By then, Soviet money had become, for all practical purposes, worthless: a 50,000-ruble bank note had the purchasing power of a prewar kopeck coin.46 The only paper currency that still retained value was the Imperial ruble; these notes, however, were hoarded and all but disappeared from circulation.47 But since people could not carry on without some unit to measure value, they resorted to money substitutes, the most common of which were bread and salt.48 Inflation reached astronomical proportions, as the following tables indicate:
REAL VALUE OF RUSSIAN MONEY IN CIRCULATION 49
(in billions of rublesi November 1, 1917 1,919 January 1, 1918 1,332 January 1, 1919 379 January 1, 1920 93 January 1, 1921 70 July 1, 1921 29
PRICES IN RUSSIA, 1913-192350 (as of October 1) 1913 1.0 1917 7.55 1918 102 1919 923 1920 9,620 1921 81,900 1922 7,340,000 1923 648,230,000
“From January 1, 1917, to January 1, 1923,” in the words of one economic historian, “the quantity of money [in Russia] increased 200,000 times and the price of goods increased 10 million times.”* 51
The Left Communists exulted. At the Tenth Party Congress, held in March 1921, before inflation had attained its apogee, Preobrazhenskii boasted that whereas the assignats issued by French revolutionaries had depreciated, at their lowest, 500 times, the Soviet ruble had already fallen to 1/20,000th of its value: “This means that we have overtaken the French Revolution 40 to 1.”52 On a more serious note, Preobrazhenskii observed that the massive inflation caused by the government’s policy of printing unlimited quantities of money helped to extract food and other products from the peasantry: it was a kind of indirect tax that for three years had played a crucial role in supporting the Bolshevik revolution.53 At the Eleventh Party Congress, the speaker on financial policies, G. Ia. Sokolnikov, remarked with surprise that his was the first full-length report on the subject ever presented to a Party Congress. The policy until then, he stated, had been to regard money and fiscal policy as something to be done away with. The means to this end was deliberate inflation.54
Students of economic history had long warned that money was an indispensable element of every economic activity, not only in its “capitalist” form. In the words of Max Weber:
The assumption that some sort of accounting system will somehow be “found” if one resolutely tackles the problem of a moneyless economy, is of no help. This is the basic problem of every “full socialization.” One cannot speak of a rational “planned economy” as long as one does not have in this most decisive point a means of rationally establishing a “plan.”*
Closer to home, Peter Struve had demonstrated both before and after the Revolution that since economic activity meant striving for the greatest return at the least cost, it required an accounting unit or “money,” whatever its name or physical form. Money could not be abolished: whenever a government tried to prevent money from performing its natural function, the result was a split market (part regulated, part free).55
The Bolsheviks now discovered the truth of these observations. The one difficulty the advocates of a moneyless economy had not foreseen and which ultimately doomed their undertaking was their failure to provide a method for the settling of accounts among the nationalized enterprises and other state institutions. A decree of August 30, 1918,56 instructed Soviet agencies to deposit their monetary assets, except those required for current expenses, with the People’s Bank. They were to consign their products to appropriate agencies (glavki) of the Supreme Council of the National Economy (of which later) and receive, in return, equipment and raw materials. These transactions were to be carried out by means of book entries, without reference to money. But this procedure apparently did not work, for additional decrees came out the following year specifying in tortuous detail how to carry on moneyless bookkeeping of transactions between nationalized enterprises as well as between such enterprises and state agencies.57 Osinskii claimed that government officials from the outset opposed and circumvented decrees regulating financial relations between Soviet institutions and enterprises; he would not concede that the system was unworkable.58
He and his fellow-hotheads were not fazed. In February 1920, Larin and his associates drafted a resolution for the forthcoming Congress of Soviets formally abolishing money. Lenin agreed in principle but wanted to discuss the matter.59 A year later (February 3, 1921) a decree was ready for release which, if implemented, would have for the first time in recorded history abolished taxes.60 It never came out, however, because the following month, with the introduction of the New Economic Policy, the government, even while turning out money at an accelerating pace, took steps to return to fiscal responsibility.
As previously noted, after seizing power in Petrograd, Lenin had no intention of expropriating Russia’s industrial wealth. Although he tended greatly to oversimplify the complexities of managing an industrial economy, he was realist enough to understand that a party of professional revolutionaries could not possibly run it by itself. While political pressures had compelled him to give up his pet idea of “state capitalism,” he continued to believe that the national economy required the discipline of a central plan. In March 1918 he spoke of the government facing the following tasks:
the organization of accounting, control of large enterprises, the transformation of the whole of the state economic mechanism into a single huge machine, into an economic organism that will work in such a way as to enable hundreds of millions of people to be guided by a single plan.61
Trotsky agreed:
The socialist organization of the economy begins with the liquidation of the market, and that means the liquidation of its regulator—namely, the “free” play of the laws of supply and demand. The inevitable result—namely, the subordination of production to the needs of society—must be achieved by the unity of the economic plan, which, in principle, covers all the branches of productivity.62
At Lenin’s request, Larin drafted a project for a central administrative and planning agency to direct the economy of Russia. After some revisions, it was issued as a decree on December 2, 1917, which established a Supreme Council of the National Economy (Vysshyi Sovet Narodnogo Khoziaistva, or VSNKh).63 This institution, which in 1921 would be renamed the State Planning Commission (Gosplan), was to enjoy the same monopoly in regard to the country’s economy (at least in theory) that the Communist Party enjoyed in the realm of politics. We say “in theory” because in view of the existence of the private agricultural sector and the large and expanding black market in goods, the VSNKh never came even close to controlling Soviet Russia’s economy. Operating directly under the Sovnarkom, its formal task was to “organize the national economy and state finances.” It was to prepare and implement a master plan, to which end it was authorized to nationalize and syndicate all the branches of production, distribution, and finance. According to Trotsky, it had originally been intended to make the commissariats of Supply, Agriculture, Transport, Finance, and Foreign Trade into branches of the Supreme Economic Council.64 The council was further to take charge of the economic sections of provincial soviets, and where these were lacking, to install its own branches. In conception, the Supreme Economic Council sought to adapt to the conditions of a socialist economy Hilferding’s notion of a “General Cartel.”65 In actuality, it turned into something much more modest.