oxford University Press, 1965, "Foreword to the First Edition", p. 3. (Text)

(8) The New Economics, Ch. III, section entitled "Surplus Value, Surplus Product,Wages",p.187,italics as in the original, underlining added. (Text)

(9) Ibid., p. 192, emphasis as in the original.

(10) I argued this point against Sarah in the article "On proletarian tasks in the period of the tottering of the PRI regime: Once again on peasant socialism", Communist Voice, vol. 2, #6. See the section "The Class Basis of Socialism". Sarah was afraid that the Marxist idea of the elimination of a separate peasant status meant driving the peasants off the land and oppressing them. (Text)

(11) Deutscher, Isaac, The Prophet Outcast--Trotsky: 1929-1940, Ch. I "On the Princes' Isles," pp. 62-63. (Text)

(12) Trotsky, Leon, The Revolution Betrayed: What is the Soviet Union and Where Is It Going?,written in 1936, ch. IX, section 2 "Is the Bureaucracy a Ruling Class?", p. 249. (Text)

(13) See Erlich, Alexander, The Soviet Industrialization Debate, pp. 178-180 and Donald Filtzer's introduction to a collection of Preobrazhensky's essays entitled The Crisis of Soviet Industrialization, pp. xlii-xlvii. (Text)

(14) See the collection of essays by Preobrazhensky entitled The Crisis of Soviet Industrialization(with an introduction by the ardent Preobrazhenskyist Donald Filtzer),pp.195-196, emphasis as in the original. (Text)

(15) Of course, he could have had no hope at all that an article criticizing Soviet class relations would have been allowed in the press. But, if he had such a criticism, the clandestine Bulletin of the Opposition would have been overjoyed to publish it and discuss it, no matter what the state of his relations with Trotsky at the time. In fact, even the ardent defender of Preobrazhensky, Donald Filtzer, takes Preobrazhensky's methodological criticisms of the Five Year Plans as his actual view, and believes that it is consistent with the approach in his previous work. He writes that Preobrazhensky "seems to have based his critique of Stalin's industrialization drive on the ideas developed in the 1920s articles on 'Economic Equilibrium' and in The Decline of Capitalism", and that in general he was "continuing the theoretical work begun during his days in the Opposition". (Filtzer, "Introduction", p. xliii) (Text)

(16) It is ironic that Deutscher called this applying "the 'categories' of Marx's Das Kapital to the Soviet Union", when it mainly consisted of denying that these categories applied to the state sector. (Text)

(17) The New Economics, Ch. II, sec. "Primitive Accumulation, Capitalist and Socialist",p.129.(Text)

(18) See "The Anarchy of Production Beneath the Veneer of Soviet Revisionist Planning" in Communist Voice, vol. 3, #1, March 1, 1997. Also see Mark's series of articles in CV on the Cuban economy. They show that, despite the vast differences between the size and situation of the Cuban and Soviet economies and the personal characteristics of their leaderships, the Cuban state economy showed remarkably similar features to that of the Soviet Union. (Text)

(19) Ibid., p. 129. (Text)

(20) Ibid.,, pp. 129-130. (Text)

(21) Ibid., p. 133, underlining added. (Text)

(22) Ibid., p. 129. (Text)

(23) Ibid., Ch. III, Sec. "The Category of Profit in the State Economy", p. 196. (Text)

(24) Ibid., p. 199. (Text)

(25) Ibid., p. 199. (Text)

(26) Ibid., Ch. III. Sec. "The Category of Profit in the State Economy", p. 200, underlining added. (Text)

(27) Ibid. (Text)

(28) Ibid., p. 196. Preobrazhensky also insisted that to look at the existing situation would be "to attribute our insufficient understanding . . . and the mistakes which result from this, . . . to economic necessity, thus reducing by a corresponding percentage in theoretical analysis the possibilities of conscious regulation which are objectively embodied in our system." (The end of Ch. I, p. 76, emph. as in the original) But ahem, having ruled out a study of what is actually taking place, how does Preobrazhensky know what these objective possibilities are? (Text)

(29) Ibid., Ch. III. Sec. "Interest. The Credit System", p. 209.

(30) Ibid., p. 213. (Text)

(31) Ibid., p. 212. (Text)

(32) Ibid., Ch. III, sec. "Interest. The Credit System", p. 213, emphasis as in the original. (Text)

(33) Ibid., Ch. III. Sec. "The Category of Rent", p. 202. (Text)

(34) Marx, Karl, Capital, vol. III, Ch. XLVII. "Genesis of Capitalist Ground-Rent",Sec.V."Metayage and Peasant Proprietorship of Land Parcels", pp. 804-6. (Text)

(35) Ibid., p. 207, emphasis as in the original (Text)

(36) Preobrazhensky's argument that a transaction between state entities (state enterprises and levels of government) doesn't affect distribution "between classes" was also off-base. Whether a government agency could spend more or less, and whether a state enterprise produced more or less, affected the whole population. But aside from that, his argument was based on the absurdity that all transactions between the same class were economically irrelevant. It would mean, for example, that all buying and selling between capitalists was fictitious too, because such transactions don't affect the distribution "between classes" but only redistributed things among the capitalists. (Text)

(37) Ibid., Ch. III, "Commodity, Market, Prices", p. 164. (Text)

(38) Ibid., Ch. III. Sec. "Interest. The Credit System", p. 216. (Text)

(39) Ibid., ch. II., "The Struggle between the Two Laws", p. 140. (Text)

(40) Ibid., Ch. III, Sec. "Surplus Value, Surplus Product, Wages", p. 188, emphasis as in the original. (Text)

(41) Ibid., Ch. I, Sec. "The Method of Studying the Commodity-Socialist System of Economy",p. 74, emph. as in the original. (Text)


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