Subscribe for monthly SEWP email updates
Posted: April 19, 2025
Typically, revolutions are political expressions of a society’s economic difficulties. If a revolutionary force succeeds in taking political power, but fails to create a more effective economic structure, the long term social goals cannot be achieved. Take the incredible Haitian Revolution (1791-1804), when slave armies liberated themselves from colonial French slave owners. Unable to replace the island’s plantation economy, Haitian leadership struggled to translate the revolution’s success into economic liberation for the Haitian people. Lenin was one of the greatest students and theorists of revolution. Thanks to this, upon the Bolshevik seizure of power, Lenin immediately began enacting plans to consolidate the revolution in the new Russian Soviet Socialist Republic (RSSR), towards the ultimate end goal of building socialism.
Top priority as 1917 rounded into 1918 was removing the RSSR from World War I. Then, the Bolsheviks could focus on the needs of the suffering masses of workers and peasants, through the economic program now dubbed ‘war communism.’ In December 1917, Lenin outlined two foundational Soviet economic policies: i) the nationalization of banks, to draw money back into the state treasury, centralize consumption and distribution of extremely scarce resources, and establish a state monopoly on foreign trade, and ii) the nationalization of industry, using state loans to switch factories to useful production. Along with these revolutionary economic measures, the RSSR made peace with Germany in March 1918 at Brest-Litovsk. Although this peace was on terrible terms, including territorial concessions, the Bolsheviks achieved the third point of their rallying slogan ‘land, bread, and peace.’
Every discussion of the USSR’s successes and failures must incorporate the state of siege that stretched the entirety of its existence. The most blatant example of this is the Imperialist Invasion that began as soon as the Bolsheviks achieved power. The Russian Civil War (1918-1921) pitted the Bolshevik Red Army against the Tsarist, aristocratic White Russian forces. However, the Whites were backed by a 14 nation imperialist coalition including the UK (with colonial troops from Australia, Canada, India, and South Africa), the USA, France, Japan, Italy, and more. After almost five years of intra-imperialist annihilation, the imperialists closed ranks attempting to ‘strangle the infant [RSSR] in its cradle.’ While some ~2-3 million Russians died in WW1, estimates for the Civil War/Imperialist Invasion vary from ~10-20 million dead.
The RSSR’s economy was in a dire state amid the rapid transition from World War I to the Civil War/Imperialist Invasion. Defending the revolution required a total mobilization of resources and labour. War communism was run by the Supreme Soviet of National Economy (VSNKh), which managed the nationalized industrial enterprises and state-run People’s Bank. Almost all of the peasants’ produce was expropriated and distributed by the VSNKh, with private grain trade forbidden. Labour was obligatory, with 70- 90% of wages paid in kind (mostly grain), and basically no wage differentiation by skill. Supplies and consumer goods were rationed. While taxes were abolished and debts annulled, prices and inflation skyrocketed from 1918-1921.
The harsh necessities of war communism during the Civil War/Imperialist Invasion left living standards in the USSR (established in 1922) floundering. From 1913-1920, industrial output fell by 80%, and agricultural output was cut in half. However, the Red Army won the war, expelling the invaders, and consolidating Soviet state power. The plan for reigniting the USSR economy was the New Economic Policy (NEP). Lenin admitted this market-driven approach was ‘a strategic retreat’ and ‘a very severe defeat on the economic front.’ However, rather than being dogmatic, the NEP showed Lenin’s willingness to use pragmatic tactics (markets and private ownership) in pursuit of the long term strategy of building socialism.
The NEP was not capitalist, but rather a socialist market economy. A private sector emerged in industry and trade, accounting for 20-25% of industrial output, and 40-80% of retail trade. However, state trusts accounted for 2/3 of industrial output, and cooperatives another 13%, as industrial production more than tripled between 1921-25, reaching pre-war levels. The private businesses could use their profits after making fixed mandated payments to the state budget, but private capital did not play a decisive economic role. A labor market was reinstated, with money wages paid, and while unemployment increased from 1.2M (1924) to 1.7M (1929), urban employment increased by ~50%. Agricultural production doubled, exceeding the pre-war level by 18%, as food requisitioning was replaced by a food tax, which was collected first in kind and later in money.
Fiscally, the budget deficit was eliminated, inflation curtailed, and the credit system restored. The state-run Gosbank was reestablished in 1921, but by 1923, there were 17 independent banks (33% of all credit), and by 1925, 61 banks (52% of all credit). Foreign capital flowed in through ‘concession arrangements’ with foreign firms, especially in mining (lead, silver, manganese, gold, etc.). Skilled Western labourers also flocked to the young USSR, with some 20,000 American and Canadian immigrants arriving by 1925. Under the NEP, the average growth rate of national income was 18%, and by 1928, national income per capita was 10% higher than before the war. This growth topped even the US, spared World War I and Civil War.
The NEP returned the USSR economy to pre-war foundations in almost every key industry, and far beyond in many. Yet it had problems from both its market and command aspects. A major problem was how industrial prices grew much quicker than agricultural prices. This was mainly due to specific industrial goods bottlenecks and slower restoration of industrial productivity. The high price for industrial goods led the market to oversupply them, beyond present needs.
Some analysts claim that the USSR should have stuck to the successful NEP policies. However, while NEP policies proved extremely useful, the Soviet leadership knew exactly where a market economy’s contradictions would lead the USSR. They envisioned not just another capitalist economy, but a centralized socialist economy. The NEP period was economic triage, allowing the CPSU to retain its sovereignty over USSR territory, thanks to enormous sacrifices by the Red Army, workers, and peasants. It shows that markets can be effective tools in the hands of socialist governments, as long as they remain subject to state power and socialistic aims.
In our next post, we get into the heart of the new Soviet socialist vision, of which Stalin would take leadership after Lenin’s death, through the collectivization and industrialization reforms.
If you're interested in these ideas, don't hesitate to reach out. This project is a conversation, not a lecture, so all good faith feedback is encouraged, especially from trained economists.
References