Cold War Capitalism: The View from Moscow, 1945-1975

The View from Moscow, 1945-1975

Richard B. Day

• Publisher: Routledge
• Year: 2016
• ISBN:
  9781315285917
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

Looking back from the perspective of the mid-1990s, it is hard to believe that Soviet power for so long presented a threat and a challenge to the capitalist system. This book examines the assumptions of Soviet post-war economic theory and policy, traces the Soviets' analysis of Western economic development from the post-war period through to the easing of international relations, and explains why the Soviets themselves believed they were going to outperform the West.

Chapter 1
Origins of Postwar Soviet Debates

Soviet studies of the west in the years 1945-75 began with the role of the state in national economies and subsequently turned to global contradictions of the world capitalist system. A parallel development occurred in Marxist thought from publication of the first volume of Capital in 1867 to the Russian revolution in 1917. In Capital Marx abstracted from foreign trade and investment to define the "laws of motion" leading to cyclical economic crises within a self-contained capitalist system. His analysis indicated that periodic fluctuations of market economies would become increasingly severe and culminate in proletarian revolution. When revolution was delayed long beyond the time expected, later Marxists turned from internal contradictions of capitalist economies to theories of the world economy and imperialism.

The spread of capital into precapitalist areas was commonly thought to have sustained the rate of profit in the leading capitalist countries and to have postponed the revolutionary crisis. In this interpretation not only did foreign trade and investment assume a far more prominent role than in Capital, but in many writings on imperialism the role of the state in organizing, regulating, and even planning economic affairs also took on new salience. Marxist theories of imperialism provide the historian with an important point of entry into Soviet debates during the decades that preceded World War II as well as during those that followed.

Immediately after the Russian revolution, Soviet Marxists were so preoccupied with imperialism—especially with its implications for the Soviet Union within the "capitalist encirclement"—that Marx's original concern with business cycles faded into the background. In The 'Crisis' and the 'Crash' I demonstrated how this atrophy of business-cycle theory complicated subsequent assessments of the Great Depression. Economists found themselves wrestling with the question of whether the catastrophe of 1929-33 was merely another cyclical crisis, such as the capitalist countries had experienced for more than a century, or the final crash of the imperialist system as a whole.

By the late 1940s the official Stalinist view held that the Great Depression had initiated a period of terminal decline from which no sustained recovery was possible. Economists who opposed this interpretation, expecting stabilization in the west, likewise drew upon experience of the Great Depression. Impressed by the innovative role of government under Hitler and Roosevelt, they believed that modern capitalism had displayed a new potential for mitigating cyclical fluctuations, The most important question, from this point of view, appeared to be whether the state would serve the aggressive intentions of militant reactionaries, as in the case of the Nazis, or contribute to progressive democratic reforms such as Roosevelt had initiated in America.

Preoccupation of post-1945 Soviet debates with the new economic role of the state coincided with a similar focus in western thought due to the prevalence of Keynesian doctrines. It also represented a significant departure from the work of Marx, who considered political institutions to be of secondary importance compared to the objective laws that governed the cyclical pattern of capitalist development. Marx's most unique contribution to economic theory lay in his analysis of recurrent contradictions giving rise to capitalist cycles. To establish the context for Soviet debates after 1945,I shall therefore begin this study with a brief review of Marx's Capital and its relation to subsequent theories of imperialism and the Great Depression.

1. Marx on the Cyclical Pattern of Capitalist Development

In Capitalism, Socialism and Democracy, Joseph Schumpeter praised Marx as one of the founders of modern research into the business cycle. With reference to Capital, Schumpeter wrote that "We find practically all the elements that ever entered into any serious analysis of business cycles, and on the whole with very little error."¹ Whereas economic crises had previously been attributed to fortuitous circumstances, Marx compared the movement of industrial production to the orbits of the planets: "[Just] as the heavenly bodies, once thrown into a certain definite motion, always repeat this, so it is with social production as soon as it is thrown into this movement of alternate expansion and contraction."²

Marx's study of capitalism's "laws of motion" began with the concepts of value and surplus value. Selling their labor power to capitalists, industrial workers were said to receive a wage equal in value to the cost of maintaining themselves and their dependents at the prevailing level of subsistence. When capitalists sold the resulting commodities, they realized both their costs of production and profit. The secret of profit, according to Marx, was unpaid labor. During part of the day, workers created commodities of sufficient value to cover the costs of production, including their own wages; for the remainder of the day they created surplus value. The market law of value compelled every capitalist to attempt to increase the rate of profit by raising the rate of surplus value (or exploitation). Marx thought each employer must try to introduce labor-saving technology in order to increase productivity and reduce costs. "The battle of competition," he wrote, "is fought by cheapening of commodities."³ As some capitalists prevailed in the competitive struggle and others went bankrupt, two consequences followed: existing capital tended to become more centralized through bankruptcies, and accumulation of new capital tended to be concentrated in fewer but larger firms. The law of the centralization and concentration of industrial capital followed inevitably from competition.

Because living labor was the sole source of surplus value, however, the struggle for private profit had contradictory implications for the system as a whole. Continuous introduction of new technology caused relative displacement of workers by machinery, or what Marx called a rise in the organic composition of capital. The result was that each capitalist, in attempting to raise his individual rate of profit, contributed to a gradual lowering of the social average rate. The law of the falling rate of profit suggested that capitalist production must eventually give way to socialism. Socialist planning would replace investments for the sake of private profit with technological advances designed to shorten the working day, lighten the burden of social labor, and extend opportunities for human self-development.

In capitalist society, on the contrary, accumulation of private capital presupposed recurring impoverishment of workers. Marx argued that each wave of competitive investments depended upon a reserve army of the unemployed who could be absorbed into new production at relatively low wages with a corresponding potential for a high rate of profit. The result was a uniquely capitalist law of population that required labor periodically to become "relatively superfluous":⁴

The course characteristic of modern industry, viz., a decennial cycle (interrupted by smaller oscillations), of periods of average activity, production at high pressure, crisis and stagnation, depends on the constant formation, the greater or less absorption, and the re-formation of the industrial reserve army or surplus population. In their turn, the varying phases of the industrial cycle [first] recruit the surplus population and [then] become ... the most energetic agents of its reproduction.⁵

Marx believed that cyclical growth of production, through its effects upon employment and wages, determined the absorptive capacity of markets. By investing in new production facilities, capitalists reemployed workers who had lost their jobs in the previous cyclical contraction, expanded output, and created a new market for commodities through increasing wage expenditures. At a later point in the cycle, however, they just as predictably curtailed production in response to rising wages and falling profit rates, thus contracting markets and precipitating a general crisis of overproduction. A fundamental contradiction of the capitalist system was that in order to expand the forces of production, it must periodically destroy a part of the existing capital through bankruptcy of the weakest firms.

Marx referred to "the poverty and restricted consumption of the masses"⁶ as the final cause of industrial crises, but he did not subscribe to the theory of (chronic) underconsumption that prevailed in the thinking of many later Marxists. In volume II of Capital he wrote:

It is sheer tautology to say that crises are caused by the scarcity of effective consumption. . . . [I]f one were to attempt to give this tautology the semblance of a profounder justification by saying that the working class receives too small a portion of its own product and [that] the evil would be remedied as soon as it receives a larger share of it and its wages increase in consequence, one could only remark that crises are always prepared by precisely a period in which wages rise generally and the working class actually gets a larger share of that part of the annual product which is intended for consumption.⁷

Marx believed that the capitalist system of income distribution was flawed by the contradiction between social labor and private appropriation of the product: the limit to social consumption became apparent in the capitalists' response to a temporary increase of wages at the expense of profits when a cyclical expansion approached its peak. Full employment provided a market for the sale of commodities, but it also created a "disproportion between capital and exploitable labour power,"⁸ or a scarcity of cheap wage labor, signifying the need to restore profitability through re-creating the industrial reserve army of the unemployed. Capitalist production created the market, but the market could not continuously grow because social income depended upon the fluctuating demand for labor:

Taking them as a whole, the general movements of wages are exclusively regulated by the expansion and contraction of the industrial reserve army, and these again correspond to the periodic changes of the industrial cycle. They are, therefore, . . . determined by ... the varying proportions in which the working class is divided into the active and reserve army, by the increase or diminution in the relative . . . surplus population, by the extent to which it is now absorbed [into production], now set free.⁹

In volume II of Capital Marx expanded the concepts of proportionality and disproportionality to consider the macroeconomic conditions required for reproduction of social capital as a whole. He began by dividing industry into two Departments. Department I produced means of production, or "constant" capital, which in turn was divided into "fixed" and "circulating" capital (equipment and materials respectively). Department II was responsible for output of consumer goods. Marx demonstrated that in order to guarantee a stable level of total output—or maintenance of current consumption and simple replacement of resources used in production—the flow of values between these two Departments must be equal.

Department II produced consumer goods by purchasing means of production from Department I. Department I, in turn, provided for consumption by its own capitalists and workers by purchasing consumer goods from Department II. Were Department II to spend more on machinery and materials than it received from Department I in payment for consumer goods, a cyclical expansion would begin. The flow of social purchasing power would increase as capitalists in the consumer goods sector invested their accumulated savings in new means of production. Prices for the means of production supplied by Department I would rise as a consequence of this new demand from Department II, and growing investments would then occur in the capital goods industries as well.

The same analysis applied in reverse. If Department II curtailed purchases of materials and equipment from Department I, or if Department I overexpanded relative to the long-run requirements of Department II, the necessary result would be an economic crisis.¹⁰ Production would decline in the capital goods sector; the resulting unemployment would then spread back into Department II through reduced purchases of consumer goods. With this model of the two Departments, Marx claimed to demonstrate both the theoretical ability of the capitalist system to maintain a constant level of production—through equal exchanges between the two Departments—and also the inevitability of crises arising from spontaneous inter-Departmental disproportions.

Marx was convinced that unevenness of investment, or continual fluctuations in the rate of replacement and expansion of fixed capital, created the "material basis" of the economic cycle.¹¹ "[PJremature renewals of factory equipment on a rather large social scale," he wrote, "are mainly enforced by catastrophes or crises."¹² In the struggle for economic survival, every capitalist made individual investment decisions with no knowledge of the plans of his rivals. This lack of coordination would lead to new disproportions between and within the two Departments, resulting in relative shortages in some branches and relative overproduction in others. These disproportions would then have to be resolved by another cyclical crisis, which would eliminate redundant capital in industries that had overexpanded and stimulate new investments in those experiencing shortages.

Marx described this pattern by saying that "proportionality of the individual branches of production springs as a continual process from disproportionality."¹³ Uninterrupted growth would require all sectors of the economy to expand "simultaneously, and at once in the same proportion"-, in the absence of comprehensive planning, "departure from the given proportion in one branch of production drives all of...

Table of contents

• Cover
• Half Title
• Title
• Copyright
• Dedication
• Contents
• INTRODUCTION
• 1. ORIGINS OF POSTWAR SOVIET DEBATES
• 2. POSTWAR CAPITALISM: FASCISM OR A NEW DEAL?
• 3. STALIN'S LEGACY: PEACEFUL COEXISTENCE OR THE INEVITABILITY OF WAR?
• 4. MALENKOV'S "NEW DEAL" AND THE "GENERAL CRISIS" OF STALINISM
• 5. REINTERPRETING POSTWAR AMERICA: A NORMAL CYCLE OR A "ONE-SIDED" WAR ECONOMY?
• 6. "NEW FRONTIERS" OF STATE-MONOPOLY CAPITALISM
• 7. MONOPOLY PLANNING AND "SCIENTIFIC-TECHNICAL REVOLUTION"
• 8. STATE-MONOPOLY PLANNING AND ECONOMIC RESTRUCTURING (CAPITALIST PERESTROIKA)
• 9. NATIONAL PLANS AND THE INTERNATIONAL MONETARY CRISIS
• 10. DETENTE AND "DEEPENING OF THE GENERAL CRISIS"
• NOTES
• BIBLIOGRAPHY
• INDEX
• About the Author