Khristian Rakovsky

The Five Year Plan in Crisis
(Part 3)

Finance and Monetary Circulation

Finance is not a separate branch of the economy. Rather it reflects, and permits us to evaluate, economic processes from a particular vantage point. The unified financial plan (which combines the state and local budgets and the financial plans of industry, transport, etc.) will amount this year to about 20 billion rubles, as against 12.4 billion last year. The consolidated (i.e., state and local) budget will be 13.06 billion rubles versus last year’s figure of 9.1 billion. Because of the enormous role that the state plays in our economy, some 55 to 66 per cent of the national income passes through the financial plan (A. Vainshtein, Ekonomicheskaya zhizn’, 26 June). The vast majority – more than 80 per cent – of the revenue of the financial plan accrues through prices. In the current year the resources collected through the prices obtained by the economic organizations of the socialized sector should account for 16.5 of the financial plan’s 20 billion rubles. Fifteen per cent of revenue will come through taxes. (The data are from a meeting of the board of the People’s Commissariat of Finances, Ekonomicheskaya zhizn’, 28 May.)

It is obvious that the problem of the financial plan and its sources is to a very large extent a problem of the distribution of national income. Thus I cannot deal with the problem as a whole, as this would take us too far afield. Rather I shall deal mainly with the reasons for what is by now a substantial – and officially acknowledged – imbalance in the financial plan, as well as with the prospects for eliminating it.

The retreat in the area of rural policy – begun under the impact of major events – led first to a reduction in taxation from the countryside and then to the abandonment of a number of other payments obtained with the help of administrative pressure. At a meeting of the board of the People’s Commissariat of Finances, Bryukhanov reported on this as follows: “In view of the situation that has arisen in the countryside in recent months, it is necessary to put into operation in the immediate period a strict directive, namely to obtain completely the use of administrative and tax measures to collect share-payments [to cooperatives], deposits, and loans from the monetary savings of the peasantry. The same economic situation is compelling government agencies to follow a policy of reducing tax payments from the countryside” (Ekonomicheskaya zhizn’, 25 May). Adding to this the other concessions and price rises, Bryukhanov concludes that this year it will be possible to draw only 1.7 billion rubles from the countryside, as opposed to the 2 billion called for by the plan. Therefore, there will be a deficit of 300 million rubles.

The same economic circumstances have made it necessary to revise the plan for financing agriculture and to set aside 500 million rubles for the collective farms [kolkhozy]. In all, then, the countryside is producing a shortfall of 800 to 900 million rubles.

As already pointed out, there is a deficit in the industrial-financial plan for industry and other branches of the state economy amounting, according to an official estimate made by Mindlin, to over one billion rubles (Ekonomicheskaya zhizn’, 21 June). Thus according to official data “the overall need for additional financial resources will equal two billion rubles, or even somewhat exceed this very considerable amount”.

This imbalance, now officially acknowledged, raises two questions: (1) Can this imbalance be overcome, and how? (2) What does the imbalance mean? As for how the state intends to cover this deficit, we find the answer in this same article by Mindlin, who lists the following sources: reserves and surplus income from the social insurance fund, the state insurance fund, and the accounts paid to the State Bank and the People’s Commissariat of Finance by other organizations will yield 250-300 million rubles; the excess of transport receipts over the plan will yield 250-300 million rubles; the excess of state budget revenue over the plan will yield 600-700 million rubles; the additional mobilization of the internal resources of industry, transport, etc. will give 150-200 million rubles; the cut in budget expenditure and the deferral of part of it to next year will provide 200-250 million rubles. In all this comes to 1,450-1,750 million rubles.

Even assuming that these sources are real (more on that below), this still leaves a deficit of 300-550 million rubles. How is it to be covered? In Mindlin’s opinion it can only be covered “by somewhat exceeding the plan or currency issue”. This leads us directly to the question of the state of our monetary circulation and hence, onto the question of how real a source this is. The question of the state or monetary circulation – or to be more precise the question of whether or not we have inflation – has been debated for several years. We answered this question affirmatively at least as early as 1928. When Bukharin, in his Notes of an Economist, got himself caught in a vicious circle and was struck dumb at how it was that all branches of the economy could lag behind each other and how both industrial products and agricultural produce could be in short supply, Smilga explained to him what was going on. If, wrote Smilga in his reply to Bukharin, there is a shortage of every commodity, this means that one commodity, namely money, is in surplus. Actually, if we start out from the concept of inflation provided by the marxist theory of monetary circulation, only those unfamiliar with that theory could deny that we have inflation (as we know, familiarity with this theory is not obligatory for adherents of the general line). Over the past year, the growth in the money supply has been sharply outstripping all the assumptions of the plan and proceeding considerably faster than the growth of the money incomes of the population; beginning last year, it has also been outstripping the growth in commodity turnover. The following table provides a general idea of what has been happening. [18]




Annual growth in total money supply (in %)




Ratio of rate of growth of money incomes
of the population to rate of growth of
total money supply




Ratio of rate of growth of [intermediary]
commodity turnover to rate of growth
of total money supply




Source: D’yachenko in Ekonomscheskaya zhizn’, 29 June and 2 July.

It has been projected that this year the money supply would rise to as much as 3.1 billion; now the intention is to raise it even further, at a time when the goods famine of both agricultural produce and industrial commodities is becoming increasingly acute. [19] This will mean that this one commodity – money – of which there is already too much as it is, is going to be in even greater abundance. No justification is given for this plan – if we ignore the general argument that “it is not the same with us as it is with others”

Not being able to say anything articulate, D’yachenko proposes to make a scientific inquiry into the question of “what we should term inflation under the conditions of Soviet economy, under what conditions it becomes inevitable, and what its symptoms are in the sphere of monetary circulation and commodity turnover”. Right away, however, he rushes to anticipate the results of this scientific investigation: declaring it “illegal (?) to engage in any talk about an impending inflation (or an inflation already upon us)” he promises (along with Mindlin) to “smack the hands” of anyone “sallying forth on questions of currency issue.”

Since, however, life is unconcerned with such threats, and since we have nothing to fear from being accused of attacking the general line, we shall endeavour to make an analysis of this problem.

What are we to label as inflation under Soviet economic conditions? Exactly what we would call inflation in any non-Soviet economy: Inflation – to use Smilga’s words – is when all commodities are in short supply and one commodity – money – is in surplus, when the growth in the supply of money does not correspond to the needs of the national economy. Under what conditions does inflation become inevitable? Despite the very real difference between us and other countries owing to the special role of the state in our system of national economy, the conditions under which inflation becomes inevitable are the same for us as for everybody else. It becomes inevitable when the state does not have at its disposal enough real values to soak up its expenditures. To extract these resources the state issues paper money, considering neither the requirements of commodity exchange nor the requirements of its own financial estimates. As in other countries, this issue of paper money is an inflationary tax that enables the state to extort the real resources that it needs. The question, therefore, is not whether inflation exists or when it becomes inevitable, but what is the degree of inflation and on whom is this inflationary tax falling.

With regard to the channels along which the inflationary tax reaches the ultimate payer, here we have a substantial difference with other countries. In countries where the state plays a very small direct role in the national economy, it profits by as much as the economy loses. There then begins a struggle between the separate classes and strata of the population to determine on whom this tax ultimately is going to fall. With us it is different. Our state appears as the immediate subject of the economy (for industry alone, net output comprises 37.1 per cent of national income); thus it would have to bear a corresponding share of any inflationary tax. It would receive through the People’s Commissariat of Finance whatever it had lost through the Supreme Council of the National Economy, the People’s Commissariat of Transport, etc. Merely shifting out of one pocket and into another in this way would be senseless. Therefore the state strives, by whatever levers are available to it, to transfer the tax. It is clear that it can shift the tax only to the countryside or onto the working class – on the condition, of course, that the rural and working class budgets possess real resources that can be exacted. Should there be no such resources, the state would have to pay the tax itself and in real terms would gain nothing.

As regards the countryside, over the last few years it has worked out a number of means by which it has attempted to dodge all payments – including the inflation tax – and shift them into other groups. The basic method – which flows quite naturally out of the commodity-capitalist nature of our agriculture – is to raise prices. According to data provided by Maimyn (Na planovom fronte, No. 9–10), the overall index of agricultural prices has moved as follows [1913 = 100]:




165.82 [20]



In line with this the “scissors” [the ratio of industrial to agricultural prices] have been closing:







There is no doubt that this year the “scissors” will close altogether. Thanks to this we see greater accumulations of both industrial commodities and money being put aside in the countryside. According to Maimyn’s calculations (ibid.), after meeting all its payments to the state the countryside this year will increase its consumption fund of industrial commodities by 600 million rubles, after which it still will have “some two hundred million rubles” left over. And this refers only to growth. I have not managed to find any assessment of how much money has been accumulated in the countryside in the current year. A report of the board of the People’s Commissariat of Finance has set this sum for next year at two billion rubles. Nevertheless, in our conditions a rise in the prices of agricultural produce still does not mean that the peasantry is evading the inflation tax. It would do, were it receiving industrial commodities for its paper notes. However, because of the severe goods famine and the virtual absence of industrial commodities from the market, the peasantry is receiving fewer commodities than it is accumulating money; and when it does get hold of them, over the last few years it has been doing so only in exchange for agricultural produce. Thus for the peasantry the accumulation of money is ceasing to have any rationale. The peasantry increasingly is refusing to sell for money. The peasantry needs only enough money to meet its state payments and to buy what necessary commodities it can hope to find on the free market. Thus even when it does sell, it evaluates money to reflect the prices it has to pay on the free market for the commodities it needs, i.e., at a rate of about 20 kopeks to the ruble (the index of the private market has already gone beyond 500). Once having reached the limit of the amount of money it needs, the peasantry is more and more often refusing to sell anything for money, demanding real values for its own commodities. Therefore, the peasantry is trying to free itself from the inflation tax first by refusing to accept money, and second, when it does accept it, by evaluating money in step with the ruble’s depreciation on the free market. Certainly the peasantry has not succeeded in freeing itself fully from this tax; however, neither is it bearing the burden anywhere near proportionally to its weight in the national income as measured by net output (27 per cent).

There remains the question of how the inflation tax is distributed between the state and the working class. There is no doubt that part of the tax falls back on the stare; however, the latter has in its hands a number of levers for sparing itself from the tax, which is uses in order to shift it onto the working class. The form in which the inflation tax is paid is palpably obvious: real wages lag behind nominal wages. The size of this lag provides a measure of what proportion of the inflation tax is falling on the working class. The working class is the most defenseless against the tax, not having (unlike the peasantry and the state) any means for shifting it further along; as a result, the working class bears the greatest brunt of it – at the very least far out of proportion to its share of the total national income. From such facts – and not from any adherence to the general line – do we draw the real answers to the question of whether or not we have inflation and who bears the heaviest burden of the inflation tax.

The next stage to flow from our monetary policy obviously will be to drive the chervonets out of circulation. Virtually the only issues now are treasury notes (one, three, and five rubles). Issues of the chervonets [10-ruble coin or note, nominally gold-backed] are being internationally held up, the idea being to preserve the chervonets and sacrifice the treasury notes. There is almost no doubt that should present trends continue we shall reproduce at a new level that same, special system of parallel currencies that we had at the end of 1923 and the beginning of 1924, when the chervonets sat astride the depreciating “soviet note” [sovznak]. But then it was possible to save the chervonets by this method. The present situation is that the treasury note, having assumed the function of the sovznak (and in essence there is virtually no difference between them), can drag the chervonets down with it. Should there be any attempt – as there is bound to be – to save the chervonets by limiting its issue and separating it completely from the treasury notes, then the chervonets will quickly disappear from circulation. These symptoms show the scale of inflation. The latter clearly has reached a point where it threatens to wreck the monetary system. This is the real answer to the question of. how much inflation we have.

I now shall take up the question of the financial plan. In order to judge where the resources can be found to cover the deficit in the plan we need to take a closer look at its overall sources of revenue. As we have already indicated, the basic channels for mobilizing resources are direct exactions from the population (15 to 18 per cent) and prices (75 to 80 per cent). Direct exactions take the form of the agricultural tax, peasant self-taxation[intended to cover local needs] the income tax on workers and [salaried] employees, loans, deposits in the cooperative system, etc. How do these affect the different groups and classes of the population? The agricultural tax, together with rural self-taxation amount relatively to very little (probably 300-350 million at the very most); in any case it is not possible to increase them any further. The increase in deposits in the cooperative system is going, as we know, quite “well” among those who work for a wage and rather poorly in the countryside, especially since it became necessary to stop using compulsion to collect these voluntary contributions. The income tax on the workers and employees naturally falls on them and them alone. As for loans, how they are distributed over the basic classes is obvious from the following data on the subscription to the third industrialization loan, which showed the highest peasant participation

In millions of rubles

In per cent

Workers and employees











Obviously the loan is coming basically out of the earnings of workers and employees. The state, following the line of least resistance, would seem to have squeezed everything out of this source that is possible. It even became necessary to limit the “voluntary” subscription to the loan to two week’s wages. As for the peasantry, here, too, it proved necessary to abandon initial plans, so that there will be no further resources coming from this quarter, at least for the time being (that is, if we leave out the direct exaction of resources in kind through extraordinary measures). Consequently, this first source for mobilizing resources has been effectively shut off.

Let us turn now to those resources gathered in through prices. Proceeding from the role that pricing plays in the financial plan, Teumin, speaking at a meeting of the board of the People’s Commissariat of Finance, stated: “The three pillars which define the entire essence of our financial policy are prices, production costs, and wages”. From which of these are additional resources likely to come? Teumin, uttering not a word about wages and considering that “it is not possible for us to raise prices”, naturally concludes that “the only additional resource is a reduction in production costs”. Teumin has given an absolutely precise statement of the guiding aim of present policy; and, taking this policy as his starting point, it is not for nothing that he neglects to make any mention of wages. If “it is not possible for us to raise prices”, clearly the resources can begot either by bringing down production costs – which in the present situation we can do only by raising the intensity of labour – or by cutting wages. However, the fact that clearly very little has been squeezed out of reducing production costs means there will have to be a corresponding fall in wages. The only person at this meeting to ponder these issues was the representative from the Central Black Earth Region, Malakhovsky. It is characteristic that he kept silent about production costs and instead posed the necessity of guaranteeing a 10 to 15 per cent rise in real wages. After this it proved easy for him to show that if prices remained stable it would be possible to achieve “a formal balance in the financial plan and budget by leaving two or 1.5 billion in monetary resources in the countryside that cannot be used”. Considering that leaving such a large unmet demand in the countryside would mean leaving “the basis of the national economic plan defenseless and without a cordon”, he proposes to extract this amount from the countryside by raising prices, involving a significant extension of the system of dual prices.” [21]

I shall deal below with the question of what this might actually yield. The fact is, however, that centrism is not going to take this route ... It can still drag a little more out of the working class through the “reserves and surpluses” of the social insurance fund and a few other sources, but the fact that it already has had to cut the loan subscription from a month’s to two week’s wages is an indication that even the centrists are beginning to understand that the worker’s budget cannot be squeezed indefinitely. There is no doubt whatever that the centrists will try to stick to the path of putting two-fold pressure on the working class: increasing the intensity of labour and cutting real wages. Yet if they are unable – or unwilling – to grasp the political consequences of procuring resources in this fashion, the irrationality of it will impose itself on them strictly from the point of view of economics. The fact that it is still possible to get something out of the worker might be enough to sharpen his acute discontent, but it is totally insufficient for making up the deficit in real resources. Insofar as the burden is shifted back onto the state economy, it simply completes a vicious circle. It cannot provide any new resources, other than those that can be made available through the more rational redeployment and utilization of those that already exist. However, given that every single reserve in the state economy is stretched to the limit, this rationalization will not yield very much. It may make it possible to make ends meet in strictly bookkeeping terms, i.e., to balance things up formally, but it cannot provide anything new. What this means is that, given the minimal reserves now available to the state economy and the extreme physical exhaustion of the working class, we shall find no additional resources from this end.

What about beyond the nexus of the state economy and the working class? Here we must bear in mind three basic circumstances.

(1) First, everything that is happening to the countryside is taking place against the background of a decline in the economy’s productive forces. One expression of this is that accumulation is taking the form of monetary accumulation and is not being transformed into means of production. In drawing resources from the countryside via economic measures it is these accumulations of money that first and foremost will be extracted. Obviously, to a certain extent this will cut rural demand and allow these resources to be shifted to other purposes. As I have pointed out, however, the effect will not be all that large, since the peasantry is presently able to transform its monetary accumulation into real resources only to a limited extent. The peasantry’s accumulation stays frozen in its monetary form because this money does not confront an adequate supply of real resources.

Whatever real resources the extraction of these monetary accumulations might liberate will prove totally inadequate to make up the colossal shortfall from which the economy suffers. Several years ago, when the gap was immeasurably smaller than it is now and the countryside was prospering, this could have done some real good; now, however, the gulf is too wide and the productive forces of the countryside too depleted.

(2) The second circumstance to bear in mind is that the relationship of class forces is such that the withdrawal of resources from the countryside, while it might prove efficacious from an economic point of view, brings with it extremely severe political complications.

(3) The final point to consider is that even if we could remove any real resources from the countryside in kind, their in natura form is such that we could not employ them directly to close the breach in the state economy. Does this then mean that the problem is reducible to one of a simple redistribution of national income? Certainly not. It does, however, change its significance. We must be absolutely clear that the country as a whole doer not possess the resources needed to carry out the adventuristic programme of the centrists. It is this, in fact, that makes the programme adventurist. So far I have been proceeding from the two billion ruble deficit quoted by Mindlin. However, this is merely the figure necessary to bring the figures formally into balance. It is enough to recall that transport requires seven billion rubles to carry out the work it is now undertaking in order to grasp how much we really need and how great the shortfall actually is. The fact that industry has enjoyed its relative advance at the cost of neglecting transport means merely to create new shortfalls in both these sectors. No redistribution of national income can help this situation. A redistribution of national income is necessary to carry out those investments without which the basis of the proletarian dictatorship would face liquidation: investments in the working class. For these investments a redistribution of national income would yield sufficient resources, both quantitatively and qualitatively. However, no redistribution of national income can bridge the gaps created by years of opportunistic policy.

The Situation In the Countryside

The problems besetting the countryside are so broad in scope that we cannot possibly deal with them extensively in a brief space. Thus I shall have to limit myself to the most general comments (I have dealt partially with these issues above). To say that the policy of wholesale collectivization and liquidation of the kulak has collapsed is banal. In fact, the centrists themselves have had to abandon it, reserving these remarkable policies for their resolutions. It remains only to sum up a few general results and to outline the main ways in which these results are going to make their effect felt.

The first result is the depletion of agriculture’s productive forces: made possible by the years of preceding policy and made worse by the period of ultra-left adventurism, it has taken undisputed hold of livestock farming and a part of the production of technical crops, and is beginning to manifest itself in the cultivation of grain. The spring sowing must be considered a failure. Here, too, quantitative indicators (even where they do not just exist on paper) depend on those for quality. The great delay in carrying out the sowing (due not to bad weather but to the bad mood of the peasantry) and poor cultivation will have a palpable influence on the harvest. No less telling for the economy as a whole have been a rapacious attitude towards the means of production thrown into the countryside and the wasteful dispersal of these means of production, which was the inevitable accompaniment of present policy.

A second factor is that much of what exists in the countryside cannot be taken out so easily as, for example, industrial output. With the countryside you still have to be able to get hold of the product, and in the present situation that will be no easy task. There is no doubt whatsoever that the kolkhozy will be no more willing to surrender their grain than will individual holdings, and that it will be necessary to take extraordinary measures [22] – together with other measures of “social” persuasion – against them. But this will mean an end to the construction of collective farms. The collapse of the kolkhozy was held back in the spring by the fact that the sowings were being carried out by the collective farms, and anyone who left would in fact have been deprived of his share in the sowing. Therefore, the peasants on the collective farms are impatiently awaiting the end of the harvest in order to set about dividing it up. A vicious struggle is going to develop around the division of the harvest. When the heavy hand of the state meddles in this fight it will dilute the internal struggle and strengthen the united front of the countryside, rallying together the peasants not as collective farm members but as small-scale property owners. At that point their existence as “collectivists” will come to an end.

The middle peasant [serednyak] will leave the kolkhoz disillusioned with yesterday and uncertain about today. Under these conditions it would be out of the question to compel him to expand his sown area in the autumn. The decline of productive forces in the countryside is now inevitable under any circumstances, whether we stick to present policy (which is bolstering the united front of the countryside) or adopt a correct policy of smashing this united front by carrying the class struggle to the village. Neither will create the conditions for boosting the productive forces. Yet a decline in the productive forces of agriculture constitutes one of the most serious obstacles to industrial growth. We have come full circle. Holding back industrial development already has become a cause for the degradation of agriculture, which in turn is now blocking the way to industrial development.

Some Results and Proposals [23]

For us there has never been any doubt that sooner or later opportunist policy would lead the revolution into a severe crisis. And although we had no doubt as to what the ultimate results of this policy would be, we had no clear conception of what concrete form the crisis would take when it did erupt. Now that we can practically feel the results of the whole of preceding policy, can probe the open wounds of the revolution, these results have bared themselves in tragically simple farm: the absence of real resources for carrying out industrialization at a speed that would extricate us from the crisis. It is incumbent upon us to say that many of us have felt this simple truth for quite some time, but we feared to call a spade a spade so long as we still had certain doubts and so long as this truth had yet to establish itself beyond all debate. It is no less true for being masked behind fictitious resources, invented to bring adventurist and phantasmagoric plans formally into balance. Perhaps the centrists were themselves unaware of how they were beginning to get caught up in the vicious circle of these fictitious paper resources. Losing their basis in reality, they began to resemble the famous dog who ran around in a circle faster and faster hoping to catch his own tail. The faster his head moved, the faster his tail, the faster his tail slipped away from him.

Today they increase the programme for coal and iron to make it possible to fulfil the programme for machine building; tomorrow it will be necessary to expand the programme for machine building to make it possible to fulfil the enlarged programme for coal and iron; later they will again find it necessary to increase the programme for coal and iron in order to guarantee the new programme for machine building. In the midst of this spiral it suddenly turns out that it is posing tasks for transport that transport will not be able to cope with unless the latter receives an appropriate supply of iron and steel – and so the programme for coal and iron is boosted again and the circle begins anew.

Hence the exaggerated tempos, the exaggerated figures, the exaggerated plans which collapse as soon as they come into touch with reality. At this point appear comrades who, without the slightest understanding of the essence of what is going on, talk about the “rearmament” of the opposition, about the fact, (or so they claim) that the opposition, after having stood for high tempos in the past, now, when Stalin finally has gone after these tempos, comes out against them simply to be able to remain in opposition. With these comrades one has to drag them by the nose into the real world and show them that these high tempos exist only on paper, in books, in articles, and in plans, that any advance in one area comes at the expense of violating all proportions, of creating colossal disruptions in other areas, of creating huge new disproportions. To these comrades one has to explain that our weapon is never rigid formulae, but the marxist method, which allows us to workout the formulae most useful at any stage along the way. What certain of our comrades take for the re-armament of the opposition in fact represents a radical change in the entire situation. The questions are all now different from what they were – here Stalin is right. It is just that he is unable to understand how they are different and why they have become so. And even if he could understand, he still could not say so. We have never adhered to a policy of acting like an ostrich. However harsh the reality, no one ever found salvation by refusing to recognize it. And reality is whispering same simple truth that I stated above.

This naturally raises the question, how much of the blame for this situation lies with Stalin’s policy? Are we really convinced that the real resources would have been there had we embarked upon industrialization earlier, when we were demanding it and had it been based on the methods we were proposing? It depends. If we mean, would we have had the resources to guarantee the construction of full socialism, the answer is no. If we mean, would we have had the resources to strengthen the basis of the dictatorship, to forestall the eruption of social contradictions, and to delay any sharp deterioration of the crisis, then the answer is yes. We have every right to say this: to us it is absolutely clear how the policy of opportunism has weakened the basis of the dictatorship, accelerated the bursting apart of social relations and hastened the onset of the crisis. By the time the centrists embarked upon industrialization it was already inevitable that we would have to make partial restitution for our lateness, for the fact that over the years industry not only had failed to accumulate, but had sold off its own resources at a song; yet the difficulties resulting from this delay could have been overcome by a correct policy, even though it would have taken more time. The ultra-left adventure (the “horse races”) rapidly exhausted these possibilities, violating all proportions in the national economy, and deepened all dislocations.

The other side of this adventurist policy – the policy of wholesale collectivization and the liquidation of the kulak – has undermined the productive forces of the countryside, brought to a head the sharp conflict with the village that all of previous policy had been leading up to, and thus finalized our exclusion from the international division of labour – for in the immediate future we shall only be able to participate properly in that system through agricultural exports. The methods by which centrism presently is trying to bridge these gaps, as well as those by which it seeks to gain inclusion in the international division of labour (i.e., through the use of loans), will only deepen the shortfalls and disproportions and tighten the noose around the neck of the revolution.

We are entering an entire epoch (how long it will last we can only surmise) during which it is ordained that we shall pay for our past. How pitiful, in light of this, are those comments about how “the opposition is demanding a rejection of industrialization”. We demand only one thing: that we look reality squarely in the face, that we acknowledge and carry out today what tomorrow may prove too late. When an army is facing total rout and spontaneously starting to pull back, it is ludicrous to say that those trying to bring some order to the retreat, to stave off the inevitable panic, and to save as much as possible out of the situation, are the ones calling for the retreat. What, they ask, is the difference between us and the Right? They, too, when it comes down to it are for retreating. Pursuing the military analogy, we could say that the difference between us and the Right is that between an army in orderly retreat and deserters fleeing the field of battle. The formal, outward similarity that exists here occurs because up to a certain point the retreating army and the deserters are moving in the same direction. Precisely because of this external similarity with the Right, however, we must not limit ourselves simply to repeating that it is necessary to retreat. We draw a clear line between us and the Right by the fact that we formulate clearly and precisely what form this retreat must take, what its aim is, and how and to what positions we are retreating.

As to the form the retreat should take, this flows from the very essence of the viewpoint we have already expressed. There is no arguing that we cannot hold out for very long with a declining or even stable level of the productive forces. It is natural, therefore, that we have always posed their development as a major aim. However, the dual nature of our economy means that the development of its productive forces can proceed in two directions: in a situation where the overall balance of this growth can only be unfavourable to the proletariat, it becomes essential to subordinate the task of raising the productive forces to the more general task of saving the dictatorship. This was what we did under War Communism. This is equally the case today: thanks to previous policy we are unable to develop the state sector of the economy at a speed that would guarantee us predominance on the basis of an overall growth of the country’s productive forces. Thus our first conclusion is that the retreat, which is now inevitable, must be a retreat along the front of the productive forces. This, by the way, is only saying in different and more precise language what I (simultaneously with comrade L.D. [Trotsky]) put forward in my April article, where I stated that “there is no purely economic way out of the situation”. The objection that purely economic methods never exist, and that one really can only talk about percentages is not a serious objection: it is rooted in an altogether undialectical attempt to reduce a qualitative difference to a quantitative one. A purely economic path towards strengthening the basis of the dictatorship means, in our situation, strengthening it on the basis of industrialization. However, once it becomes impossible to pursue the rate of industrialization needed for this at this stage, once the attempt to ravish the economy has created all the preconditions for withdrawal and made it necessary to retreat – including along the industrialization front – this means that for this stage there are no purely economic ways out. This, at least, is how I understand my own formulation.

This leads us directly to the question of what we see as the aim of the retreat. Here, too we have already provided the answer: We retreat along the front of the productive forces in order to save the dictatorship, in order to attempt to regroup our forces at this lower level and, on the basis of this, return to the attack on a sound economic basis.

It is true that all the fundamental questions of our revolution are now posed point blank. It is true that the basic contradictions of the revolution stand out in relief. But it would be wrong to conclude from this (if one cannot prove it) that this is the final eruption of our revolution’s contradictions, and that henceforth the proletariat can wage only a defensive struggle, only rearguard actions. There is no doubt that the attempt to effect a regroupment of class forces at a lower level of the productive forces, or even when they are in process of declining (both the inevitable consequence of extensively applying methods of non-economic coercion) is fraught with dangers. The only guarantee (and even this is not ironclad) is a correct policy, a clear and precise formulation of aims and methods, and a clear class line. It seems to me that the central task of the Opposition must be to work out, using our basic strategic position and our overall assessment of the situation as our starting point, a minimum programme of concrete measures for the present period, just as we did for an earlier stage in our Platform. The general class character of this programme is clear and is reducible, in my view, to two basic propositions: (1) It is necessary to retreat alongside the working class and not distance ourselves from it, as do – and will do – the centrists. Hence the exceptional urgency of adopting measures – no matter what the price [24] – to alter fundamentally the material and legal position of the working class. (2) It is necessary at all costs to break up the united front of countryside, to carry the class struggle into the village, and to deliver the poor peasant from the authority of the kulak.

It is far more difficult to translate this general programme into a system of concrete measures. It seems to me that the most important measures are as follows:

  1. In industry and the state economy: sharply reduce the number of construction projects, concentrating on the most important and possibly cutting back on their scale in individual cases. Work on some projects temporarily will have to be halted. The losses associated with this operation are already inevitable. With the resources set free by abandoning fantastic plans it should be possible for backward sectors (transport, electrification, etc.) to catch up.
  2. In agriculture: “Striking a tough contract with the kulak”, without, however, depriving him of all incentive to economic activity. With regard to the middle peasant, shift over to a tax in kind so as to allow him to exercise a certain degree of control over his remaining output (or at least to see the possibility of it), thereby trimming some of the fat that has been accumulated. Under these conditions it should be possible to set the tax in kind at a level that exceeds the current agricultural tax. The basic portion of the output left with the middle peasant should be procured by selling him industrial commodities at higher prices. It might make sense in this situation to increase the fund of industrial commodities by exchanging some of our agricultural produce for foreign imports. Decisively reject (as in fact already has been done) any extension of wholesale collectivization and liquidation of the kulak. Prevent any bargaining away of the means of production thrown into the countryside during the period of “feverish growth of the collective farms”.Concentrate these means of production on the most viablekolkhozy, made up predominantly of poor peasants, and turn them into a material base for organizing unions of poor peasants.
  3. In finance: Bring expenditure into strict conformity with real resources. Sharply reduce nonproductive expenditures. Have a solid cutback in currency issue.
  4. With the workers: Draw off special resources from all branches of the national economy, including the state sector (but mainly from the countryside by redistributing national income), in order rapidly and palpably to improve the position of the working class; at the same time drastically alter its position within production.

It goes without saying that I consider centrism incapable of implementing this programme. Its implementation assumes the radical reconstruction of the whole political system, a class mobilization of the proletariat and poor peasants, a reform of the Party, and replacement of the centrist leadership, with all that this entails. It also goes without saying that no-one can guarantee us the success of this programme any more than it will be easy to carry out. Better than anyone else I am aware of the real obstacles that stand in its way. Thus I can already anticipate a whole host of objections that can, and will be raised against it. To those comrades objecting I merely wish to point out that ours is not a choice between best and the worst solutions, but between the best of a number of bad ones. Anyone objecting to this or that measure must be able to point to a better measure to put in its place. One also ought not to think that this programme can be implemented without trauma. It is a programme of sharp class struggle in the countryside, of struggle between the poor peasants and the kulaks, and most probably against significant sections of the middle peasantry as well. Finally, one ought not to think that this will come about quickly. This programme will take years. A situation of sharpening class struggle is not the best soil for a flowering of the productive forces, a decline in which is inevitable in the first years. The difficulties and the time this takes will grow until, having successfully implemented the programme of retreat, it will again be possible to pass onto a new attack.

Khristian Rakovsky      
27 July–7 August 1930


18. [Editor’s note: The figures in brackets are cited by D’yachenko; they are misprinted in Rakovsky’s text.]

19. [Editor’s note: Currency in circulation reached 4.3 billion rubles by 1 October 1930, the end of the economic year.]

20. [Editor’s note: This is misprinted in Rakovsky’s text as 185.8.]

21. Although all these prices are intended for next year, our arguments are fully applicable to this year, as well.

22. [Editor’s note: The “extraordinary measures” were introduced in January–February 1928 to compel peasants to sell grain to the state that they would not part with voluntarily.]

23. Since these general conclusions relate directly to what I have had to say in previous articles – from whose basic ideas I find no reason to dissent – I shall limit myself to adding certain points arising from a concrete analysis of the situation.

24. I retain this formulation because it best reflects the unqualified necessity of this measure. Any objections that I might be construed as proposing, let us say, to implement it at the expense of abandoning the monopoly of foreign trade, are unfounded. It is necessary to take every formulation in its overall context.

Last updated on 16.10.2011