THE cross-roads at which the economic policy of the Soviets stands today -- and with it their general policy -- was reached by wholly logical stages. When in 1921 Lenin abandoned "pure Communism," reversed his system of taxation, and decreed the "New Economic Policy" or "N. E. P." -- that is, decided to support the socialization of the Soviet economic system by permitting individualistic and capitalistic business methods -- his program assumed the correctness of a hypothesis that had never been tested. It assumed that two economic systems which in theory are hopelessly divided would in practice prove entirely compatible. Lenin's idea was that while wider and wider economic fields were methodically being brought under the sway of economic socialization, individual business should continue to fulfill such functions as socialization was not yet able to take over. This implied that socialization should extend its field of operations only when it felt itself capable of duplicating the accomplishments of private business. From the very beginning Lenin vigorously insisted on reserving for socialization the celebrated "controlling economic heights" of business, that is, industry and foreign trade. These, primarily, constituted the "socialized sector" of the economic structure. At the same time, in domestic trade Lenin created "starting points" of socialization, through state wholesale organizations; and in agriculture through the Soviet landed estates. He believed that in this way he had at the outset assured the dominance of the Bolshevik idea; and to that extent he was quite correct in advocating his N. E. P.

In 1921 private trading was permitted side by side with state retailing, and, in spite of the knowledge that the processes of distribution were sooner or later to be socialistically organized, private traders sprang up and even flourished under the wing of a bureaucracy which alternately blew hot and cold, fluctuating between grudging acquiescence to interfering regulation. Gradually the impediments were multiplied, and by the spring of 1924 more than 300,000 private firms had been wiped out of existence either by taxes or by discrimination in the credit furnished by the state banks or in the supplies obtainable only from the state factories. Still it was found that these shackles and limitations were not adequate enough to keep private enterprise within bounds; harassed though it was at every turn, private enterprise continued to thrive, and so in 1927 the Soviets launched a policy of wholesale and direct repression of both private trading and independent farming. By winter time the rigor of governmental action had brought on a peasant's boycott, which the Government finally succeeded in breaking by "extraordinary" measures of forcible seizure, since replaced by the present policy of systematically repressing the "kulaks" -- peasants who are relatively well off.

The Kremlin frankly saw in the success attendant on private trading and independent farming a vital threat to the "socialistic sector" of the Soviet economic system, both present and future. The Kremlin was afraid of becoming hopelessly dependent upon these two forces if it tolerated them any longer, even in their hitherto limited spheres. It believed, and rightly, that through them not only its economic position, but its political position as well, was threatened; and, considering its peculiar situation, it had some justification for making no fundamental distinction between these two interests.

In 1924 the state trading organization and the coöperatives dependent upon it were expanded into a single gigantic whole. This process was begun at the same time that the harassing treatment of private trading was intensified. In 1927 the collective rural agencies of every kind were increased, at a rate corresponding to the rate at which the unwanted independent rural organizations were annihilated. Oppressive taxation and delivery delays worked toward the same end. Both courses of action meant a bold advance in the policy of socialization.

Are not the most cherished hopes of Leninism being fulfilled, then, much more rapidly than seemed possible a few years ago? Yet does it not also seem as if the Soviet State's sheer struggle for existence were compelling it to do the very thing which it originally proposed to do solely of its own free will and from ideal motives? For the extension of socialization is now being brought about much more rapidly than Lenin foresaw, but in very different circumstances. He believed that as the commercial methods of private business came into competition with the economic methods of socialism, they would die a natural death. The same hope has deluded his successors; the candidate for an early death turned out to be exceedingly lively. But though Moscow persistently hangs on to its ideals, it nevertheless handles uncomfortably practical realities energetically. No power on earth thinks in such large terms or with such reflection and deliberation as do the gentlemen in the Kremlin. Their position makes this necessary, for the present basis of their power is a dangerous provisional arrangement, a kind of twilight zone for which there are no historical precedents and, in the main, the only rules are those that they have learned through their own experience. At any rate, two things are perfectly clear to the Soviets today. First, the applicability of the N. E. P. is far more conditional, far more dangerous, than they conceived it to be. Secondly, the possibility of fostering socialism and private enterprise side by side in the Russian economic system was grossly overestimated. The vigor with which private trade and so-called "capitalistic" farming have been disrupted indicates what troubles and difficulties the N. E. P. has caused its authors in these last seven years, and shows what effort is required if the N. E. P. is to serve the end originally intended and not the opposite.

The natural result of the repression of private enterprise is that socialization must be speeded up and enlarged to just the extent that the rôle of private initiative is cut. Furthermore, from the beginning it has been suspected, and in 1923-24 the suspicion became almost a certainty among those acquainted with the facts, that any forced increase in the rate of socialization was impossible save at a very considerable sacrifice of the general prosperity. It has always been clear that these sacrifices would certainly be made, no matter how great they might be. Nor, after the critical experiences of the first few years, was there much doubt as to which was to make the sacrifices, the socialized section or the section left free for private initiative. The idea cherished outside Soviet Russia that the N. E. P. might provide an eventual means of departure from the socialistic principles of the revolution and a means of approach to our bourgeois individualistic economy, or that the Soviet State might possibly be regarded in the rôle of a prodigal son by the executives of Western banks -- this idea, though still ineradicable from many minds, either represents astounding superficiality of thought or else is simply an idée fixe to which the Old World clings just because it is so used to it. The determination with which the Soviet State undertook a radical alteration in the structure of Russian economics through the introduction and development of a "socialized sector," might even in the first days of the N. E. P. have carried a significant moral to outside observers. Today we know in addition that the danger which the N. E. P. represents for the socialistic state organization forces the latter further along the path toward its communistic ideal.

So far we have said less about the picture which the Soviet economic system presents today than about the measures which brought the picture into being. From the beginning the Soviet Republic laid the principal stress upon "industrialization." In the last fiscal year alone (1927-28), no less than 1,800 million rubles has been spent on industry; as early as 1925-26 the sum of 800 millions was devoted to it. Obviously the whole energy of the country was required for this gigantic effort. Prices of crops were held at the 1914 level, though the prices of industrial products meantime increased many fold. The needs of "industrialization" have absorbed more and more of the relatively slight purchasing power of the Soviet State abroad, until today they require 80 percent of it. Result: a distressing lack of ordinary goods, especially those needed by the peasants. For ten years the peasant has been skimped both by domestic industry and foreign trade. In 1927-28 Soviet industry took for its own purposes, especially for expansion, 19 percent of the 23 percent increase of production, and left only 3 or 4 percent for the open market.

The advance in socialistic industrialization seems very imposing when viewed statistically, and from the Soviet standpoint it is the central factor in judging the whole economic situation, especially domestic policy. But its indisputably great success has also a number of negative aspects which we must not disregard in forming our opinions. First, let us consider the effects on agriculture. Before the war Russia was the leading flax-producing country of the world. Today Italy is far ahead. Russia used to be unquestionably the leading barley producer. Today that, too, is no longer true. Her cotton production is still far below pre-war figures. More serious still is the fact that within the last year the Soviet Union has ceased to be considered as a wheat-exporting country. In the coming year it will even be necessary to manage the domestic supply "with great care." This year, for the first time, even the official statistics show a falling off of 1.9 percent in grain production. Here, I think, as in other fields of rural production, the otherwise reliable Soviet statistics are merely trailing after disagreeable realities. The present disquieting condition of rural economics was prepared long ago by the increasingly repressive measures against the independents.

The business of the state coöperative has increased very significantly in scope since it set to work in earnest in 1924. In itself this is certainly an extraordinary achievement. But just what significance has it when we consider the business turn-over as a whole? The statistics reveal how sharply the share of private trade -- retail and especially wholesale -- has fallen off. Today we may estimate that the wholesale private trade comprises perhaps 15 percent of the entire turn-over, retail trade perhaps 20 or 30 percent -- but with a strong trend downward. But in view of the increasing difficulties it constantly becomes more doubtful how far socialized trade will really be able to replace private management. During the harvest crisis of last year, the state set as its goal the collection of about ten million tons of produce for metropolitan food supply. The assumption was that private trade, in spite of persecutions, would cover the balance of the need. That was an error. The "de-individualizing" of private trade had already been more thorough than official calculations assumed. The realization that positive socialization was not advancing to a degree corresponding with the "de-individualizing" of industry had a disquieting effect not only on agricultural trade but also on all the relationships of private with socialized trade.

As a matter of fact, there is a crisis in Moscow today both in turn-over and in retail sales. People stand in line not only to buy many of the essentials of life, but even to get electric light bulbs! It is much the same throughout the whole Soviet realm. The situation has its origin either in under-production or in under-organization of retailing -- or in both. This cannot be denied. It is difficult to imagine what would happen if the great variety of commodities which business might manipulate rose suddenly in price. For several years a lack of every sort of goods suitable for consumption has been felt, and it becomes more perceptible day by day. This shows how cautious one must be in assuming that the increase in the amount of commodities and distribution of all kinds shown statistically in the "socialistic sector" in itself constitutes proof that production as a whole is rising. We are thus compelled, at least provisionally, to assume that the repressive methods used by socialization against private initiative are having the same effects in trade as in agriculture.

Why and how does socialistic industrialization play so large and at the same time so dangerous a rôle in the Soviet economic policy? The idea of industrializing the Soviet Union without any adequate help from foreign capital (which financed and owned 80 percent of Tsarist industry) at first glance seems nothing less than heroic. We must admire the ambitious scale on which it was planned and the tenacity with which the Soviet Government -- and especially the Party which today exercises dictatorship -- still adheres to it, despite the critical situation. But we must not forget that an important and constant consideration is the necessity of providing support for the political-economic existence of the proletarian State. Without industrialization, without "proletarianization" of the land, the Soviet State some day or other will collapse in the sea of 139,000,000 peasants. It needs an island on which it can feel itself secure. It needs a gigantic labor supply. It has had success with its industrialization. But like everything else this, too, bears the mark of the forced methods which brought it about. The matter cannot be discussed thoroughly here. Suffice it to say that there exist today within Russian industry certain definitely retrograde tendencies -- due to lack of raw materials, to increasing financial difficulties (although in a strictly socialist country money does not play precisely the same rôle as among us),[i] and to psychological and technical hindrances to bourgeois direction of the large-scale industrial and commercial affairs of the nation.

It is even admitted by the Soviets that, in addition to the unfavorable state of the whole economic structure, there is a lack of resources for the further industrial development of the country, especially building material and pig-iron. We must therefore conclude that even in this field, judging by technical and economic needs, there has been too much haste in dispensing with private initiative and the services of capital. Industrial production itself, then, has failed in the great task which it has undertaken. Not only does industry provide far too few goods for trade; it does not even provide enough for its own needs. The whole industrial position leads us to put the same query that we did in the case of commerce: Is not the increase of production in the "socialized sector" merely a partial substitute for the destroyed achievements of private production? This is certainly true in some of the light industries, as for instance in leather manufacture, where during the last year thousands of tanneries have closed down.

But all these separate observations may be reduced to a single, all-embracing question, which day by day causes more and more worry to the responsible authorities in Moscow: Has not the expansion of the "socialized sector" inside the general economic structure (without concurrently satisfying the Russian economy) weakened the governmental organism more than it has strengthened it? If this question is answered in the affirmative, then another question arises. Will not the reaction of the unsatisfactory general situation upon the "socialized sector" as it is today, and on its further extension, constitute an immediate danger for the final success of socialization? These questions will inevitably occur to anyone who has given impartial attention to the course of events since 1924.

Perhaps it will be well to summarize the ideas that I have attempted to set forth in highly concentrated form. 1. The incompatibility between the socialistic and private forms of economics is greater than was anticipated when the N. E. P. was introduced. 2. Any adjustment of such friction as arises must be at the expense of private business. 3. The compulsion to socialization has thus overshadowed the will to socialization in practical politics. 4. Socialization has been unable adequately to replace private initiative as the latter has shrunk or disappeared. 5. The result is that the general economic condition becomes worse instead of improving. 6. Through the collapse of private business, socialization has continuously increased its importance in the Soviet economic system. 7. Nevertheless its rival's collapse has brought socialization to a crisis.

The American reader may perhaps suppose this to be abstract academic reasoning, culled from some economic textbook. But it is not just an ingeniously constructed theory. What I have described is a phenomenon involving the very real fate of very real Russians on Russian soil, 150,000,000 living beings -- every living person in Russia, as far as Yakutsk, near the earth's cold pole -- for the Soviet administration extends its drastic will with extraordinary unity over the whole of its immense empire. The terminology that one must employ in describing its activity, which is guided by ideas quite other than those which we have come to know in our Occidental life, sounds strange, abstruse. But were this globe of ours completely occupied by socialistic states, then if some revolution suddenly injected among them a state devoted to private business, this phenomenon would not appear any more strange in their eyes. It is the fatal -- and highly un-Socratic -- method of many students of contemporary Russia either to recognize only such things as are already familiar or else to force into the scheme of the familiar a variety of things that do not belong there at all.

The fact that one must go to so much effort to comprehend what is going on in any phase of present-day life in Russia shows at least how deeply the socialism of the Bolsheviks has already penetrated into reality. It has of course entailed all sorts of tremendous sacrifices. These have not lessened, nor will they lessen. Indeed, as we have seen, socialism has been its own sacrifice. Today if it is to survive it must do what originally it wanted to do of its own free will. "Beim ersten seid Ihr frei, beim zweiten seid Ihr Knechte." The primal demands of self-preservation compel it, force it, to become a wholesaler, as well as to make a "rural proletarian" out of the peasant as fast as possible.

It would be a tremendous task to expand the foregoing observations and to show how it is primarily the logic of its own existence that is driving the socialistic State to achieve social goals by economic means and yet to try to win a political position by economic sacrifices. The same crisis that we have here tried to describe (while scrupulously omitting mention of all the other influences that affect the purely economic N. E. P.) exist also in the cultural, political, and even the diplomatic N. E. P. In each case one can see how Soviet socialism has been compelled by the inexorable force of circumstances to accentuate its position, or, to use a current word, to "radicalize." Only the rigidly theoretical training of the Bolsheviks makes it possible for them to keep their bearings amid the turmoil.

[i] In 1927-28 the State industries had 30 percent less money than in 1925, despite a marked increase in production, a marked increase in the number of businesses, and a marked decrease in the purchasing power of the ruble.

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