Happy Anniversary Bolshevik Revolution! You Couldn’t Have Done It Without the Royal Economic Society
November 6, 2017
History is full of yin-to-yang processes where the seeds of an idea in one corner lead to the exact opposite of what was expected. Some of them so unbelievable that, well, one just has trouble believing that they are true. For example, the economists of Edwardian England provided a blue-print of survival for the hopeless fools running Soviet Russia.
Bolshevism’s staying power was due in one part to a tenacious hold on power regardless of how much blood needed to be split to sustain it. This power lust took several generations to finally burn itself out. The second key to its surprising longevity was its rat-like ability to forage for ideas to remedy the disasters it brought into the world. To wit: the policies used by the allied powers during World War I to manage the needs of the war were used by the Bolsheviks to regiment their entire society. All they needed to do was read the Economic Journal and follow the Ivory Tower’s lead.
First things first. The First World War heralded a global revolution. In February 2017, a bourgeois revolution swept aside the tsar. In Germany the imperil order was replaced by the bourgeois-democratic parliamentary order of the Weimar Republic. Neither revolution was viable. The Weimar Republic ultimately collapsed after years of anti-democratic flank attacks from both the left and right and the Bolsheviks brought down the socialist state in Russia by October of the same year… one hundred years ago.
The Bolsheviks were a lawless, clueless bunch completely out of their depth. Bertrand Russell aptly encapsulated the proclivities of their defining leader and thug-in-charge, Nikolai Lenin:
“When I met Lenin, I had much less impression of a great man than I had expected; my most vivid impressions were those of bigotry and Mongolian cruelty. When I put a question to him about socialism agriculture, he explained with glee how he had incited the poorer peasants against the richer ones, ‘and the soon hanged from the nearest tree—Ha! Ha! Ha!’ His guffaw at the thought of those massacred made my blood run cold...
“...I doubt whether he could have become a leader in quieter times. His power depended upon the fact that, in a bewildered and defeated nation, he, almost alone, had no doubt, and held out hopes of a new victory in spite of military disaster.”
So Lenin was cruel. Lenin was blinded by fanatical conviction. Lenin had no respect for tradition. Lenin considered all means legitimate for securing victory. On the whole, the effects were disastrous.
Lenin and his cronies inherited an external debt pile that was incurred by the tsar for mainly because of persistent trade deficits. This debt was from the beginning foreign-held, mostly by English and French investors. Since exports were never enough to cover the principal and interest under the tsarist regime, Russia’s pre-war and war-time borrowings were hopelessly bad debts under Bolshevik management. The Brits grudgingly grasped this early on, but for the French, hope sprung eternal. Surprisingly enough, the French were right to a degree, in that they recovered a sliver . The internal ruble-denominated debt was wiped out of the equation in short order by inflation.
Inflation was, in fact, the first principle of the Bolshevik monetary scheme: the destruction of existing arrangements. In destruction, the Bolsheviks were perfect masters. They efficiently enough obliterated the economic system which the pre-war borrowing created. The result was no income foundation to service the debt or create economic progress at all. The only important source of revenue was the printing press.
Russia became something very backward akin to the days when the Mongols decimated it, an Asian outcropping with less fertile soil and less competent serfs unable to produce more than what satisfied from day to day, with no adequate provision against the constant famine and evils of the time.
By 1921, it was obvious that Communism was economically a failure. Lenin decided to retrace his steps and under what was called the New Economic Plan. In one of the many ironies of history, Lenin’s blueprint, coincidentally or not, was detailed in issues of the Economic Journal and the views British economic establishment. The New Economic Plan was a concession to practicality in the face of the utter failure of Marxist theory, but it remained an anomalous and wasteful economic system. The patch-work solution was to bolt the elements of Western Europe’s war-time economic policies onto the far more deeply damaged circumstances seen in post-war Russia.
Consider “Government Control in War and Peace” by A. C. Pigou, December 1918:
“The vast expansion of government control in the economic sphere which has taken place during the war is without parallel in the history of the world. Nobody doubts that in the difficult period of transition that must follow immediately upon the declaration of peace some portion at all events of this control must be retained.”
“[There are] three types of control: first, administrative intervention by government of industry, designed to increase production; secondly, government interference with the allocation of supplies between different industries, different firms, and different individual consumers—interference the various forms of which it is convenient to group together under the general name of rationing; thirdly, government regulation of prices.”
1) “…chief importance attaches to the management of railways. During the war these have, practically speaking, been worked as a single concern under government control. Before the war the economies to be looked at for from this kind of unification could only be guessed at.”
“The question of whether a quasi-public administrative control should be continued after the return of normal peace conditions, or even whether this control should be further developed into definite nationalization, may be regarded as an open one.”
2) “Rationing in the wide sense in which the term is here used includes all forms of government interference with the distribution of goods.”
“When prices are controlled in this sense … Competent firms may be ruined and admirable house-wives starved, while the friction, irritation, and discomfort engendered are likely to be enormous. In those circumstances rationing must be introduced is the only means of avoiding chaos.”
“During the war, government action has aimed primarily at securing material for those industries and processes which it has regarded as of greatest national importance. With this end in view it has adopted two principle devices: prohibition against employment of certain things in particular specified uses; and the allocation of materials to different industries or operations in accordance, not with the ordinary play of demand, but with its own opinion as to what is desirable.”
3) “During the war the action which the government has taken in regard to prices has been motivated in the main by a desire to prevent ‘profiteering’”.
“Broadly speaking then, we may conclude that permanent government control over the price of things produced under competitive conditions is not required as a preventative of ‘profiteering’ because, for competitive industries as whole, good times and bad times and lucky men and unlucky men being taken together, competitive conditions are themselves an adequate preventative; while, from the standpoint of the public, such government control is objectionable because it will hamper production.”
“In industries conducted under conditions of monopoly there is no natural tendency for prices to be brought down to a level that yields normal profits.”
“The general conclusion warranted is that, while in competitive industries the policy of price control ought not in any circumstances to be continued when normal peace conditions are re-established, in monopolistic industries the case for that policy, already fairly strong, has been strengthened to some small extent by the experience of the war.”
A June 1920 article, “Food Control in War and Peace” by J. R. Clynes conveys even more detail on the mechanics of government control:
“Since the War ended disputes have been revived and now there are rival schools in which are to be found supporters and opponents of methods of State Control.”
“Behind the armies were the immense civilian populations whose requirements had to be kept up to a standard, in which a decline ran the risk of engendering grave discomfort and of causing trouble, which in due course might affect the army itself.”
As a final exhibit, the official outline of Labour Policy submitted by Mr. G. D. H. Cole in a memorandum to the Labour Party reads as such:
“Any scheme of control, in order to be effective, must take the form principally, not of prosecution, but of prevention. Let there be the most stringent penalties ready for profiteers, in those cases in which profiteering occurs, but the main study of the government should be to prevent profiteering from taking place.
“This can only be done, not by chivvying the retailer, but by controlling all necessary commodities at every stage of production and distribution, from the first raw material to the finished commodity exposed for sale in the retail shop. A lapse of control at any stage in the process is fatal and opens the door wide to the profiteer.
“But it is not enough to control prices at every stage; for the mere fixing of a maximum or controlled price generally means that the price, being fixed so as to afford what is regarded as a ‘fair profit’ to the least efficient producer, at once puts an enormous profit into the pockets of those who, for one reason or another, are able to produce more cheaply.
“Short of national ownership of industry, there is only one remedy for this form of profiteering. It is not enough to fix prices; it is necessary for the government to retain effective control at every stage of production and distribution up to the retail sale of the article, paying at each stage to the producer or distributor, a commission based on the service rendered and placed at such a figure as to allow of the payment of a moderate dividend on real paid-up capital and no more.”
“Unnecessary middlemen, and with them unnecessary profits, must be squeezed out of the industry.”
“The policy really required for dealing with profiteering is, then, not a policy of prosecuting small grocers for petty offenses before incompetent Tribunals, which will in most case prove quite unequal to the task of tracing excessive profits home to those who have received them. It is that of instituting a really effective system of control based upon allowing to each necessary class of producer or distributor, reasonable pay and no more. Persecution may be spectacular, and have in it the elements of a check in many cases but is most unlikely to have any great effect in reducing the general level of prices.”
Another irony stands out. Private enterprise and the state getting out of the way of this enterprise has proved to be the best master-builder of prosperity and progress the world has ever known. You wouldn't know it from today's zeitgeist. We are in the wake of radical leadership that has never trusted capitalism. At all.
Obama, for all his community organizing and left-wing sentiments, is a child of Bolshevik non-sense and the lingering sense that private enterprise is more harsh, cruel, and inherently exploitative than Lenin could ever be. To the radical forced to the margin and ignored by reasonable people, the ruthless force of coercion is a far better solution than the poison of voluntary choice. I suppose this is easy enough to believe at the margin of existence where life is already horribly constrained, but a weed-smoking discontent living off of others should know better
Soviet Russia stumbled forward for nearly a century before the failing heart of Bolshevism finally stopped beating. It is seldom a good thing to celebrate the dead, but it makes sense to remind the current pack of radicals that share its aims why it died in the first place.