2. THE BUILDING OF SOCIALISM AND THE AGRICULTURAL QUESTION²

TheFootnote first problem that the Bolsheviks had to face after seizing power in 1917, and not a minor one indeed, was to manage an economy the size of Russia on its way towards socialism. Was Russia ready for a socialist revolution or, due to its backwardness, did it need to complete the capitalist stage first? Did the particular situation of Russian agriculture present special challenges and opportunities, as the Narodnik movement and the Social Revolutionary Party defended? What was to be the role of the market and the economic categories associated with a capitalist economy (money, prices, credit, profits, etc.), in the new situation?

A few months after the triumph of the October Revolution the civil war erupted, and the urgencies of the moment made it impossible to pay too much attention to these issues. Under these circumstances, all efforts were directed towards defeating the White Army. «War Communism» was declared in June 1918 and exceptional measures were adoptedFootnote ³ . These measures were particularly relevant regarding the agricultural sector and the need to provide food and raw materials for the Red Army. In November 1917, the Revolutionary Government nationalised the land still in the hands of the main landowners and gave it to the local community (mir`) to be distributed among the peasantsFootnote ⁴ . To solve the procurement problem under War Communism, a system of compulsory deliveries was established; forced sales to the State of agricultural products at minimum prices (prodrazverstka). Once the war was over, however, this system confronted an increasing resistance and was gradually abandonedFootnote ⁵ . A tax (prodnalog), first as a tax in kind and in monetary terms shortly afterwards, substituted forced deliveries, while at the same time the amount extracted from the peasantry was also significantly reduced.

The system changed and the pressure on the agricultural sector was eased, but the fundamental problem remained: if the Soviet Union was to develop along a socialist path, industrialisation would be required, and this entailed the need to finance industry and feed the cities.

In 1922, when the war was finally over, the issue of how to develop a socialist economy in a rural and backward country came to the forefront. The main question was whether Russia had already reached the capitalist stage of socioeconomic development, or whether it was still a feudal country needing to go through a bourgeois democratic revolution first. Furthermore, was there any relevant difference regarding the level of socioeconomic development achieved between the urban and rural sectors? What implications, if any, did the communal characteristics of agriculture in Russia have with respect to the course to follow?

Different alternatives were contemplated.

The first possibility had been dealt with by Marx himself in his correspondence with Vera Zasulich. The Russian Marxist, famous for her attempt to assassinate the governor of St Petersburg in 1878 and co-founder of the Emancipation of Labour Group, wrote a letter to Marx in 1881 from her exile in Switzerland. In this letter she asked his opinion about the possibility of building the revolution in Russia based on «peasant socialism»; that is, considering the potential of the communal structure of Russian agriculture. In this way, the peasants would take the place of the industrial proletariat in pushing forward the change to a socialist system, and there would no longer be the need to go through a capitalist stage. It took a considerable amount of time and research for Marx to prepare an answer (no fewer than four drafts are known) but it seems that he was sympathetic to this visionFootnote ⁶ . The original position of Marx and Engels was clear: the industrial proletariat should lead the socialist revolution. The Erfurt Programme, however, adopted by the Second International in 1891, deviated from this position, opening the way for a policy of a joint front of workers and peasants. This stance was fiercely opposed by, among others, Karl Kautsky, and defeated in 1895 at Breslau. As the answer to Zasulich shows, however, Marx was apparently willing to qualify his previous position in the case of Russia and the village commune (mir). Furthermore, in the preface to the Russian edition of the «Communist Manifesto», in 1882, Marx and Engels were inclined to accept the possibility of the communal ownership of land forming the basis of a further communist developmentFootnote ⁷ . Later on, some highly respected Russian agrarian economists who worked with the Bolsheviks in positions of high responsibility, such as Aleksandr Chayánov, a former narodnik, and Nikolai Kondrátiev, also shared this view. This possibility, however, was discarded almost from the very beginning. Lenin had argued in 1899 in his book «The development of capitalism in Russia» written against the Narodnik movement, that Russia had already developed a capitalist economy. Therefore, even if Russia were still a backward and agrarian economy, the urban and industrial workers would be the leaders of the socialist revolution. Nevertheless, Lenin was careful enough in 1905 to speak of «the democratic dictatorship of the proletariat and the peasantry» (Nove 1972, p. 36). Lenin, as he was to show on numerous occasions, had a position regarding this issue that changed according to the political necessities of the moment. He criticised Kautsky and defended the role of the middle and poor peasants who had had access to land in 1861. He thought that their small plots would not be viable, and they would be more easily persuaded into pooling their lands and farming co-operatively (Coulson Reference Coulson2014)Footnote ⁸ . In fact, he was apparently convinced of the necessity to combine both, a socialist revolution in the urban and industrial sector, together with a democratic revolution in the countryside. This, in conjunction with the fact that the Bolsheviks had almost no presence in the countryside, as opposed to the Socialist Revolutionary Party, may explain why the new government gave the land back to the peasants in November 1917 through the mir, rather than fully collectivising itFootnote ⁹ .

Once the «peasant socialism» strategy was abandoned, the second possibility was to build socialism by pushing the development of industry under a centrally planned economy and relying on agriculture to provide the necessary labour force, food and raw materials. There would be no problem regarding labour; there was a widespread consensus about the existence of surplus labour in the rural sector (workers with a marginal productivity equal to 0). As for the food and raw materials required, it was perfectly possible to continue with the «War Communism» strategy and force the peasants to provide it. This would reinforce the socialist sector of the economy (considered to be the state industry) and the industrial proletariat. Yevgueni Preobrazhensky was the main proponent of this position together with Leon Trotsky, Grigory Zinoviev and the members of the «Platform of the 46»Footnote ¹⁰ . They introduced, however, a slight deviation from the War Communism strategy; instead of forced deliveries, it would be more efficient to extract the agricultural surplus through a worsening of the terms of trade. Together with this, and to avoid facing peasant opposition and ease tensions in the countryside, these authors also recommended strengthening the collective character of Russian agriculture by trying to convince the peasantry of the benefits of collectivisation. In this way, the major categories of a capitalist economy (market, profit, credit, money, etc.) would be gradually abandoned in favour of a centrally planned, state-owned industrialisation process relying on a collectivised agriculture. Under these circumstances the role of the Law of Value was also to be abandoned; there would be no exchange of equivalents (equal value) between agriculture and industry. Preobrazhensky proposed instead the «Law of Primitive Socialist Accumulation» in his lectures at the Communist Academy in 1924. This law, parallel to the Marxist Law of Primitive Accumulation, implied the exploitation of the peasantry, as its proponents were well aware. Nevertheless, it was argued that the strengthening of the socialist sector needed to be financed and that this could not be done exclusively by channelling the surplus generated in the industrial (socialist) sector itself, which was taken for granted. It would also be necessary to rely on the non-socialist part of the economy (agriculture).

The third alternative was to advance towards a socialist society without compromising the favour of the peasantry. Industrialisation would proceed at the slow pace dictated by the possibilities of obtaining the required food and raw materials from the peasantry through market channels and the exchange of industrial goods of equivalent value. Therefore, not only the Law of Value but also the previously mentioned capitalist categories, as well as the role of the markets in this exchange of equivalents would have a central place in the transition period. Nikolai Bukharin, who had been a Left Communist in 1917-1920, and thus opposed to Lenin on the issue of discipline and economic incentives, moved gradually towards more conservative positions and was the main figure behind this strategy, together with Stanislav Strumilin (deputy chairman of the State Planning Board, GOSPLAN) and Mikhaíl Tomsky (president of the Central Council of Trade Unions). Bukharin’s main argument was that socialism could not be built against the will of the vast majority of the population. Accepting this fact implied, in his opinion, that industry should obtain the necessary food and raw materials from the agricultural sector through a market exchange of equivalents: «riding into socialism on a peasant nag» (Nove 1972, p. 124). If the growth of industry had to rely on the agricultural surplus, then it was necessary to provide the peasant with the appropriate incentives to increase production and productivity. Thus, not only markets and middlemen (nepmen), but also the private property of land and the hiring of labour should be re-establishedFootnote ¹¹ . It is in this context that his unfortunate advice of April 1925 to the rich peasants (kulaks), «get rich», should be interpreted.

3. THE AGRARIAN QUESTION IN PRACTICE: THE NEP

Once the civil war was over, and the strategy of War Communism was ended, a new stage opened: the NEP. NEP was officially launched in March 1921 at the X Congress of the Communist Party. It represented the triumph of the third alternative mentioned above; industrialisation would have to accommodate its pace to agricultural development. The key word now was «smychka» (union) between city and village, between peasants and proletarians. Industrial growth would depend on the agricultural surplus available, and the markets, private property and the lease of land would be allowed to increase it, together with the hiring of labour (Agrarian Code of 15 November 1922). The agricultural surplus would be transferred to the industrial sector through the market exchange of equivalents (under the rule of the Law of Value) and priority would be given to light industry producing the kind of consumer goods that peasants demanded. Furthermore, state enterprises should abide by the rules of profitability (khozraschyot: the rules of commercial accounting approved by the Sovnarkom in 1921). At the same time, Grigory Sokolnikov, the head of the Finance Commissariat, was finally able to restore monetary stability in 1924 with the introduction of a new currency in 1922 (the chervónets), which was necessary for the new policy to workFootnote ¹² .

In the winter of 1923-1924, however, the crisis erupted. For different reasons, the ratio of the price of industrial goods to the price of agricultural goods deviated sharply in favour of the former. As a result, the supply of agricultural goods to the cities was severely threatened: «the scissors crisis»Footnote ¹³ . Although all political parties, as well as factional organisations within the Communist Party, had been banned since the beginning of the NEP, this did not prevent a heated debate at the highest level inside the Party about the best way to cope with the crisis. NEP was seen by many members of the Party as a temporary withdrawal on the way to socialism that entailed a reinforcement of those social classes more likely to oppose the Revolution: the middle and well-to-do peasants (kulaks). According to Preobrazhensky, Zinoviev and Trotsky, it was time to change and prioritise industrialisation, reducing the role of the markets, and moving towards a collective agriculture by trying to convince the peasantry of its advantages. Opposing this idea, the Bukharinists wanted to reinforce the NEP strategy: lower industrial prices and increase market incentives for the peasants.

Two other very different issues emerged at the time alongside this dispute.

On the one hand, the possibility of building socialism in the Soviet Union without the help of social revolutions in the most advanced European countries. For many early-hour Russian revolutionaries, the triumph of the October Revolution was almost an accident, and the USSR should follow a policy of buying time and helping these revolutionary movements to succeed. Only after their triumph would it be possible to consolidate the socialist revolution in a backward country such as the USSR. The events of 1919 in Germany and Hungary, following the crushing of the Spartacist uprising and the fall of Béla Kun’s Hungarian Soviet Republic, were soon to show that this strategy was but a blind alley. Bukharin and Stalin subsequently began to defend the necessity of building «Socialism in one Country», while Trotsky still considered it entirely unorthodoxFootnote ¹⁴ .

On the other hand, and in a completely different arena, these two factions were also competing for Lenin’s succession. Lenin died in January 1924 after falling seriously ill in 1922 and being incapacitated in 1923.

Under these circumstances, the solution adopted to solve the «scissor crisis» was no other than to strengthen the NEP by lowering industrial prices, increasing procurement prices for agricultural goods, etc. At the same time, the faction of Preobrazhensky and Trotsky («The Left Opposition») was officially condemned shortly afterwards at the XV Congress of the Party (December 1927)Footnote ¹⁵ . The USSR thus was ready to continue on its way towards socialism in one country «at a snail’s pace».

The winter of 1927-1928, however, put an end to this process. Again, a procurement crisis jeopardised urban and industrial development: the amount of grain in the hands of the State was reducedFootnote ¹⁶ . At that point, and contrary to all expectations, a completely new approach to solving the crisis was adopted. The NEP was abandoned, and an entirely different strategy was introduced. A «Big Push» policy of industrialisation with special emphasis on heavy industry was adopted, together with the rapid and forced collectivisation of agriculture. This was accompanied by the return to the measures adopted during the War Communism period to extract the required agricultural surplus, which would eventually be known as the «Ural-Siberian Method». In addition, the campaign to «eliminate the kulaks as a class» was launched. As was only to be expected, this sharp turn was welcomed by Preobrazhensky, and fiercely opposed by BukharinFootnote ¹⁷ . The situation regarding dissent was at that moment completely different, however, and there was very little room for such opposition. Bukharin and his followers were denounced as «deviationists» (the «Right Deviation») in November 1928, and officially condemned a year later. The Soviet Union was thus embarking on a new and entirely different path.

4. THE FOUNDATIONS OF A PLANNED ECONOMY

After 1917 it was increasingly clear that the Russian economy would require a strong planning effort: first to reorganise an economy devastated by World War I, subsequently to win the civil war and, finally, to move towards a socialist society. This is not the moment to review the construction of the planning structure that took place in the USSR during the 1920s; a short account of some of the major building blocks of this process will be more than enough for our purposes.

Two main institutions were in charge of the planning effort. These were the Supreme Council of National Economy (VSNKh), which was created in December 1917 as the main economic authority, and the State Planning Board (GOSPLAN), which replaced the GOELRO (electrification commission) on 22 February 1921 and was put in charge of planning the economy. Additionally, some originally independent institutions were also to provide crucial support to the management of the economy by procuring the necessary data.

Alexander Chayanov organised an Institute for Agricultural Economy in 1919 within which Nikolai Kondratiev established the Department of Agriculture Conjuncture. Based on this Department he created the Conjuncture Institute in October 1920: «one of the most reliable sources of information on economic indicators, use of which was a key element in all the debates which occurred over industrialization» (Barnett Reference Barnett1995, p. 437)Footnote ¹⁸ . By the end of 1918 the first set of Material Balances had appeared in the orbit of the Commission of Utilization, and the Soviet Central Statistical Administration, under the direction of P.I. Popov, published in 1926, the «Balance of the National Economy for 1923/24», following instructions from the Council of Labour and Defence of 21 July 1924Footnote ¹⁹ .

In 1925, and transcending the different sector plans, GOSPLAN produced the first set of Control Figures and then, in March 1926, it was decided that its plans should include the entire economy. Two different commissions were established to draw up the theoretical foundations of medium and long-term development plans. The first Commission, headed by Strumilin, would have to present a 5-Year PlanFootnote ²⁰ . The second, under the leadership of Osadchi, would have to propose a long-term framework within which the successive 5-Year Plans would be integrated.

Two different schools fought their way in these commissions. On the one hand, a «teleological» approach, close to the Left Opposition, focussed on the final objectives, to be attained at any cost. Plans should be conceived to reach these objectives, and the different economic institutions should provide the means required; an approach heavily based on voluntarism. On the other hand, the «genetic» school, favoured by the Right Deviation, emphasised the structural conditions of the economy as the fundamental basis and starting point of any plan. For its supporters (Bazarov, Groman and Kondratief), planning should rely on the knowledge of economic laws obtained from the study of the statistical data concerning the past. The role of planners, therefore, would be mostly passiveFootnote ²¹ .

Grigorii A. Fel´dman was an economist belonging to the second Commission (headed by Osadchi) who worked on a model that, it could be said, eventually provided the theoretical framework required to integrate in a coherent manner the successive 5-Year Plans. He published his findings in November and December 1928 in the GOSPLAN monthly review (Planovoe Khosiaistvo). In his model, the economy was divided into two sectors: Sector 1, producing capital goods (I); and Sector 2, producing consumer goods (C).

Taking into account the existence of surplus labour, he assumed that an increase in the production of either of these two sectors would depend only on the amount of investment (I: the production of Sector 1) allocated to Sector 1, and the efficiency with which these capital goods were used (v: the output-capital ratio).

Being:

(1) $$Y_{t} {\equals}I_{t} {\plus}C_{t} $$

And:

(2) $$I_{1} {\equals}\gamma \,I$$

(3) $${{dI} \over {dt}}{\equals}{{I_{1} } \over {v_{1} }}$$

by solving this differential equation system, Fel´dman arrived at the following expression:

(4) $$Y_{t} {\equals}Y_{0} {\plus}\left[ {{{\left( {1{\minus}\gamma } \right)} \over \gamma }{{v_{1} } \over {v_{2} }}{\plus}1} \right]\left( {e^{{\left( {{\gamma \over {v_{1} }}} \right)^{t} }} } \right){\minus}1{\rm }$$

where Y is national income and, as mentioned, I the investment (the production of Sector 1, capital goods), γ the proportion of investment allocated to Sector 1 (machines to make machines) and v the marginal output-capital ratio.

The policy recommendation that followed from this model was straightforward: to maximise national income at some future date (Y _t ) it was necessary to maximise γ: that is, the production of capital goods devoted to the production of more capital goods. In other words, to invest in the production of machines to make machines, even at the cost of neglecting the production of consumer goods.

The approval of the First 5-Year Plan was far from smooth. There were nine different drafts before the one finally sanctioned, which had two versions: minimum and maximum. The latter was adopted, but this maximum version was still amended several times shortly after its release, becoming more ambitious with each revision. In the end it was brought forward several months so the final objectives had to be attained in little more than 4.5 years. It is clear, then, that the «teleological» approach to planning had won the day vs. the more down-to-earth «genetic» vision. It is also evident that the First 5-Year Plan was perfectly in tune with the model designed by Fel´dmanFootnote ²² .

The developments that followed the approval of the First 5-Year Plan are well known. The Soviet Union experienced a dramatic Big Push for industrialisation with all the emphasis put on heavy industry. This was financed by expropriating the surplus of the rural sector from an agriculture forcibly collectivised with the help of the Ural-Siberian method. As a result, the growth of the industrial sector was impressive, but so was the amount of human suffering. Had they been known, the lessons learned from this experience would have been of the utmost importance for Development Economics.

5. THE SOVIET INDUSTRIALISATION DEBATE AND DEVELOPMENT ECONOMICS

Development Economics can be said to have been born after World War II. During what was considered its Formative Stage different authors provided a set of Magna Theories which were a mixture of theoretical models and policy prescriptionsFootnote ²³ .

Every underdeveloped country wanted to develop, and Development Economics was to provide the guidelines on how to do so. There was widespread agreement at the time on three main points:

1. a. Economic development meant industrialisation. Developed countries were industrialised countries.

2. b. Due to the lack of well-functioning markets, or of markets at all, as well as the absence of a well-developed entrepreneurial class, the state would have to play an essential role in the process. Development was to be planned.

3. c. Economic development was an objective that could be attained in the medium or even the short term.

The influence of the USSR experience on this approach cannot be overlooked. As Carr (Reference Carr1969) mentions, if one wishes to ascertain the influence of the Russian Revolution, the three key words would be productivity, industrialisation and planning (page 38 of the Spanish edition). That the process could be a relatively easy one had to do with the existence of an almost idle production factor which, if fully utilised, would increase national income at practically no cost: disguised unemployment. The seminal work in this sense was Arthur Lewis’s article published in the Manchester School and for which he would be awarded the Nobel Prize 25 years later (Lewis Reference Lewis1954).

As Arthur Lewis pointed out, the theoretical roots of Development Economics were to be found not in Neoclassical or Keynesian economics, but in the Classical School, namely, in the work of David Ricardo. According to Lewis, unlike developed economies, underdeveloped countries were dual economies. In these countries, the existence of a traditional sector, characterised by widespread disguised unemployment, fixed the industrial wage at the subsistence level. Within this framework, a series of development strategies were recommended that relied on putting this idle factor (rural workers in disguised unemployment) to work where they would have a positive marginal productivity: the modern (industrial) sector. As mentioned, due to severe market imperfections (including the absence of markets in critical sectors), and the weakness of the private sector, the state was to have a central role in this industrialisation process, both by planning it and, in many cases, by leading the process with the help of public firms as well.

Development Plans were indeed industrialisation plans. It is probably fair to say that Development Economics provided at that stage a blueprint for a centrally planned industrialisation process lead by the state. The rural (agricultural) sector was considered to be backward, non-rational and inefficient. The result was a set of supply-oriented economic models, focussed on solving the bottlenecks that prevented the rapid growth of national income, and characterised by an urban-industrial and anti-rural bias. The appeal of the USSR example relied on the fact that the results of its industrialisation strategy were quite clear, while the price paid was hard to assess in the context of not only the secrecy of Soviet authorities regarding the experience of the 1930s, but also of Cold War propagandaFootnote ²⁴ .

The problem was, of course, that industrialisation had to be financed.

The Harrod-Domar model, together with the Two Gap Analysis of Hollis Chenery and Michael Bruno, were used to calculate the amount of financing required, including foreign aid. Quite another problem, of course, was to identify the sources of finance, beyond external assistance. This difficulty had to do with the agrarian question.

As mentioned, the Lewis model opened the possibility of a development process «with an unlimited supply of labour». In other words, an industrialisation process with free labour because of the existence of disguised unemployment in the rural (traditional) sector: that is, workers with a marginal productivity which was very low or even 0. The existence of this surplus labour in agriculture is simply what Strumilin and other Soviet economists were taking for granted in the 1920s. What Lewis did not mention, however, but Gustav Ranis and John Fei subsequently pointed out, was that, more important still than the existence of surplus labour in the traditional sector, was the existence of an agricultural surplus that had to be transferred to the modern sector in order for the Lewis model to function (Ranis and Fei Reference Ranis and Fei1961). And, as is only too well known, this transfer can be accomplished through the market, or through compulsory means. Before dealing with this issue, however, it is worth analysing how the ideas that crystallised in the Fel´dman model appeared at that time, spontaneously, in a very different context.

5.1. The Mahalanobis Model

Prasanta Chandra Mahalanobis, one of the founders of the Indian Statistical Institute, wrote an article in the Institute’s Review that provided the basis for the Indian Second 5-Year Plan (Mahalanobis Reference Mahalanobis1953). Although Mahalanobis was a (foreign) member of the USSR Academy of Sciences, it is widely accepted that he was unaware of the work of Fel´dman. The model he published in his article was, however, basically the same as the one presented 25 years before by his Soviet colleagueFootnote ²⁵ .

Dividing the economy into two sectors, one producing capital goods (I) and the other consumer goods (C), the final equation of the Mahalanobis model was the following:

(5) $$Y_{t} {\equals}Y_{0} \left\{ {1{\plus}s_{0} \left[ {(1{\plus}\gamma \,/\,v_{1} )^{t} {\minus}1} \right]\left( {{{\gamma \,/\,v_{1} {\plus}(1{\minus}\gamma )\,/\,v_{2} } \over {\gamma \,/\,v_{1} }}} \right)} \right\}$$

The only difference between this model and that of Fel´dman is that Mahalanobis worked with a linear first-order ordinary difference equation system instead of a differential equation oneFootnote ²⁶ . The main conclusion of both models is the same: when trying to maximise national income in the long run, the strategy should be to prioritise investment in the capital goods sector (γ). This becomes evident when analysing the condition under which ∂Y _t /∂γ will be positive:

(6) $${{\partial Y_{t} } \over {\partial \gamma _{{}} }}{\rm }{\equals}Y_{0} s_{0} \left\{ {t\upsilon _{{1{\rm }}} \left( {{{\upsilon _{1} {\minus}\upsilon _{2} } \over {\upsilon _{1} }}{\plus}{{\upsilon _{2} } \over {\upsilon _{1} \gamma }}} \right)^{{t{\minus}1}} {\rm }{\plus}\left[ {\left( {1{\plus}\gamma \upsilon _{1} } \right)^{t} {\rm }{\minus}1} \right]\left( {{{{\minus}\upsilon _{2} } \over {\upsilon _{1} \gamma ^{2} }}} \right)} \right\}{\rm }\,\gt\,0$$

if, and only if Azqueta (Reference Azqueta2003):

(7) $$t{\rm }\geq {\rm }t^{{\rm {\asterisk}}} {\equals}{{\upsilon _{{2{\rm }}} \left( {1{\plus}{\rm }\upsilon _{1} \gamma } \right)} \over {\upsilon _{1} \gamma {\rm }\left[ {\upsilon _{2} \left( {1{\minus}\gamma } \right){\rm }{\plus}\upsilon _{1} \gamma } \right]}}$$

The implication of this latter point is quite straightforward: the strategy of investing in the capital goods sector maximises the rate of growth, but not national income in the short run. Therefore, to accept this strategy, which implies sacrificing present consumption, the planning horizon must be long enough (t>t*). This is why Amartya Sen appropriately called t* the recovery period. Both the Fel´dman and the Mahalanobis models fulfilled this condition taking into account the fact that they were solving the problem of investment allocation for the very long runFootnote ²⁷ .

It should be no surprise then that the savings rate seems to play no role in either of these two models. Does this mean, for instance, that were the savings rate to double this would have no impact on future income and the rate of growth? This would be exactly the opposite to what the Harrod-Domar model of growth implied. The answer is, of course, negative. The savings rate seems to play no role in these two models because it was assumed that the amount of savings required to finance the accumulation process would be available in any case from the conspicuously absent agricultural sector. In other words, it was assumed that the required agricultural surplus would be extracted by any necessary means with no compensation whatsoever (Sah and Stiglitz Reference Sah and Stiglitz1984). It is difficult to find a better example of the teleological approach to planning.

Ronald Findlay, many years later, proved that the Fel´dman-Mahalanobis strategy was incompatible with the transfer of the agricultural surplus through the market and the exchange of equivalents (Findlay Reference Findlay1962). His argument was simple enough. If the investment effort is biased in favour of the production of capital goods, then few consumer goods would be available to exchange for agricultural products. With this amount of grain available, only a limited number of workers would be hired at the ruling wage in the industrial sector: a number insufficient to operate all the machines being produced. Within the context of a market exchange of equivalent value between agriculture and industry there would be no room for a strategy of rapid industrialisation. The value of γ will be given by the necessity of reaching an economic equilibrium between the amount of machines produced and the need to feed the number of industrial workers required to operate them. According to Findlay, the only way to solve this dilemma would be to deteriorate the terms of trade against agriculture, to lower industrial wages, and to adopt capital-intensive technologies. Except for the last one, these were precisely the same measures that accompanied the First 5-Year Plan in the USSR. Sah and Stiglitz (Reference Sah and Stiglitz1987) showed that, in this sense, Preobrazhensky was right in that turning the terms of trade against agriculture was an efficient way to extract the surplus, although the Russian economist was wrong in assuming that the welfare of urban workers would increase in the process.

It could be argued that investing in building the heavy industry sector is only appropriate in the context of a closed economy, in which there is no possibility of importing the required capital goods. In this sense, while Preobrazensky argued in favour of utilising the agricultural surplus directly in the urban sector to feed industrial workers, Trotsky considered it more efficient to export this surplus to import machinery. Raj and Sen (Reference Raj and Sen1962) would prove, however, many years later that even in the context of an open economy, with no trade restrictions, the strategy of making γ as high as possible is the appropriate one when trying to maximise income in the long run. Therefore, it is not the degree of openness of the economy which conditions the adoption of the Fel´dman-Mahalanobis strategy, but the capacity of the agricultural sector to provide the necessary surplus. This capacity and, not to be overlooked, the willingness of the ruling class to impose upon the population a growth process during which neither the peasants nor the urban workers would see their standard of living improve.

Mahalanobis, as well as Fel´dman, were thus promoting an industrialisation process which would rely on the agricultural sector as the source of finance. Agricultural development would be sacrificed in favour of industrialisation. This assumes that the agricultural sector is working above subsistence level and thus has a surplus to transfer, because in real terms no investment to increase productivity would be allocated to it. The fate of the Indian planning effort as well as the experience of the People’s Republic of China showed that this was a very dangerous assumption indeed. In 1956 India approved the second 5-Year Plan following the prescriptions of Mahalanobis closely. However, and due to increasing difficulties, the Plan was severely modified in 1958 and finally abandonedFootnote ²⁸ .

6. POSTSCRIPT

The 1920s witnessed a crucial debate in the Soviet Union, not only about the way to build a socialist society, but also regarding the problems of promoting economic development in a backward and rural economy. Different strategies were tried with different results. The problems faced in the development process, as well as the social cost entailed by the process itself, were clearly identified, and so was the social group that would have to pay the bill under each different strategy. As shown in the previous pages, these debates would have been of great importance for those underdeveloped countries that attempted to improve their situation after World War II, had they been known. Unfortunately, there was practically no trace left of them; they all seemed to have vanished. The reason is quite straightforward and well known; not only were all debates banned in the USSR in the 1930s, but almost all the leading figures of the previous decade and their works had disappeared from official records, and many of them had also met a tragic end indeed. As Barnett puts it: «The 1920s were the heterodox decade par excellence in the USSR (…) but dissent itself in economic theory was dealt with so harshly by execution or imprisonment that it ceased to exist beyond 1930» (Reference Barnett2006, p. 113). The fate of some has already been pointed out. As for many of the rest, theirs was quite similar. Bukharin, Preobrazhensky, Chayanov, Kondratiev, Zinoviev and Riazanov, among those mentioned in this paper, were all tried and executed in the Great Purge of 1936-1938. Tomsky committed suicide in April 1936 when he was going to be arrested by the NKVD. Sokolnikov was detained in 1936 and assassinated in prison by other inmates in 1939. Litoshenko was also arrested in 1930 and died in a prison camp in 1943. Trotsky was assassinated by a Stalinist agent in Mexico in 1940. Fel´dman, as previously mentioned, was also condemned and sent to the Gulag, where he disappeared. Ironically, he was accused of «deriving long-term tendencies from abstract models». Bazarov and Groman appeared in court in 1931 in the Menshevik Trial and condemned to prison. Bazarov died in 1939 and Groman in 1940. «Planners and producers were involved in intricate games, potentially matters of life and death, or at least imprisonment and exile» (Hunter Reference Hunter1998, p. 1027). Strumilin and Slutsky were among the few able to survive the Great PurgeFootnote ³⁶ .

The silencing of the debates and events of the 1930s in the USSR were not only an enormous human tragedy, but also meant a very significant loss for the advance of economic thought in the newly born field of Development Economics.