Depression of 1783-1896, Business Cycles, and the Russian Revolution

Posted on Nov 6, 2024 in Economy

Depression of 1783-1896 and Business Cycles

Crisis of 1783

The industrial monopoly of England was broken as other industrialized countries began to compete in the international market. This competition saturated the market and lowered prices of industrial products, reducing profits. Inflationary pressures due to overproduction, transportation needs, and the development of the financial sector were exacerbated. Social conflicts increased and workers organized into unions. Workplace abuses were common, and the value of labor decreased due to the rise of machines. Governments returned to protectionist measures.

Cycles

  • Juggler (9-10 years)
  • Kitchin (3 years)
  • Kuznets (20 years)
  • Kondiateu (50-60 years)

Hobson

Hobson claimed that imperial expansion is driven by a quest for new markets and investment opportunities overseas. The root of imperialism is not national pride, but the industrial oligarchy. He argued that imperialism is unnecessary and immoral, seeing it as the result of poor wealth distribution in a capitalist society that created a desire to increase market share for profit.

Hilferding: Society for Action

Shareholder

A shareholder is not necessarily a capitalist or industrialist, but rather a holder of capital. Shares represent income credit on production and income allocation, in addition to interest, which is capitalized. Share prices reflect these factors.

Founder’s Gain

Founder’s gain is a source of earnings that comes only from the transfer of capital.

Robbertus

Robbertus argued that the advantage of a corporation is that it combines the capital flows of thousands of small sources. Under the corporation, the sole trader disappears.

Marx: Credit Result

  • Work is separated from ownership of the means of production and surplus labor.
  • Capital is calculated such that the company’s profit is sufficient to pay a dividend equal to the interest on the capital provided by each individual owner.

The Corporation and Capital Injections

  • Corporations can operate with half the required capital.
  • The dominant society borrows capital as its own.
  • Corporations must be controlled by banks.
  • Dispersed monetary capital comes together as fictitious capital.
  • Corporations receive credit more easily.
  • Corporations are superior to individual businesses.

Capitalist Business Classification

  • Homogeneous and combined: Joined by technique, due to economic and technical reasons.
  • Partly monopolistic: Domain over prices.
  • Monopoly: Aims to increase profit by increasing prices, dependent on supply and demand.
  • Community of interest: Two or more independent firms.

Capital Market

Characterized by the formation of cartels and trusts.

Bank Capital

Capital in the form of money.

Lenin

Characteristics of Capitalism in Europe

  • Concentration of capital and production
  • Increased business
  • Production expands to the salaried class
  • Changing technology
  • Opening markets

Capitalism in the U.S.

  • Concentration of production
  • Increased competition among companies
  • A new form of organization arises: posters

Posters:

  1. Capitalists divide the world.
  2. They set the quantity of products to produce.
  3. Establish prices and distribute profits.

Monopolies Obtained Large Profits By:

  • Socialization of production
  • Perfecting techniques
  • Monopolizing the labor force
  • The capitalist appropriates surplus value

Process of Capitalist Transformation into Monopoly

  1. Privatization of raw materials
  2. Privatization of labor
  3. Privatization of means of transport
  4. Market agreements
  5. Decrease in sales price
  6. Declaration of an economic boycott

With the Above:

  • Competition is abolished
  • Markets are captured by monopolies
  • Capital is considered the economic base
  • Monopolies manipulate prices

Capitalism: competition… Imperialism: the development of capitalism… Monopoly: posters, unions, trusts merged with banks.

Five Years of the Russian Revolution and the Revolution from a Global Perspective (Lenin)

State capitalism is a step forward compared to the situation in the Soviet republic at that time compared to old Russia:

  • Patriarchal agriculture
  • Small commodity production
  • Private capital
  • State capital
  • Socialism

In 1921, an internal political crisis arose due to discontent among peasants and workers. They felt that the direct path to purely socialist forms was beyond their strength, and if they were not able to retreat to easier tasks, bankruptcy would threaten. The main objectives were to examine:

  • Farmers: The discontent of a large part of the peasantry was an undoubted fact, exacerbated by hunger.
  • Light Industry: There was a general increase and some improvement in the situation of workers.
  • Heavy Industry: Improvement could be expected soon.

State ownership of land is extremely important economically. It ensured that farmers were satisfied and that industry and commerce were reviving. The proletarian state is different because it controls not only the land but also the most important branches of industry.

On Cooperation

As the working class owns state power and the state owns all means of production, the only task is to organize the population into cooperatives, which is how the goal of socialism is reached. It is necessary to allow state appropriations for cooperatives that exceed even those granted to some private companies, even raising the level of appropriations for heavy industry. Every social system arises only with the financial support of a particular class. The goal is to raise the population’s level of civilization, which encompasses all the advantages of participation in cooperatives, and to organize this participation.

Posters and Trusts (Hilferding)

The community is made up of monopoly interests that profit by raising prices. The poster should be temporary and encourage a relationship between supply and demand. To maintain the set market price, supply must be regulated and production limited. The poster is joined by an economic organization and is converted, by the removal of the commercial independence of the company, into a business unit called a union. The cartel seeks to further simplify production.

The monopoly union is the organization of economic dominance. The relationship between poster, union, and trust is analogous to the relationship between a federation of states, federal states, and a unitary state. In the trust, higher prices are stipulated. The poster requires the provision of prices, but for the trust, a unit production price no longer exists. The trust’s price can be stipulated so that the quantity of products manufactured yields the largest possible profit. The trust can more easily close less profitable firms than the cartel, which has to divide increased production equally among its businesses. In the lineup of major raw materials, there is diversity in production costs.

Capitalist Monopolies and Banks: Transformation of Capital in the Capital Market

The expansion of capitalist industry leads to the concentration of banking. A concentrated banking system is an important engine for achieving capitalist concentration in cartels and trusts. The cartel or trust company has great capital power, deciding which company falls under the jurisdiction of another. Advanced cartelization motivates banks to partner and grow to avoid falling under the jurisdiction of the cartel or trust.

The poster encourages a strengthening of relations between banks and industry. The trust has a double meaning:

  1. Its achievement encourages banks to promote monopolization.
  2. A portion of the founder’s gain can be used to force, by paying a high price to purchase items to sell its factories, the realization of the cartel.

The poster has a claim on an industry’s companies. This claim raises its price to some degree, and this price increase is paid as a profit separate from the founder’s. The cartel also means greater safety and regularity of centralized corporate performance.

The money comes from two sources:

  1. Funds from the unproductive class
  2. Reserve capital from commercial and industrial capitalists

The dependence of industry on banks is a consequence of property relations. Financial capital develops with the rise of the corporation and reaches its peak with the monopolization of industry.

Development of Equipment and Economic Planning Practices

The main function of planning organizations is political. They prepare and accompany acts of reproduction or processing of the material and social conditions of production. In a society divided into classes, planning has a class content. It is affected by class struggles, and interventions are determined politically. The legal nature associated with policy interventions that act on planning the reproduction of social relations may be exercised directly or indirectly. One method of indirect intervention occurs at the level of currency and prices.

Not all planning is necessarily socialist. Planning agencies were established from the beginning of the NEP (New Economic Policy). At the beginning of the NEP, the role of the VSNJ tended to decline as a result of the creation of Gosplan and also in relation to the development of financial autonomy and the role of the Gosbank and Narkomfin. Gosplan was the agency designed to prepare plans for the whole economy, including agriculture and transportation.

The Gosplan

The Gosplan (State Plan Commission) was the body responsible for drawing up plans. Created on February 22, 1921, it succeeded GOELRO, which had developed a plan for electrification. Like VSNJ, it was charged only with developing projects that were subject to governmental bodies, the only entities authorized to make and implement decisions. During the NEP, Gosplan’s activity was more focused on the problems of agriculture and the overall economic balance, which brought it closer to financial bodies: Gosbank and Narkomfin. In the second half of 1925, Gosplan produced the first annual plan of the national economy, covering the years 1925-1926. The NEP continued to be accompanied by the development of market relations and monetary policies and increased financial autonomy of state enterprises. This did not imply any waiver of an attempt to manage the economy centrally and in a planned way.

The Osvok

The Osvok (po Sovechtchanie Osoboe Vostanovleniu Osnovnogo Kapital or Special Conference for the Reconstruction of Fixed Capital) was created in March 1925 by the Presidium of VSNJ. The Osvok acted independently of VSNJ.

Forms of Government Property in the Structure and Production Process

Towards the end of the NEP, state industry was made up mainly of old industrial companies nationalized after the Revolution and a small number of new businesses. In 1926 and 1927, the industry directly planned by the VSNJ provided 77% of the value of production by large organizations. Coordinated management managed to level the joints of companies in the Soviet trusts, or the level of organs formed by agreement between the trusts. Unions, called product sales unions, guaranteed sales to end users. They were increasingly separate from state trading organizations in the industry, operating at the wholesale and retail levels. This separation allowed better control by the central state organs over commercial operations. Under the proletarian dictatorship, state ownership can be a socialist form of ownership. While this transformation has not been fully realized, state property is of a dual nature: a socialist form of ownership under the class character of the state. It is a state capitalist form, by nature, partly due to capitalist production relations and the existing boundary with the transformation of production and reproduction processes.

Forms of Management in State Factories

By 1926, the difficulties initially encountered in corporate governance had been overcome, but the forms of management adopted in light of those difficulties were maintained. The political economy manual by Ostrovitianov and Lapidus expressed, in a particularly systematic way, a non-dialectical representation of the social relations that characterized the Soviet formation at the end of the 1920s. The nature of the social reproductive process at the immediate work level is manifested not only by the type of leadership exercised over the workers, but also by how work standards and fiscal discipline are set.

Fixing Work Rules

In August 1926, the problem of revising standards was raised by business leaders and the VSNJ. In October 1926, the Fifteenth Party Conference affirmed the need for a review to strengthen production standards. At the Eighth Congress of Trade Unions in 1926, several leading delegates complained that companies used the above resolutions to intensify work abusively, but union leaders insisted on the need to increase productivity. At the end of 1927, the review of labor standards continued. Unions complained that the review led to wage reductions.

Class Struggle and the Fight for the Transformation of Production Relations

a) Management of Companies and Unions

The issues are the role of management and unions in the operation of enterprises. Lenin, in his piece on the role and tasks of trade unions, said that dealing with the consequences of the ruin and devastation caused by war was paramount. If rapid and stable restoration of large industry was not achieved, the success of the whole cause of the emancipation of labor from the yoke of capital, and thus socialism, was inconceivable. Any direct involvement of trade unions in the management of enterprises should be considered harmful and unacceptable. The union resolution adopted by the Eleventh Congress stated that even in the immediate future, unions must be removed from administration.

b) Production Conferences

A resolution was adopted in January 1924 by the Thirteenth Party Conference, taking a first step toward increasing the role of workers in state enterprises in defining production tasks and the conditions for their fulfillment. This resolution recommended holding regular production conferences, which would consider production issues and results obtained and allow for the exchange of experiences. Representatives of economic organizations and trade unions, party members, and non-party workers would participate in the conferences. 1925 was a year of economic stress during which the authority of the unions lost ground.

The ultimate goal of production meetings was to teach workers and management how to run the national economy. The purpose of the meetings was to raise fundamental questions about industrial construction. Only in this way could the activity of the working class masses be increased and their awareness of and participation in industrial construction be raised. Without the active participation of the working masses, the struggle for the strengthening of labor discipline could not fully succeed. Similarly, without the participation of the broad masses of workers, it would be impossible to successfully resolve all the tasks and difficulties encountered on the path of socialist construction. In any case, the charges should be interpreted as direct interference in the functions of administrative or financial management of the company.

Investment in Industry in the Global State of Play of Production Conditions

Only socialist cooperation between production units, the unification of the various immediate processes of production, based on the common activity of the different groups of workers, can secure the primacy of financial planning or socialist josrastchot. Josrastchot implies the insertion of state enterprises into the overall process of reproduction of the conditions of production. The functioning of the economy may be dominated by use-value. The industrial sector appears as a single state trust, and work is a social directory. Thus were born the illusions of war communism, the direct transition to communism, and the immediate disappearance of currency and the salaried institution.

The Development of Josrastchot

Josrastchot was established by a decree of the Sovnarlcom dated August 9, 1921. This decree granted financial autonomy to state enterprises, involving the separation between business and government, which also implied, in fact, the separation of businesses from each other. Financial autonomy was granted to a group of production units. Trusts and unions were the only state industrial agencies that had contact with the market.

The features of the operation of state enterprises on the basis of josrastchot are:

  • Each state enterprise is equipped with its own funds, which are capital allocations.
  • Each state enterprise buys its raw materials and fuels, as well as other means of production, and sells its products.
  • Each company is directly responsible for the employment of its workers, establishing new forms of separation between workers and their means of production.
  • The financing of the activities of state enterprises must now depend mainly on their income and the banking system.
  • The possibilities for development of various state enterprises depend on their ability to repay loans and to be self-financing with the State Bank.

Josrastchot at the Beginning of the NEP

In the fall of 1922, the Civil Code gave each company or trust legal personality. This is sometimes called legal division. Each company or trust may acquire commitments and is legally liable for its commitments. Working capital may be confiscated if they do not fulfill their obligations or do not meet their debts. State trusts are state industrial enterprises to which the state grants independence to carry out their operations in accordance with the rules established in each company, operating on the basis of commercial accounting principles and aiming to obtain a profit. Lenin explained that the introduction of josrastchot involves the transition of a sector of the state to a capitalist form of management and trade principles.