The Stalinist System
(The Internal "Evolition" Towards "Liberalization")

Written by Hiroyoshi Hayashi (1972)
Translated by Roy West

1. The Laws of Commodity Exchange and Socialism
2. The Relations of Production Under the Stalinist System
3. The "Socialist" Planned Economy and the Category of Capital
4. Economic Reforms and the Bourgeois “Evolution” of the Stalinist System
5. The “Overall” Development of Commodity Production and the “Shift to Communism”
6. Criticism of ‘Socialist’ Economics

Production Relations in the Kolhozy (Collective Farms)

In the last chapter, we considered the most abstract theoretical question of the relationship between commodity production and socialism. We explained that real socialism is incompatible with the existence of commodity production, and socialism is not only the sublation of capitalist production, but also the sublation of commodity production. However, pointing out that the production of value=commodities exists in Soviet society only reveals that the USSR is not a socialist society, it does not elucidate the essential characteristics of its socio-economic system. Since some may argue that this commodity production is merely a formalistic element within a transitional society, it is necessary for us to proceed to a concrete analysis of the relations of production in Soviet society.

“Socialist” economics often accounts for the existence of value= commodity production in “socialist” society on the basis of two facts: “remnants” of backward property forms and the need to “make use of” the law of value for the sake of economic calculations. Stalin explains the reason for the existence of commodity production in the Soviet Union in the following way:

It is said that, since the domination of social ownership of the means of production has been established in our country, and the system of wage labor and exploitation has been abolished, commodity production has lost all meaning and should therefore be done away with.

That is also untrue. Today there are two basic forms of socialist production in our country: state, or publicly-owned production, and collective farm production, which cannot be said to be publicly owned. In the state enterprises, the means of production and the product of production are national property. In the collective farm, although the means of production (land, machine) do belong to the state, the product of production is the property of the different collective farms, since the labor, as well as the seed, is their own, while the land, which has been turned over to the collective farms in perpetual tenure, is used by them virtually as their own property, in spite of the fact that they cannot sell, buy, lease or mortgage it.

The effect of this is that the state disposes only of the product of the state enterprises, while the product of the collective farms, being their property, is disposed of only by them. But the collective farms are unwilling to alienate their products except in the form of commodities, in exchange for which they desire to receive the commodities they need. At present the collective farms will not recognize any other economic relation with the town except the commodity relation?exchange through purchase and sale. Because of this, commodity production and trade are as much a necessity with us today as they were, say, thirty years ago, when Lenin spoke of the necessity of developing trade to the utmost.

[Stalin, Economic Problems, p. 15.] At the same time, however, Stalin refused to regard the means of production produced by the state enterprises as commodities. He accounted for the existence of the category of value in the means of production from the need for economic calculation:Can the means of production be regarded as commodities in our socialist system? In my opinion they certainly cannot. A commodity is a product which may be sold to any purchaser, and when its owner sells it, he loses ownership of it and the purchaser becomes the owner of the commodity, which he may resell, pledge, or allow to rot. Do means of production come within this category? They obviously do not. In the first place, means of production are not “sold” to any purchaser, they are not “sold” even to collective farms; they are only allocated by the state to its enterprises. In the second place, when transferring means of production to any enterprise, their owner?the state? does not at all lose the ownership of them; on the contrary, it retains it fully. In the third place, directors of enterprises who receive means of production from the Soviet state, far from becoming their owners, are deemed to be the agents of the state in the utilization of the means of production in accordance with the plans established by the state. It will be seen, then, that under our system means of production can certainly not be classed in the category of commodities. Why, in the case, do we speak of the value of means of production, their cost of production, their price, etc.? For two reasons. Firstly, this is needed for purposes of calculation and settlement, for determining whether enterprises are paying or running at a loss, for checking and controlling the enterprises. But that is only the formal aspect of the matter. Secondly, it is needed in order, in the interests of our foreign trade, to conduct sales of means of production to foreign countries. Here, in the sphere of foreign trade, but only in this sphere, our means of production really are commodities, and really are sold (in the direct meaning of the term). [Ibid., pp. 53-4.] Stalin’s view is very characteristic, and in a sense this is the classic reflection of the relations of production in the Soviet Union prior to economic reform. He thought that commodity production existed in the USSR because of the existence of the kolhozy sector of agriculture which was not owned by “all the people” (i.e. not nationalized). This is an undeniable proposition. It is clear that the collective ownership of the means of production by cooperative unions was not equivalent in itself to social ownership, but only made up one part of the state capitalist system under conditions of commodity=state capitalist production.

Before the economic reforms (or more precisely before 1958), the small-scale means of production, agricultural tools, cattle, and facilities, etc. were owned by the kolhozy. However, large-scale agricultural machines, owned by the Machine Tractor Stations (MTS), were rented to the collective farms in exchange for produce. This fact enabled Stalin to claim that the “socialist” nature of the kolhozy was demonstrated by the fact that in the case of the kolhozy their “means of production belonged to the state”.

On the other hand, even though the land was nationalized, the kolhozy were given permanent use rights and exclusive ownership. Needless to say, in the case of agriculture, land is the most fundamental means of production. As long as the kolhozy possessed the land, the peasants were private producers even if they worked collectively, and exchanged their products as commodities. In 1958, the MTS was abolished, and the tractors and other means of production were sold off to the kolhozy. In this way, the kolhozy became the owners or possessors of all of the means of production. Stalin had been strongly opposed to the dissolution of the MTS on the grounds that it would strengthen the nature of the kolhozy as private producers, but just a few years after he died what his “fears” were realized. What does this fact tell us? This is precisely the problem that we will attempt to elucidate. The dissolution of the MTS has great historical significance as the starting point of the “liberalization” which we will analyze in detail later.

Another point which merits close attention is the fact that the role of the individually-run peasant farms was certainly not insignificant. In terms of land ownership, it may seem that 0.25 to 0.50 hectare “additional” plots land is trivial. However, this ownership of land represents the individual ownership of small-scale means of production and cattle, and purely privately run operations. In terms of production, this “individual subsidiary management” accounted for a large percentage of the production of potatoes, vegetables, meat, milk, eggs, wool, etc. (in 1950, the percentages were 73, 44, 67, 75, 89, 21, respectively). On the other hand, the percentage of kolhozy goods was overwhelming in area of grain, cotton, root crop (in 1950, 82, 96, 97 percent respectively). Clearly, commercial and cash crops were produced in the individual management sector

Under the Stalinist system, the direct producers were organized in cooperative associations and engaged in collective labor. They were paid a wage by the kolhozy “according to working days”, which until recently was payment in-kind. Therefore, in order to obtain money, peasants had to rely on “side employment”. These peasants were given food and other necessities by the kolhozy that were barely adequate to live on, and thus forced to survive on a small amount of income from “side employment”. The role of the “side employment” under state capitalism should be clear. This was like a lubricant to help the state exploit the peasantry more smoothly. The resources and food necessary for industrialization were produced mainly by kolhozy, and this reveals that the collectivization of the peasantry was an intrinsic necessity for state capitalism. On the other hand, however, peasants had to look after themselves by means of “side employment”. A historical parallel for this can only be seen in feudal society where peasants, for example, worked three days of every week on their own land and the other three days for the landowner. To a certain extent, it can be said that under the Stalinist system, peasants essentially worked for the “state” in the kolhozy, and for themselves on private plots. Of course, they did not work exclusively for the state in the kolhozy, but there is a wealth of evidence that shows how labor in the kolhozy represented terrible exploitation by the “state”. The “private plots” were a supplementary system, so to speak, which made such exploitation possible. Without this system of “private plots”, the peasants would hardly have been able to endure such severe exploitation by state capital. Here once again, we can see the reality of what the Stalinists called “the utilization of the law of value”.

The state capitalist exploitation of peasants mainly took the form of the obligatory delivery of kolhozy products to the state. The prices of agricultural products were set very low. The state was able to generate a huge amount of income by selling them in turn at a very high rate of profit (through the “turnover tax”). For example, in 1936 the Soviet government bought wheat from the kolhozy at 15 rubles per ton and sold it to flour factories at 107 rubles per ton. This represents a “turnover tax” of 92 rubles per ton, or a 600% profit rate for the 15 rubles! This clearly represents the severe exploitation of the peasants. More than simply shifting the burden to the consumer by raising prices, this should be seen as the state buying products from the peasants well below their price.

Throughout the period of Stalin’s rule, this “turnover tax” usually made up fifty to seventy percent of Soviet state income. On the other hand, the so-called “profit deduction” (i.e. state enterprises paid to the state the bulk of the gap between sales and expenditure) was at most only a few percentage points, at most ten percent (see chart #1). Only in the late sixties did “profit deduction” finally exceed the “turnover tax” for the first time. This corresponded exactly with the period of the “liberalization”. Of course, this correspondence was not accidental, and we will examine this in detail later.

Chart #1: Income and Expenditures of Soviet State Finances
(Figures in 1 billion roubles; prices at the time.)

Shakaishugi keizai-ron [The Socialist Economy] (Tokyo), p. 78.

We do not moralistically denounce the state capitalist exploitation of the peasants. It is clear that under the Stalinist system, peasants were severely exploited, along with the some ten million workers who are said to have been sent to forced labor camps. Still, it was only by means of this severe exploitation that the Soviet state was able to accumulate capital for heavy industrialization. This was the application of the theory of “socialistic primitive accumulation” proposed by the Trotskyists (Preobrazhensky) in the 1920’s, but of course the essence of this was not “socialistic” at all. State capital, not socialist relations, was formed by means of this exploitation. Furthermore, by “allocating” this to state-owned industries, the thorough top-down industrialization of the Soviet economy was advanced. Both the Stalinists and the Trotskyists were wrong to call state capitalist accumulation “socialistic”, but still their theory corresponded to the internal demands of national economic development in Russia. This is why the Trotskyist economist Preobrazhensky’s theory of “socialist primitive accumulation” could theoretically anticipate the Stalinist system, and was in fact put into practice by Stalin himself.

The Significance of Agricultural Collectivization

From this perspective, the significance of agricultural collectivization should be evident. Collectivization is officially explained as the policy that created the socialist system by sweeping away the kulaks (rich peasants) and constructing the collective management of farms. In fact, this only “completed” the state capitalist system. Objectively speaking, the purpose of agricultural collectivization was to crush the resistance of small peasants and kulaks to forced state capitalist development, and incorporate them into this system. In the late twenties, the kulaks expressed their opposition to the policy of forced heavy industrialization by going “grain strikes”. Without crushing the kulaks, the exploitation of the peasants would have been impossible, and the accumulation of state capital would have faced a significant barrier. The forced collectivization of the peasantry led to a temporary deep drop in the productive power of agriculture, and the severe exploitation of the peasantry by the state arrested the growth of Soviet agriculture for a long time. Nevertheless, collectivization was an expression of the inner demands of Soviet state capitalism, not simply some sort of theoretical “mistake”.

Unavoidably, this sort of state capitalist development fatally distorted the “law of value” and gave birth to the illusion that this law had been overcome. The majority of prices were determined not through natural generation on the market, but “subjectively” through the will of the state. The state was almighty and the “law of value” was under the will of the state, controlled by its policies, which it served. There was a sufficient objective basis for the Stalinists’ illusion that the “law of value” was “made use of” by the Soviet state.

Without private ownership and private labor, there can be no commodities. Only under the socio-historical condition of private ownership and the division of labor does this become necessary. Therefore, it was natural that the Russian Revolution, which created an agricultural system with tens of millions of petty landowners, could not overcome commodity production, i.e. could not overcome some forms of capitalism. Agricultural collectivization could not overcome commodity production because this simply represented collective ownership, not social ownership, of the means of production. This was not the sublation of private property, but just a change in its form. Unlike Stalin, Lenin did not regard the organization of cooperative associations under commodity production as socialist, but rather stressed the limited significance of collectivization under conditions of commodity production.

Through NEP, an economic system based on commercial and economic calculations was introduced in industry, as well as agriculture, and this meant that enterprises were run according to bourgeois standards. At first NEP was a conciliatory policy towards the peasants (petty bourgeoisie) that recognized their exchange of commodities. Soon after, however, industry, which had been fragile and collapsed, rebounded and came under strong state control, with each “enterprise” becoming an independent unit of production. This meant that each “enterprise” produced on the basis of independent economic accounting. In other words, NEP marked the emergence of state capitalism in Russia. People generally believe that agricultural collectivization led to the overcoming of the transitional phase of state capitalism (NEP), and the birth of socialist production. In fact, however, this symbolized the triumph of the state capitalist system.

An enormous number of the petty bourgeoisie, i.e. small peasants who sold their products as commodities, were opposed not only to socialism, but also to state control and intervention in capitalism or state capitalism. They became the enemy of the state capitalist system, and emerged as the rich peasants (kulaks) who menaced the foundation of this system. The kulaks represented a tendency in favor of a naturally generated “liberal capitalism” instead of state capitalism.

Agricultural collectivization was in fact a way to crush this petty bourgeois capitalism and complete the system of cooperative unions and state capitalism. It certainly was not the birth of socialism. The objective significance of agricultural collectivization, started in 1929, was to organize the petty bourgeois peasants, who represented naturally generated capitalism, into cooperatives and thereby turn them into a non-antagonistic, organic part of the system.

The collectivization of agricultural is often viewed as a failure (mainly by the “liberal” bourgeoisie) because even setting aside the ruinous effect of the kulaks’ large-scale slaughter of livestock on productive power, this ultimately failed to spur agricultural development. They forget, however, that the state capitalist system could only be established and “completed” by means of agricultural collectivization, which made the rapid growth of this system possible. No matter how detrimental it was for agriculture itself and how much stagnation it caused, collectivization was “advantageous and useful” for the state capitalist system whose supreme goal was the heavy industrialization of the national economy. The industrial sector could only attain rapid development through the destruction of private naturally generated capitalism and the exploitation of the agricultural sector.

State Enterprises and Commodity Production

Thus far we have examined the kolhozy in agriculture, and now we must consider the state enterprises. The characteristics of each “enterprise” as state capital is clear. The state machinery appoints the enterprise directors, and each enterprise has to follow the state directives. Roughly seventy to eighty percent of the “profit” from the enterprises is paid to the state, and the enterprise fund, that is capital, is augmented by free distribution mainly by the state. The state also has the right to deprive enterprises of any of the means of production without financial compensation.

At the same time, however, each “enterprise” is managed on the basis of the independent economic accounting system. In other words, they are managed not as one part of a socialist factory system that encompasses society, but rather as an enterprise on the basis of bourgeois principles. It is obvious that a system of enterprises run according to commercial accounting is not a socialist system of production. Indeed, the following statement by Stalin is extremely characteristic.

When speaking, in my “Remarks”, of the profitableness of the socialist national economy, I was controverting certain comrades who allege that, by not giving great preference to profitable enterprises, and by tolerating the existence side by side with them of unprofitable enterprises, our planned economy is killing the very principle of profitableness of economic undertakings. The “Remarks” say that profitability considered from the standpoint of individual plants or industries is beneath all comparison with that higher form of profitableness which we get from our socialist mode of production, which saves us from crises of overproduction and ensures us a continuous expansion of production.  [Stalin, Economic Problems, p. 57.]In the period of Stalin’s rule, “enterprises” were certainly not “free businesses” which placed the highest priority on “profit”. To borrow the words of Stalin, they were motivated by a “higher form of profitableness”, and the prices of the products from state enterprises did not reflect their “value”. In other words, they were often sold (or “handed over”) below their “value” (the state capitalist bureaucrats regarded this as “a socially necessary expense”, but this is essentially the same as cost price in bourgeois economics) and didn’t generate “profits” for the enterprises. These enterprises were supported by grants from state finance, but these grants were actually surplus-value siphoned from society in general, mainly from the peasants, in the form of the turnover tax. This sale of industrial goods at below their “value” was justified by the logic that the means of production should be cheaply provided in order to facilitate the rapid development of heavy industry.

The price of state enterprise commodities was also determined mainly by the state. Each enterprise was only allowed to function as an “enterprise” within the framework of these determined prices. In other words, they were required to reduce “cost” and raise profitability. Clearly, under this system the burden was shifted by reducing the “wage fund”, i.e. making cuts in wages. “Profitability” was neglected in favor of the ultimate goal of attaining the state’s “administrative directive” production plans. Even though this system provided the form of commodity=capitalist production, the overall development of its nature was concealed, oppressed and distorted. Value and price were constantly separated from each other, the free exchange of commodities did not exist, “enterprises” didn’t display their nature, capital only appeared as state capital, and the state “plan” seemed absolute. This is the system that we refer to as “state capitalism”. If commodity= capitalist production in the Soviet Union is just a remnant, or a “form and outer-crust”, then why doesn’t it gradually wither away. Stalin explained this in the following way:

If the matter is approached from the formal angle, from the angle of the processes taking place on the surface of phenomena, one may arrive at the incorrect conclusion that the categories of capitalism retain their validity under our economy. If, however, the matter is approached from the standpoint of Marxist analysis, which strictly distinguishes between the deep process of development and the surface phenomena, one comes to the only correct conclusion, namely, that it is chiefly the form, the outward appearance, of the old categories of capitalism that have remained in our country, but that their essence has radically changed in adaptation to the requirements of the development of the socialist economy. [Ibid., p. 55.]According to Stalin’s “Marxist analysis”, the phenomena of commodity production remains, but this is not commodity production because the Soviet Union is already a socialist society. This is not an “analysis” in any sense of the word, but essentially an a priori theory that amounts to playing with words. Clearly, the nature of commodity production was suppressed under the Stalinist system. At the same time, however, enterprises employed workers and produced commodities. When analyzing why the products of state enterprises also took the form of commodities, are we supposed to be content with the idea that these are not actually commodities because they are produced under “socialist” society? Nothing is explained by simply saying that economic calculations are necessary, since the reason for this necessity is the fact that products are produced as commodities. One cannot take the result for the cause. Dissolving the existence of commodities into a functional question, rather than seeking the answer in the relations of production is irrational.

Why do enterprises in the Soviet Union produce commodities even though they are “state enterprises” or the “property of the people”? Needless to say, this is because “the units of production” exist as enterprises. The 1917 revolution certainly abolished private ownership in the Soviet Union and nationalized the means of production. However, the low level of productive power and the socialization of labor meant that the direct socialization of the means of production was impossible. Instead they became the possession of the enterprises. These enterprises have “legal personalities”, are responsible for the realization of directives and “profitability”, and make “contracts” with the state and other enterprises for the supply of raw materials and “sale” of products. Enterprises hold the rights for the possession, use and disposal of funds allocated by the state, and for this reason they are not simply units of production, but are “enterprises” in the sense of independently managed organizations. The upper management, starting with the directors (under Stalin’s rule they were also state bureaucrats) possesses state-owned funds and has a certain degree of autonomy to control and use these funds. Furthermore, by means of this independent activity, the enterprises can obtain a part of the profits and use this for expanded production and remuneration. The economic reforms in the latter half of the sixties has led to a further manifestation of the enterprises’ nature as enterprises, and we will discuss this in detail later.

Moreover, the directors are in sole charge of the enterprises. Along with the establishment of the Stalinist system, the troika system, wherein the party and trade unions managed the enterprises in part, was abolished (even though the party and trade unions (?) were not actually excluded from the system of rule) and a “system of one-man command” was established. The workers were deprived of all rights, even those that exist in bourgeois countries such as the right to organize in trade unions and to struggle for economic demands, and were isolated and silenced by divisive management and wage policies. The funds of the enterprises were distributed by the enterprise director, but a large part of this went into his pocket and those of his senior colleagues.

This alone shows that even if the means of production are “nationalized” or become the “people’s property”, this is a far cry from real social ownership (socialism). If the means of production are possessed and utilized by enterprises, then the enterprises also must produce commodities. Regardless of how commodities “phenomenally” appear, they certainly cannot be considered only “forms” or “outer-crusts”. Instead of explaining this phenomenon, Stalin simply declared that the phenomenon has no basis. What a brilliant “Marxist analysis”!

It is evident that under general conditions of commodity production (e.g. Russia under NEP), state owned enterprises are simply a form of state capital. Even if they are “nationalized” in form, the products of state enterprises are commodities that are exchanged as such because the starting point of production is not society, but the “enterprises”, which are managed according to a system of independent economic accounting (although this system did not operate to its full extent prior to the economic reforms), The “socialist” economists view that these are commodities is not a simple theoretical mistake, but a theoretical expression of the actual relationships of reality in the USSR. Already in the present-day Soviet Union, the freedom to purchase a part of the means of production and supplementary materials is partially allowed, and therefore wholesale commerce has started. With the expansion of order-based production, the character of the “enterprises” is emerging. Precisely because commodity production has become increasingly deep-rooted, and not simply introduced in the function of “incentives” or “calculations”, “material incentives” and “economic calculation” have acquired their true content. This represents the manifestation and realization of the essence of commodity production

Stalin, as the last survivor of the Bolsheviks, couldn’t help feeling some theoretical hesitation in directly identifying socialism with commodity production. Consequently, he viewed commodity production in the Soviet Union as a remnant of the backwardness of Soviet “socialism” that would eventually disappear with the shift to the direct “exchange of products” (but this claim is a typical expression of his undialectical way of thinking). In Economic Problems, Stalin argued that under Soviet “socialism”, the relations of commodity production “fully conform to the growth of the productive forces and help to advance them at seven-league strides” and that “these factors are being successfully utilized by us for the promotion of the socialist economy, and they are of undeniable benefit to our society”. However, he goes on to say that a time will come when the relations of production will lag behind the productive forces. And he concludes by saying:

There is no doubt that these factors will hamper the continued growth of the productive forces of our country more and more as time goes on. The task, therefore, is to eliminate these contradictions by gradually converting collective-farm property into public property, and by introducing?also gradually?products-exchange in place of commodity circulation.  [Ibid., pp. 69-70.]Stalin’s perspective, however, was completely wrong. What developed in the USSR was not “products-exchange”, but “commodity circulation”. “Commodity circulation” advanced to permeate hitherto unaffected areas. For instance, the kolhozy workers, who had previously been paid in-kind, began to be paid in the money-form. The “exchange of products” between state enterprises, which Stalin thought denied the nature of these products as commodities, came to be recognized as commodity circulation. The ratio of commodified kolhozy products expanded tremendously. Today it is clear that what Stalin mistook for “socialism” was in fact a stage of economic relations in which commodity production had yet to fully develop. Those who denounce Stalin for his “mistaken” viewpoint should reflect on why his earlier “correct” stance collapsed so miserably.

Wage-Labor in the Soviet Union

To demonstrate the Soviet Union is in some sense a capitalist society, we naturally need to examine the relationship between capital and wage-labor. At a glance it is clear that labor only exists in the Soviet Union as wage-labor (although until very recently the form of payment in-kind made up a large part of the payment of kolhozy workers). The question, therefore, is whether this is simply a form or “outer-crust”, and socialist distribution (distribution in accordance to labor) is actually carried out.

Payment of Soviet workers takes the form of wages, and was introduced from the beginning on the basis of the bourgeois principle of “material incentives” for specialists and workers, not socialist principles. At the Eighth Congress of the CPSU held in 1921, Lenin said that experts would be paid five times more than workers, but that they had been paid twenty times more before the revolution. In 1921 during the period of NEP, he explained the wage system in the USSR in the following way.

Thus the question was raised of transferring our activities from the task of expropriating, of smashing the power of the exploiters and expropriators, to that of organizing accounting and control, to the, so to speak, prosaic tasks of actual economic development. Even at the time we had to retreat on a number of points. For example, in March and April 1918, the question was raised of remunerating at rates that conformed, not to socialist, but to bourgeois relationships, i.e., at rates that corresponded, not to the difficulty or arduousness of the work performed, but to bourgeois customs and to the conditions of the bourgeois society. Such exceptionally high?in the bourgeois manner?remuneration for specialists did not originally enter into the plans of the Soviet government, and even ran counter to a number of decree issued at the end of 1917. But at the beginning of 1918 our party gave direct instructions to the effect that we must step back a bit on this point and agree to a “compromise” (I employ the term then in use). On April 29, 1918, the All-Russia Central Executive Committee adopted a decision to the effect that it was necessary to make this change in the general system of payment.  [Lenin, Collected Works vol. 33, p. 88.]According to the single-class-wage system introduced in this period, highly skilled workers were allowed to receive a maximum of 3.5 times the wage of unskilled workers, while specialists could receive up to 8 times more than unskilled workers. Considering the small number of specialists in those days, the wage gap was considerably smaller than that of ordinary bourgeois states. This was certainly not socialism, but it was a suitable wage system for a “people’s state” of workers and peasants.

This wage system, though suitable to the workers’ and peasants’ state, was abolished under the Five-Year-Plan when Stalin came to power. Even the wage system in the 1920’s, which Lenin admitted was “wage rates corresponding to bourgeois relationships”, was abandoned under the Stalinist system for being “petty bourgeois egalitarianism” totally alien to Marxist socialism. All of the restrictions and regulations on the inequality in income were subsequently removed, and these gaps expanded enormously. These income gaps were between the ruling layers and the workers, as well as between the workers themselves. Under the Stalinist system, the “wage” paid to the ruling bureaucrats was about ten to twenty times that of the workers. In addition, they could secure income from the enterprise funds. Tony Cliff, for example, quotes the following statistics on the distribution of a “Director’s Fund” in a plant in Kharkov from a 1937 Soviet newspaper:

Of the 60,000 roubles constituting the Director’s Fund, the Director appropriated 22,000 for himself, the secretary of the Party Committee 10,000, the chief of the production office 8,000, the chief accountant 6,000, the president of the trade union committee 4,000, the head of the workshop 5,000.  [Tony Cliff, State Capitalism in Russia (London: Bookmarks, 1988), p. 84.]Under the Stalinist system, the unified wage system for workers was abolished, and a wage system was introduced for each department with the wage gap expanding between different departments, types of employment, qualifications, etc. The gap was particularly wide in heavy industry. Moreover, the dominate form of wages was the piece-wage, which Marx described as: “the form of wage most appropriate to the capitalist mode of production” which in “the stormy youth of large-scale industry… served as a lever for the lengthening of the working day and the lowering of wages”.[Marx, Capital vol. 1, p. 698.]

Marx emphasized that this wage was the most hostile and exploitative to workers, calling it “the most fruitful source of reductions in wages, and of frauds committed by the capitalists”, and the basis for “a hierarchically organized system of exploitation and oppression”.[Ibid., pp. 694, 695.] In some important factories, Soviet workers were paid in a more severe form of piece-wages called the progressive piece-wage system. Under such conditions, no less than ten million prisoners were forced to work in labor camps and the Stakhanovite movement was employed as a lever to force workers to work more intensely. When this fact is compared with what Stalinists called “distribution according to labor”, it becomes clear how fraudulent their claims were. They insisted that the piece-wage system was “distribution according to labor” because the workers were paid according to “output”, but Marx has already pointed out that this is “irrational”[Ibid., p. 693.]

It was neither a simple coincidence, nor a policy or ideological mistake on the part of the Soviet bureaucrats, that the payment of workers assumed the wage form, and moreover the form of piece-wages. The existence of this form of wages was determined by the fact that the Soviet Union was capitalist, while the piece-rate system was determined by the level of industrial development in the Stalin-era Soviet Union. Under a developmental stage of capitalism dominated by handcraft industries and labor that relies on technique and intuition, rather than machine-run automatic production, the system of piece- wages is the most suitable to control and exploit the workers. The existence of the piece-wage system under the Stalinist system reveals the capitalist essence of this society and teaches us many things about the characteristics of this type of capitalist production.

The claim that wages paid to workers in state enterprises were income “in correspondence to labor”, not the money expression of the labor-power commodity, is utter nonsense. In fact, such a socialist principle was identified with the petty bourgeois demands for “all returns from labor”, and considered taboo. When they spoke of “distribution according to labor”, this meant, at best, a proportional relationship between labor and wages, but in reality was the piece-wage system or time-wages, or the present-day system of wage compensation.

However, in Marxism “distribution according to labor” refers not to a relative sort of “proportional relationship to labor” (i.e. piece-wages), but a direct “social connection” (Marx) between people’s labor and the various useful objects that they produce, and is therefore premised on the sublation of the commodity form of products. To accomplish this, the form of compensation (wage form) for the value of labor-power must be shed, but this is only possible through the establishment of a direct social connection between products and labor (overcoming commodity production). Only under these conditions can people receive back from society everything they have contributed in labor (excluding social deductions).

Under capitalism, for instance, if a worker works for eight hours, but the value of his labor-power (the value of the minimum means of subsistence necessary for the worker to continue living) is only equal to four hours of labor (let’s assume this amount is expressed in money by 1,000 yen* ) then the capitalist will only pay for four hours of labor. Under socialism, a worker may work for six hours and receive consumption goods corresponding to four hours, but these four hours worth of goods are not determined by the value of labor-power. This means that the worker basically receives back the amount expended in labor. The social deduction would be directed towards social accumulation, compensation for those unable to work, social welfare, etc, but this would not become something antagonistic to the worker. Under capitalist society, the four hours of exploited labor appear as capital (i.e. as a social relationship antagonistic to the workers) that increasingly governs and exploits them.[(*)This figure, of course, represents wage prices in 1972.]

In light of the above example, we can explain what “socialist” economics calls “distribution according to labor” in the following way. If eight hours of labor receives 1,000 yen, then 12 hours of labor would receive 1,500 yen. It should be clear that such “distribution according to labor” is not actually socialist distribution, but just payment as a price for the labor-power commodity. In this case, the labor for 12 hours is as much exploitation by capital as the eight hours of labor. This does not represent “the measure of labor” (Marx). Capital only pays a wage of 50 percent or higher for 12 hours of labor because it is able to squeeze out more surplus-value. Therefore, it should be evident that “distribution according to labor” is totally different from a system of piece-wages or hourly wages, and is instead based on the sublation of the commodity form of human labor-power.

On this point, nothing could be more deceptive and mistaken than what “socialist” economics has to say about Marx’s idea of the so-called “birthmarks of the old society”. “Socialist” economics regards the existence of the commodity=money relationship in “socialist society” as a “birthmark of the old society”, but Marx and Engels never spoke of the relations of commodity and money in this way. Marx claims in the Critique of the Gotha Programme that as long as distribution is in accordance to labor, i.e. “labor is the measure”, there will actually be inequality in distribution due to differences in individual ability or the fact that a person might be married or have children. Socialism is distinguished from the higher level of communist society because under socialism the individual is only “considered as a worker” and distribution is only in accordance to labor. Distribution according to labor only means that the individual receives back “exactly” what is given to society, and in this sense the same principle of commodity exchange operates. Marx called this system of distribution the “birthmarks of the old society”. At a glance it is evident that this sort of distribution is premised on the sublation of the commodity=money relationship. Marx thus clearly wrote:

Obviously the principle here is the same as the one that applies to the exchange of commodities, so far as the exchange is one of equal values. The content and form have changed.    [Marx, Critique of the Gotha Programme, p. 213.]As long as the relation of commodity=money remains and labor-power is commodified (i.e. workers are paid in form of wages), the socialist principle of “distribution according to labor” does not, and cannot not, exist. The negative example of “socialism” in the Soviet Union in fact verifies the correctness of this Marxist proposition.

There is no basis for the idea that wages paid to workers in the USSR are not the money-form of the value of labor-power, or that labor-power is not commodified. Certainly in the “planned” Soviet economy, the state allocates funds (i.e. state capital), but even under the Stalinist system, the enterprises “independently” purchase labor-power! In drawing the plans for the enterprises, the state organs only mandate the number of workers and the wage fund, and on this basis each enterprise must secure labor-power. Of course, from the early thirties, organized recruiting [orgnabor] was widely practiced, and with the start of the war in 1940 the requisition of labor became dominant and changing employment was prohibited. In 1956, however, freely changing jobs became legally recognized, and with the economic reforms in the sixties, each enterprise was given considerable autonomy regarding the employment of workers. For instance, with the economic reforms, the previous four mandatory indexes, were reduced to one (the wage fund), and the abolishment of this is also foreseen. If this does occur, each enterprise will gain complete “freedom” regarding the employment of workers. The fact that labor-power is purchased as a commodity and the wages paid Soviet workers are the money expression of the value of their labor-power commodity is becoming an undeniable fact.

Under the Stalinist system, the commodity=money relationship and the commodification of labor-power were concealed and distorted, and this is a particular trait of state capitalism. Under capitalism, exploitation is characteristically hidden behind the fictitious economic relationship of an “equal” transaction between “equal” individuals on the basis of a contractual relationship founded on the “equal” rights of “free” individuals. But under the Stalinist system, the exploitation of workers did not necessarily occur within the free development of economic relations, and consequently people overlooked (often intentionally) the existence of exploitation and its capitalist form. These people are fond of seeking comfort in the fantasy that the Soviet Union is “socialism”, which is certainly not unrelated to the fact that they have abandoned and sabotaged the struggle for socialist revolution in their own countries.

The Historical Significance of State Capitalism (Stalinist System)

The characteristic of Soviet state capitalist exploitation is that its purpose was the formation of national capital. Consequently, the workers and peasants were the object of severe exploitation, which often relied on direct and violent methods of exploitation (i.e. extra-economic methods) rather than economic ones. Forced labor, the symbol of the Stalinist system, which is said to have reached the scale of ten million people, is not simply some sort of mistake. Under this system, bourgeois economic relations were not allowed to develop “freely” overall. Since the economic categories appeared to lack real content and to merely be forms or outer-crusts that were “utilized”, many people spoke of the Soviet Union as “socialism”.

The categories of “profit” and “profitability” did not come into existence with the economic reforms of the sixties, but rather are as old as Soviet “socialist” economy itself and already existed from the time of NEP in 1921 (just as they exist in China today). However, under the Stalinist system, these bourgeois economic categories were unable to achieve their full content. Instead of raising the “profitability” of individual enterprises, Stalin demanded the full achievement of the state “plans”. As long as such norms were followed, the profitability of each enterprise was not important, and Stalin argued that there is a “higher profitability” than that of individual enterprises. This was indeed a concept appropriate for the Stalinist system. In the section on “primitive accumulation” in Capital, Marx wrote:

[These methods] all employ the power of the state, the concentrated and organized force of society, to hasten, as in a hothouse, the process of transformation of the feudal mode of production into the capitalist mode, and to shorten the transition. Force is the midwife of every old society which is pregnant with a new one. It is itself an economic power.  [Marx, Capital Vol. 1, pp. 915-6.]It is certainly not coincidental that there are many essential similarities between capitalist society in the process of primitive accumulation described by Marx, and Russia under the Stalinist system. Indeed, the need for an economically backward, semi-feudal country, such as Russia, to achieve the primitive accumulation of capital (the rapid formation of national capital) in the stage of twentieth century imperialism, made the Stalinist system necessary. In this sense it represents a model, and is not some product of the whims of history.

It should be apparent from our discussion so far that our theory has nothing in common with the theory of “bureaucratic state capitalism” of Tsushima Tadayuki and others. They only play around with the abstraction, borrowed from Marx and Engels, of “a single state capital”(*), which is said to be the ultimate appearance of capitalist concentration. Soviet state capitalism is thus seen as the ultimate form of capital accumulation. However, Soviet state capital did not appear as the ultimate concentration of capital or the final manifestation of capitalist development, but rather as one existence-form of capital in a backward country seeking to achieve the historical task of rapidly forming national capital under conditions of imperialist encirclement. [(*)Tsushima Tadayuki, Torotsukizumu [Trotskyism] (Nagoya:Fubaisha, 1968), p. 153.]

This vacant abstraction of “a single total capital” is totally incapable of explaining the reality of the Soviet Union. Tsushima and others are unable to account for the inevitability of “liberalization”, and at best can only offer evasive explanations of the bureaucracy’s adjustments and zigzagging policies. We also have nothing in common with Tsushima’s theory of “bureaucratic” state capitalism since we emphasize that commodity=capitalist production could not exist in the Soviet Union without the independence of the enterprises and kolhozy (even though their inner nature was not fully developed under the Stalinist system). Abstract theories of state capitalism at best can only come up with the Trotskyist (and Chinese Communist) idea of a “retreat” to capitalism. Tsushima, for example, says that “the central problem of the theory of the Soviet Union” is related to the USSR retreating from a transitional period to the extreme theoretical point of the capitalism of “a single overall capital”. However, there was no such “retreat” at all. The word “retreat” is nothing but a psychological expression of the disillusionment and discouragement of today’s petty bourgeois intellectuals who feel “betrayed” by Stalinism. However, despite the brutal form the development of the national economy in the USSR (and China) took, it still holds enormous human-historical significance from the perspective of world socialism. Idealistic intellectuals are obsessed with the illusion that socialism should have been constructed in the Soviet Union in 1917, and thus whine about a “retreat”, and even raise their own disillusionment to the level of an “academic” system. The economic systems in the Soviet Union and China are not merely capitalist due to the pressure of global capitalism and the capitalist world market. Rather, the USSR and China shut themselves off from this capitalist world market (the commodity and capital markets) and the theoretically expression of this was Stalin’s “socialism in one country” or Mao’s “self-revival”. The socio-economic systems in the USSR and China were not capitalist because of the pressure of global capitalism as some sort of attached external factor, but were rather intrinsically capitalistic. Trotskyists, on one hand are unable to evaluate the “self-movement” of the national development in the USSR and China, and are spreading the undialectical dogma that the USSR and China cannot help being capitalist because of the pressure of global capitalism. On the other hand, they insist that the world was already completely ripe for socialism in the early twentieth century. On the basis of this dogma, they claim that had proletarian revolution been victorious in Western Europe, Stalin’s Soviet Union and Mao’s China would not have existed, and socialism could have been directly achieved in the Soviet Union and China. However, the premise that the world was mature for socialism is only true if the world is viewed as Western Europe. This is a “Euro-centric” view of history based on those countries that entered the road of capitalist development earlier than other nations and regions. Today, however, it is clear that Western Europe preceded other countries in one development level of capitalism. One cannot ignore the hundreds of millions of people who make up the greater half of the world population. The Trotskyists would likely say that this is not simply a question of quantitative weight, but this quantity also turns into quality. Today, large countries such as the Soviet Union, China, and India, continue to follow the path of capitalist development by forming national capital, even though the form differs from that of advanced capitalist countries. This fact is the best response to the dogma of Trotskyists.

The system in the Soviet Union certainly did not come into being by accident or from the policy mistakes of Stalin. Rather, it was a historical necessity. Of course, today the USSR is denying its own history and pursuing the direction of “liberalization”. Recently, the Stalinist system is often criticized for spreading bureacraticism and creating inefficiency and stagnation of production due to excessive centralization and administrative control. Under a system where “fixed funds” are allocated “free of charge” by the state and run by norms, each enterprise attempts to obtain and hoard the greatest amount of these “fixed funds” as possible. As long as these norms take the in-kind form, each enterprise has no need to pay attention to the quality of the commodities they produce since they are not responsible for selling them. Although this is a terrible “defect” from the viewpoint of bourgeois rationality, the Stalinist system still had historical significance.

This significance can be summed up in a word as the necessity to rapidly develop the national economy in the Soviet Union and form national capital in a short period of time. Under conditions of imperialist encirclement, for an economically backward country to achieve the rapid accumulation of national capital and heavy industrialization, the strong function of the state machinery had to play a decisive role, and it was necessary for all national surplus value to be transformed into and accumulated as capital. National productive power was far from able to overcome the commodity=capitalist relations of production, and therefore these production relations were the foundation of the economic system of the society, and in this sense there was no essential difference from the national economic development of advanced capitalist countries. However, the formation of national capital in the Soviet Union was characterized by the fact that the state played a decisive role as the main extra-economic stimulus. This was also the objective condition which gave rise to the notion that the USSR was a “socialist” society.

In such a society, needless to say, it was not possible to simply recognize the law of value. Even when it was recognized, it was one- dimensionally said to be something formal which had lost its historical determinacy, or that the law of value was simply being “utilized”. However, for an economic category to be “utilized”, the relations of production that correspond to it must exist in reality. The state can only set prices when there are production relations that can be expressed by the category of prices. In other words, “utilization” doesn’t mean that the law of value has been sublated, but rather is one form of its realization.

The Stalinist system (state capitalism) is a self-contradictory system, and therefore this concept itself is also self-contradictory. State capital enterprises have the character as capital, but on the other hand this nature is suppressed because they exist as state capital. Each individual enterprise exists in the form of state capital, but as this capital becomes more complete, a contradiction arises from the conflict and opposition with its nature as an enterprise. This creates the necessity for the liberalization of this system so that the nature of enterprises can fully develop. In this very sense, “liberalization” is the inevitable outcome of the internal development of the contradictions within Soviet state capitalism. It is not accident that the theorists of “bureaucratic” state capitalism, who make no attempt to see this internal contradiction of the Stalinist system, are unable to explain the inevitable unfolding of “liberalization”.