Sunday, June 24, 2007

Bankruptcy Of The Dialectic

Here is a great article on the results of denying the free market.

The Story of Grain

In a simplified way, the story of the collapse of the Soviet Union could be told as a story about grain and oil. As for the grain, the turning point that decided the fate of the Soviet Union began with the economic debate of 1928-29, when the discussion centered on what would later be called the "Chinese path" of development. (By several important economic and social indicators, the Soviet Union of that period and China in the late 1970s took similar approaches to reform. See figure 1.) At the time, the head of the Soviet government, Aleksei Rykov, and the chief ideologist of the Communist Party, Nikolai Bukharin, earnestly defended the idea of a path which included preserving private agriculture and the market, and ensuring financial stability--but holding onto the party's political control.

The Soviet leadership ultimately chose another path. The solution preferred by Joseph Stalin was the expropriation of peasants' property, forced collectivization, and extraction of grain. Judging from the available documents, the essence of this decision was relatively simple. Bukharin and Rykov essentially told Stalin: "In a peasant country, it is impossible to extract grain by force. There will be civil war." Stalin answered, "I will do it nonetheless."

The result of the disastrous agriculture policy implemented between the late 1920s and the early 1950s was the sharpest fall of productivity experienced by a major country in the twentieth century. The key problem confronting the Soviet Union was well-expressed in the letter sent by Nikita Khrushchev to his colleagues in the leadership of the party. The letter fundamentally stated: "In the last fifteen years, we have not increased the collection of grain. Meanwhile, we are experiencing a radical increase of urban population. How can we resolve this problem?"

Once again, a serious discussion ensued among Soviet leaders in the early 1950s, resulting in two positions. The first position was to attempt to improve the situation in the agricultural regions outside of the fertile "black soil belt" in southern Russia. The other position was to resolve the problem by utilizing the socialist planning system: large projects and a concentration of resources. Naturally, doubts lingered about whether this strategy would cause even higher fluctuations in long-term production.

But these considerations were ignored and, tactically, the strategy of dramatically expanding the land under cultivation yielded temporary success. Between the mid-1950s and the early 1960s, the amount of the grain produced by the Soviet Union increased significantly. The problem was the limited amount of suitable land and the continuing growth of the population in large cities. Thus, already in the late 1960s, the shortcomings of this plan were evident.

In 1963, Nikita Khrushchev sent a letter to the leaders of the Socialist bloc, informing them that the Soviet Union would no longer be able to supply them with grain. That year, the Soviet state bought 12 million tons of grain--and spent one third of the country's gold reserves to do so. Khrushchev commented: "Soviet power cannot tolerate any more the shame that we had to endure."[2]

You may have vast armies and hold the world hostage under threat of thermonuclear annihilation, but you still have to pay the bills.

Are you listening Robert, Hugo, Daniel, Achmenijhad, Fidel and Kim?

Hat tip to Naval Open Source Intelligence.

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