The Development of the Soviet Budgetary System

Abstract

The book begins with a rather too perfunctory look at the budgetary system of Imperial Russia, but soon plunges into a fascinating and remarkably lucid account of the first efforts of the Soviet government to cope with financial problems. Ignorance, misplaced idealism and the chaotic political and economic situation led to a period of almost unbelievable confusion which characterised. Soviet finances in the period of war communism. Taxation degenerated into arbitrary requisitioning by local soviets—thus an instance is cited in which a town imposed a levy of 3,000 roubles on all who did not subscribe to the local Pravda. Eventually there was a complete collapse of the currency, accompanied, in 1920, by a unique and (of course) ineffective effort to devise a state budget in kind, without money. Dr. Davies does right to remind us that not only politicians but also the Party's economists assumed at this time that this was the right way for a socialist economy to proceed. While the New Economic Policy, launched in 1921, brought with it an eventual restoration of sanity, from the Communist standpoint it meant a retreat, and it is clearly shown that within a very few years the government was using fiscal weapons first to limit, then to penalise, and finally to drive out of existence the private economic activities thought to be politically and ideologically undesirable. In the last resort, taxes on such categories of citizen were made to exceed 100 per cent. of income. Thus if anyone still suffers from the illusion that collectivisation of the peasantry in Russia was a voluntary process, he should read carefully page 222 of this book. Dr. Davies goes on to make a detailed study of the financial system which developed in the period of the five-year plans, up to 1941. He shows how profound was the influence of the industrialisation drive and the increasing diversion of resources to armaments on the shape taken by public finance after 1929. There is a most valuable and clear exposition of the structure of the budget and of its many inter-connections with economic enterprises. Developments since 1941 are briefly outlined in a final chapter which also includes some stimulating and important reflections on the adequacy of the Soviet financial system. Under Stalin it achieved maximum concentration of resources on heavy industry and arms by intense centralisation, but, to cope with the needs of a modern industrial economy, considerable changes will certainly be necessary. Dr. Davies wisely refuses to discuss the rightness or wrongness of Soviet political decisions. He takes them as given. In this way he has almost entirely succeeded in avoiding bias. Only occasionally does one feel that perhaps certain points have been unnecessarily passed over in silence. For example, while the rise of prices in the ‘thirties is shown, and an increase in money wages referred to, there is no word to suggest that a fall in real wages occurred. Then, although there are extensive references to the many victims of the purges who were prominently connected with public finance, the fact that they were victims is not mentioned, neither are the purges. One might also have expected more understanding for the opposition of financial experts to the vastly exaggerated plans of the 1928–30 period. However, taking the book as a whole, no serious scholar (as distinct from the professional propagandist, of whom there are many in the Soviet field) can have legitimate ground for complaint. The basic approach is wholly sound. Thus it is right to analyse turnover tax as a fiscal device, to consider its impact on various commodities and different strata of the population, to note its vital role in financing heavy expenditures on investment and the armed forces, without introducing into the account the irrelevant note of moral indignation. We should be grateful to Dr. Davies for so excellent a book, a real contribution to our knowledge of the Soviet economy.