Stalin's industrialization: where did the USSR get the money for the big leap?
“Let me manage the money of the country,
and I don't care
who will make the laws there.”
Mayer Amschel Rothschild
and I don't care
who will make the laws there.”
Mayer Amschel Rothschild
From financial history: how some countries created capital, while others ate it away
Why aren’t they building supermarkets in the Russian outback now, and you can’t even find a bank branch there, but somewhere there is such devastation, as if there was a war there? There is simply no money there, because there is nothing that could be sold to the border.
Tsarist Russia also had no money, which took out huge loans abroad and actually became bankrupt. Russia had no money in the 90s either. And only in the 2000s, with rising oil prices, the money supply began to grow at a good pace, because Russia had dollars.
Under capitalism, money always has a value; all investment costs are ultimately paid by the consumer. An agricultural company grows wheat - the cost of tractors, fuels and lubricants, sowing and harvesting costs, staff salaries - everything will be paid by the wheat buyers, and in the end - by the consumers of bread and pasta.
The other side of this topic is that investments under capitalism always require savings. That is why the process of accumulation is so important there, and investments become the privilege of capital and wealthy entrepreneurs. In the Middle Ages, thrifty citizens first produced something handicraft, then bought (made) machines and opened shops, their children built workshops and factories, etc. The accumulation of capital took a long time.
America at the end of the 19th and beginning of the 20th centuries made a giant leap in development, building roads, producing and selling millions of cars, because industry was developed in the USA - and the population had money. The American elite thought about how to develop the country. And in Tsarist Russia before the revolution there were almost no cars or tractors - there was no demand, the poor peasant population predominated. And the elite traveled abroad. So: poverty begets poverty - a vicious vicious circle.
USSR after the Civil War: initial data
The USSR did not have traditional sources for development - after the Civil War, the economy was in ruins, there were no savings, the gold reserves of the empire “evaporated”, relations with the West were bad - it was impossible to attract large loans.
The gold and foreign exchange reserves of the USSR at the end of the 20s did not exceed 200 million gold rubles, or about 150 tons of pure gold.
As Yuri Emelyanov wrote:
“By the end of 1924, the country’s industry produced extremely little and only the most primitive products. Metallurgy could provide each peasant farm in Russia with only 64 grams of nails annually. If the level of industrial development continued to remain at this level, then a peasant, having bought a plow and a harrow, could expect to purchase these items for himself again only in 2045.”
The task was set by I. Stalin in 1931:
“We are 50–100 years behind advanced countries. We must make good this distance in ten years. Either we do this or we will be crushed.”
Where does the currency come from: external loans and exports
The USSR was able to take a loan from Germany, with which there was active trade. The first loan for 100 million marks was granted in 1925, by 1931 the debt had grown to 700 million marks (1 billion 130 million rubles). There were also small loans from private US banks, about $350 million. There may have been other loans of a similar nature. By the end of 1931, the external debt of the USSR reached 1,4 billion Soviet gold rubles.
To pay off the debt and obtain foreign currency, which was used to purchase imported equipment and repay loans, the USSR exported grain and timber, oil, and gold. The export of grain and the initial stage of collectivization gave rise to the famine of 1932–1933. The extraction and sale of gold and art objects was activated. On the domestic market, the Torgsin system was created for the purchase of foreign currency valuables. In the second half of the 1930s, the USSR came to second place in the world in gold mining. By 1936, compared to 1932, gold production increased 4,4 times - from 31,9 to 138,8 tons. In the period from 1931–1934. The export of gold from the USSR through Riga amounted to about 360 million gold rubles (more than 260 tons).
The statistics of foreign trade of the USSR before the war looked like this:
According to: National Economy of the USSR, Volume 2, Chapter XI. International trade
Based on the table, USSR imports during the period of industrialization amounted to $2,091 billion, which is an approximate estimate of foreign exchange costs for industrial modernization. Before the war, the USSR was unable to catch up with the Central Republic in terms of foreign trade volume (see 1913). The import of equipment for industry in rubles amounted to: in the first five-year plan - 5 million rubles, all imports of the 572,6nd five-year plan amounted to 2 million rubles (I. S. Ginzburg “Foreign Trade of the USSR”, Sotsekgiz, 6).
Torgsin brought the state about 270–287 million gold rubles, which covered about 20% of the costs of import purchases in 1932–1935.
The export of works of art carried out in the same years yielded only 20 million gold rubles.
Everything is clear with this - you can only earn currency. But it was still necessary to pay for huge (!) domestic investments and labor of workers. There were loans from the population, but it was not rich; income from the sale of alcohol; use of cheap labor.
After the revolution and the Civil War, the level of Russia's GDP in 1922 relative to 1913 was 57%, the population became impoverished: so where did the money come from?
“Only galoshes” again: the unique financial system of the USSR
The main real way to finance the “Great Leap Forward” was the issue of money. The USSR, a country of socialism, proposed its own innovative version of a monetary system, untied from gold, built on the theory of a paper ruble, fictitious working capital, proposed by the outstanding pre-revolutionary economist S. F. Sharapov. And the main ideologist of this system was I. Stalin, who took a brilliant step by decoupling the ruble from gold and the dollar, not wanting to subordinate the country to the tycoons of the world financial mafia, which was done by the fallen Central Russia. Here is a quote from his speech at the Plenum of the Central Committee of the All-Union Communist Party of Bolsheviks in 1933:
“What ensures the stability of the Soviet currency?.. Of course, not only with gold reserves. The stability of the Soviet currency is ensured, first of all, by the huge amount of commodity masses in the hands of the state, put into circulation at stable prices. Which economist can deny that such security, which occurs only in the USSR, is a more realistic guarantee of currency stability than any gold reserve? Will economists in capitalist countries ever understand that they are completely confused with the theory of the gold reserve as the “only” guarantee of currency stability?
Galoshes? America has matured to the final abandonment of the gold peg only after 40 years! The gold standard was both the cause of the Great Depression and the cause of the backwardness of the Central Asian Empire. As J.M. Keynes believed, “... the gold standard is only a barbaric relic of the past.”
However, a similar solution was proposed by F.D. Roosevelt around the same time. He also abandoned the gold standard, prohibiting the public and companies from buying gold that had been forcibly purchased by the government, and prohibiting the export of gold abroad because it led to dollar shortages and capital flight.
In the USSR, a “golden coating” was not necessary - the state issued funds “out of thin air” in doses as part of an investment plan for available resources, which could also be created in the process of its implementation. Although a large gold reserve was subsequently created: Stalin left the USSR 2 tons of gold.
At the end of the 20s, this issue accounted for about 44% of the State Bank’s balance sheet:
According to M. Atlas, Development of the State Bank of the USSR, 1958.
This strategy caused explosive economic growth, including due to the constant growth of the money supply and investment that corresponded to its growth.
According to: Bank of Russia, Cash turnover in the USSR in 1922–1990, Table 1.4
According to: Bank of Russia, Cash turnover in the USSR in 1922–1990, Table 1.2.3
As I. N. Levicheva writes (Problems of money circulation in the USSR in the late 1920s - 1930s):
“During 1931–1932. the budget practically did not provide the State Bank of the USSR with funds for lending to the national economy, so in 1931 the bank was forced to cover 45% of its loan investments through an issue amounting to 1,3 billion rubles. As a result, the money supply in circulation increased by almost 30%.”
As can be seen from the second graph, the average annual growth rate of the money supply before WWII was about 24%.
As a result, our state was consistently ahead of the entire capitalist world in terms of economic development. From 1929 to 1955, the average annual growth of the USSR economy was 13,8% (excluding war years). And this despite the fact that in the 30s the entire world system of capitalism was in the grip of the Great Depression, and in the United States the money supply was shrinking. The multiple growth of the money supply during the Great Patriotic War was justified by the needs of the war, however, even during it, economic growth continued. The impressive results of the second five-year plan were as follows:
According to: Completion of the socialist transformation of the economy. Victory of socialism in the USSR (1933–1937), 1978
Below is for the reader to consider historical graph of the dynamics of economic growth of the Russian Federation within comparable boundaries for the period 1901–2023, according to the book “Development of the Russian Economy for 100 Years,” 1900–2000, Simcher V. M., 2007 and Rosstat.
Financial model of industrialization: how did it all begin?
Industrialization and emissions caused active growth of the economy, employment and wages of the population: savings were created. If in 1928 the number of workers and employees was 11,6 million people, then in 1935 it increased by more than 2,2 times and reached 24,8 million people, while the salary fund also grew rapidly: in 1928 it amounted to 8,2 .1932 billion rubles, and in 32,7 – already XNUMX billion rubles.
The number of workers grew due to unskilled labor from the village, which had low qualifications, equipment deteriorated, and there was a high percentage of defects. But the whole country saw the light, studied, and things took off! And now why do we use migrants? It’s a rather strange tool.
However, collectivization led to a sharp drop in food production, while bread was forcibly confiscated and also exported for foreign currency (as in the Central Republic), and industrialization itself placed emphasis on the development of heavy industry.
The military threat and the backwardness of the consumer sector caused the traditional Soviet “distortion” of the economy - a commodity shortage. Prices began to rise sharply in the late 1920s, and by early 1933 market price levels were approximately 12 times higher than in 1928 and 13–35 times higher than government rationing prices. A card system was introduced. It was necessary to more actively develop this particular segment. In 1932–1833 there was famine in the country.
In 1932 these measures were taken. In January 1933, instead of forced seizures, mandatory grain supplies were established; surpluses could be sold to the state at increased (30–40%) prices and sold on the collective farm market at the market price. The state increased investment in the light and food industries, as a result, from 1931 to 1934, commercial trade turnover increased from 423 to 16 million rubles, and its share in retail trade turnover increased from 745 to 1,7%. Prices, including on the collective farm market, went down. By the end of 30,6, sugar prices fell by 1934%, and bread prices by 49,8%.
Here are some results of the second five-year plan: labor productivity doubled, gross industrial output increased by 2,2 times, and agricultural output by 1,5 times. In 1937, more than 80% of industrial output was obtained from new or modernized plants. The monetary income of the population in 1937 increased by 1933 times compared to 2,3, and the population's payments to the financial system increased by 1,3 times. Compared to 1932, in 1937 retail trade turnover increased by more than 3 times, the wage fund by more than 2,5 times, and the money supply by almost 2 times.
Can we create such a miracle now or are we weak?
In 1935–1936 The gradual abolition of the card system began. At the same time, the “fictitious ruble” created real products, real incomes and taxes - and all this continuously grew.
Budget deficit: good or worse?
So why did the USSR constantly issue money: due to budget deficits, the country was poor. Let us quote I.N. Levicheva again:
“...until mid-1940, budget expenses exceeded its revenues, so the State Bank of the USSR was forced to carry out uncovered emissions. In 1938, the issue amounted to 3,6 billion rubles. Of these, 1,8 billion rubles. (43%) was covered by attracted resources, and 2,4 billion rubles. remained uncovered. At the same time, up to 1,2 billion rubles were allocated for budget purposes. emissions".
But in a liberal economy it is believed, in all textbooks (!), that a balanced budget is the basis for stability, etc. This is not true. If a country plans to develop, it must have a stable budget deficit.
Let's look at China, which did not develop its economy according to imported textbooks. In strict accordance with Keynes's recipes, the country had a stable budget deficit, amounting to up to 15% (!) of revenue in 1979–1980, which decreased to 3–4% during 1981–1990, and increased to 7–10% in 1991–1997 In 2005, the deficit amounted to 208 billion with a revenue share of 3,163 trillion yuan, i.e. 6,5%.
At the same time, China had a very low inflation rate - about 1,8% in 2005. Because inflation is not due to extra money, but due to the fact that there are either no goods or they are imported.
Know-how 2: three-circuit financial system of the USSR
A number of articles on this topic write: double-circuit system. In the USSR, in fact, there were three contours of monetary circulation - for international payments, the transferable ruble, the currency received from export transactions, was used; for payments between enterprises - non-cash ruble; and for citizens - cash rubles, which were paid salaries and with which they paid in stores. The cash was collected and ended up in the accounts of enterprises. Citizens could also use checks to pay for purchases issued against their deposits.
Under socialism, money for investment is conditionally free, its cost is not decisive, since the issuer is the state, it is not paid by consumers, but by society as a whole. The average interest rate on all loans from the State Bank of the USSR in 1975 was 2,22%. Compare this with our rate in the 16st century - XNUMX% - simply absurd. If Tsarist Russia had accumulated capital for industrialization at the expense of profits, it would have taken many, many decades.
As a result, the issue actually paid for non-cash turnover - the movement of goods, work and investments between enterprises. Part of the money that was in the cost of work - wages - partially went to the consumer market, they paid for the maintenance of the workforce. Prices set by planners balanced the balance of available resources that the economy could produce with demand from businesses and workers. Planning established balances of necessary resources: metal, fuel, grain, energy, money, labor, etc.
According to Kurman Akhmetov (Paradoxical financial system of the USSR):
“The bifurcation of money in the Soviet economy into mutually inconvertible parts meant the actual destruction of money as a universal equivalent. Non-cash money in such a system serves mainly as a means of accounting. Essentially, this is not money, but units of account with the help of which material funds are distributed.”
Another important advantage of such a system was the almost complete impossibility of corruption: it was simply impossible to withdraw money from such a system or cash it out. There was also theft during the USSR, but its scale looks like child’s play. But for the current elites, this is nothing more than a way of “feeding”.
The best secret of the USSR
One can also say about the monopoly of foreign trade and the fact that all resources are owned by the state. This made it possible to develop the country, provide free education, including higher education, free housing and medical care, discounted vouchers, etc. They lived poorly, but no one went hungry. Now the total nationalization of the entire raw materials sector would create a completely different economy.
In the Soviet system, neither money nor profit played a special role - being only a working tool for the development and investment policy that the whole country followed. During the USSR, work was everywhere: it was full of small and local factories, city-forming enterprises, which were later successfully destroyed during Yeltsin’s time in order to consume imported products from global multinationals.
It was full of collective and state farms, research institutes, scientists and engineers. And the Army was large, as a large country needed. There was work in the republics of Central Asia, Tajikistan, and the Warsaw Pact countries. None of the Asians came to us, because everything was fine with them too. People from there personally told me about this. Because there was money, collective farms and enterprises everywhere!
No wonder Mayer Amschel Rothschild said:
“Let me manage the money in the country, and I don’t care who sets the laws there.”
But the most important source (!) of Stalin’s modernization was the wise political will of the leadership, which decided to take a big leap, similar to the experience of Peter I, and subordinated not only the people, but also its elite to achieve this goal. As you know, “ruin is in the head” and “the fish rots from the head”: that’s how it is.
And until our elites decide (as they did in China) that wealth must be created through production, and not by eating up natural capital (raw materials, oil and gas), everything will remain the same. But not forever: until the next “Great Leap Forward”. And the conduct of the Northern Military District and the conflict with the West will certainly “create” it.
Let's give the floor to representatives of the West.
“The essence of Stalin’s truly historical achievements is that he took Russia with a plow and left it with nuclear reactors. He raised Russia to the level of the second industrialized country in the world.”
Isaac Deutscher, British historian, 1956.
From a speech by M. Thatcher in 1991:
“The Soviet Union is a country that poses a serious threat to the Western world... Thanks to a planned economy and a unique combination of moral and material incentives, the Soviet Union managed to achieve high economic indicators. The percentage of GNP growth is approximately 2 times higher than in our countries.”
Finale
They simply don’t tell us about this: despite our conflict with the West, we still follow the path of the IMF and many international programs.
Where can we get money for regional development now?
Can the experience of the USSR be used now in modern Russia?
Maybe - and more on that in the next article.
Links:
The paradoxical financial system of the USSR, Kurman Akhmetov, source: Kazakh newspaper “Freedom of Speech” No. 1 (145), No. 2 (146) and No. 3 (147) – January 2008.
Elena Osokina, Stalin's Gold.
What loan did the USSR take from Germany before Hitler’s attack - Russian Seven (russian7.ru)
Gold reserves of the USSR: under which Soviet “leader” was it the largest?
Unforgettable 30s: Memoirs of party veterans - Muscovites / Institute of Marxism-Leninism under the CPSU Central Committee, Scientific method. cab. and etc.; [Comp. N.B. Ivushkin]… – M.: Moscow. worker, 1986. – P. 159. – 304 p.
Keynes J. Treatise on monetary reform. – M.: Economic Thought, 1925, P. 93.
I. N. Levicheva, Problems of monetary circulation in the USSR in the late 1920s - 1930s",
Margaret Thatcher's speech on the collapse of the USSR
Information