Preobrazhensky Theory

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    Preobrazhenskys Theory of Socialist Development posted 10 May 2013 14:02 by Admin uk

    Preobrazhenskys Theory of Socialist Development

    Contents

    Introduction

    The Soviet Context in the 1920s

    Economic Equilibrium in the USSR

    Marx and Engels Theory of Socialism

    Preobrazhenskys Definition of Political Economy

    The Method of Theoretical Analysis

    Planned Socialist Production

    Capitalism, Socialism and Accumulation

    The Law of Primitive Socialist Accumulation

    Studying a Transitional State

    PSA in Conflict with the Law of Value

    Methods of PSA in the NEP

    The limits of the Law of Value

    The End of the NEP

    Introduction

    In the 1920s Preobrazhenskys theory of Primitive Socialist Accumulation (PSA) was at thecentre of the Soviet industrialization debate. It proposed that the socialist sector of theeconomy exploit the private economy to catch-up with advanced capitalism. The theory wassubject to ferocious criticism, distortion and misrepresentation, and the debate waseventually resolved by violent means: through the repression of inner-party opposition in1927, and forced collectivization of the peasantry after 1929 . [1] These measures along withuniversal nationalization and the introduction of the Five Year Plan in 1928, established theclassical socialist system that Kornai (1992) comprehensively describes. This chapter

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    summarizes Preob razhenskys theory of PSA and looks at its relevance during the NewEconomic Policy (NEP) and at the forces that led to the abandonment of the NEP. The nextchapter will apply a derivative of his PSA framework to study contemporary China.

    The debates on Marxist theory of development in the USSR of the 1920s were rich andvaried. Many theorists, Preobrazhensky included, changed their opinions several timesduring this period. This ideological fluidity was connected to the imperatives of warfare,economic crises, social policy, political struggle, social and personal pressures, as well asthe hopes and dreams of the intellectual protagonists. So, it is not possible to speak ofPreobrazhensky view, instead I focus on his theory and method developed most ful ly in TheNew Economics . (Preobrazhensky 1965)

    Karl Marx described how early capitalist accumulation accelerated on the basis of forcedand unequal exchange with pre-capitalist economic formations, a process Marx calledprimitive accumulation. Preobrazhenskys theory of PSA was a modification of Marxsanalysis of the genesis of capitalism. He drew an analogy in which the accumulation fundsfor socialism would come from unequal exchange with pre-socialist economic formations.Economic backwardness defined soviet developmental dynamics and produced thecontradictory co-existence of capitalist and socialist laws of motion, which were the objectof theoretical analysis and the subject of conflicts over practical policy. Contradictionsbetween these economic laws appeared as conflicts between industry and agriculture, andthe proletariat and peasantry . [2] These dynamics were manifest through dislocations ineconomic development and clashes between the interests of social classes. Preobrazhenskysupported rapid capital accumulation by state-owned [3] heavy industry, which would comemainly at the expense of the peasantry . [4] He hoped rising peasant incomes; ruralinvestment and material support from successful international revolutions could ameliorate

    this exploitation. (Filtzer 1979)

    In the mid-1920s, as the Soviet economy approached its pre-revolutionary capacity;Preobrazhensky emphasized the need for large-scale capital investment, sacrificing presentday consumption for future benefits. (Erlich 1950:66-8) He thought that the gap betweenworld market prices and those of indigenous state industrial prices should be structured togradually improve the industrial purchasing power of the peasantry and simultaneouslymaximize the flow of resources towards investment. Once such capital-intensive investmentbore fruit the living standards of peasants and workers could consistently improve. (Erlich1950:74)

    For Preobrazhensky a socialist planned economy must limit and control the influence of thelaw of value. However, he understood that forecasting in a centralized economy createdscope for grave errors to radically impact the economy - as compared to capitalism - whereprivate interests adjust markets and counter-balance planning. Therefore economicguidance and forecasting requires a scientific theoretical method to help predict theconsequences of planning in advance. (Preobrazhensky 1965:6)

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    The Soviet Context in the 1920s

    Before 1917 the majority of Russian Marxists held the view that a bourgeois-democraticrevolution would precede a socialist revolution .[5] An exception was Leon Trotsky whosetheory of permanent revolution posited that the bourgeois revolution would become asocialist revolution. In his view the development of the productive forces produced acontradictory correlation of class forces. A powerful and militant working class faced a weakindigenous bourgeoisie tied to the Tsarist state and foreign capital. He thought the workingclass would overthrow the Tsarist state, and the bourgeois and socialist tasks of therevolution would be combined and become part of an international socialistrevolution. (Trotsky 2007)

    The Revolutionary Foundation 1917-18

    In the first months after the revolution, radical changes were decreed and supported e.g.peasant land seizure, workers control of industry, nationalization of essential enterprisesand the promotion of international revolution. This combination of revolutionary democracyand internationalism sought to strengthen internal cohesion and weaken external threats.But soon economic dislocation justified replacing autonomous workers organizations withhierarchical authority. Lenins hope for pressured collabo ration with private capital wasundermined by the ferocity of class conflict - as capitalists and old bureaucratic forcesaligned themselves with the counter-revolution and were expropriated. (Howard and King

    1989:290-2)

    War Communism 1918-21

    War Communism led to general nationalization, forced requisitioning and rationed resourceallocation, the suppression of markets and trade, and the repression of democracy andpolitical opposition. Bukharin theorized this practice concluding that strict self-disciplineand centralization is essential to militarily victory and proletarian rule. Global economicdecline would be followed by revolution, but this would be accompanied by furthereconomic regression and civil war. The overthrow of capitalism would replace economicswith the conscious pursuit of proletarian interests - administrative controls would replacewartime confiscation and regulate the relations between town and country. However, sharpclass conflicts alienated the peasantry and weakened state and party power. Bukharinstheory remained influential within the party and leadership even after militaryvictory. (Howard and King 1989:292-4)

    New Economic Policy 1921-29

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    In 1918 Lenin used the term state c apitalism to characterize an economic system in whichcapitalist enterprises of various types worked under the control of the proletarian state. Thecore commanding heights of the economy were composed of state enterprises and trusts,which he described as being of the consistently socialist type. Small enterprises wereprivatized, foreign investment was encouraged, and diplomatic relations were improved.Lenin exhorted communists to learn to trade, and supported emulation of capitalistmethods by state enterprises to improve productivity. This included one-man management,profit calculation and large wage differentials. He also warned that bureaucratic forces weresteering the state, but hoped that party purity would be able to sustain the revolution and,if industry developed alongside peasant cooperation, the NEP could herald economicprogress.

    Bukharin advocated industrial advance at a snails pace based on encouraging peasantdemand for consumer goods produced by state industry. He believed that an enduringworker-peasant alliance should avoid excessive demands being placed on agriculture. ForBukharin, the leading role of the workers meant class relations were based on aharmonious unity and socialism could be realized within national boundaries. Agriculturalgrowth would increase peasant consumption, stimulate light industry, and increasedemand for heavy industry.

    Trotskys view was that socialism in one country was a reactionary doctrine. Internationalcapitalism was not stable, and revolutions were likely in the near future both in Western

    Europe and in certain less developed countries. He thought that if his policy of permanentrevolution were correctly followed, the opportunities that arose would lead to revolutionaryvictories internationally. The economic interests of European powers would foster traderelations with the USSR, this could be used to integrate with the world market - importgoods in short supply - and utilize national comparative advantages to acquire resources forstate industry. To overcome the impact of the world law of value the efficiency of Sovietindustry would have to reach that of world capitalism. Trotsky saw political reform as theprimary means of changing policy e.g., to permit criticism and rank and file control over theparty and bureaucracy.

    Stalin argued that splits between imperialist powers would prevent successful militaryintervention to overthrow the revolution. Soviet diplomacy and the Comintern could be usedto neuter future threats. In the mean time, socialism could be built in the Soviet Unionwithout revolutions in other countries. For Stalin, the internal balance of forces would notlead to a life or death crisis, and thus Trotsky had underestimated the peasant.

    Preobrazhensky considered the rate of growth of the state vis--vis the non-state sector to

    be decisive. Increasing the strength of the proletariat and weakening the wealthy peasantsand traders could secure the alliance between the workers and the mass of peasants. Rapidindustrial growth could increase the consumption of peasants and workers. However, largefixed investment was needed to outstrip pre-revolutionary production and secure growth

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    into the future. His sequencing projections were based on capacity extension to facilitatethe manufacture of industrial consumer goods and alleviate goods famines. His proposalswere based on technical grounds rather than a fetish for heavy industry. He advocatedsystematic planning to forecast and anticipate disproportions and crises, whereas Bukharinemphasized market autonomy. (Howard and King 1989:294-309)

    The Left Opposition

    Trotsky formed the Left Opposition in 1923. It opposed bureaucratization of the party,encouraged democratic rejuvenation through workers democracy, and promoted planningof the economy. Preobrazhensky campaigned for the adoption of planning in the state sectorof the economy. He argued that workers unrest in urban areas revealed the need for theparty to restrict the growth of capitalist tendencies generated by the NEP and meet workersneeds .[6] The Left Opposition had predicted that concessions to petty bourgeois moodswould constitute a liberal springboard for a reactionary authoritarian movement - drawingparallels with the period in the French revolution known as Thermidor. However, theexpulsion of Leon Trotsky and the United Opposition [7] in 1927, led instead, to anincreasingly ferocious campaign against rich peasants. In 1929, an acceleratedindustrialization drive by the party and state, effectively identified the entire peasantry as ahostile bourgeois class - as the hoped for wedge between the poor, middle and rich peasantsfailed to materialize. (Carr 1971:419-429)

    The events of 1929- 33 verified Trotskys predictions of an impending crisis, but theconsequences were sharply at odds with his forecast. Instead of a counter-revolution bypro-capitalist forces, Stalin instituted a radical overthrow of the NEP leading to the creationof a command based economy more akin to War Communism than to capitalism. Bukharinclaimed that super-industrialization became influential within the state bureaucracy after1926 and blamed the ideas of the left- opposition for Stalins second revolution, whichcreated a bureaucratic police state. (Howard and King 1989:304-309)

    Class Demographics

    Within the party it was considered essential that the weight of the proletariat within societyshould increase. This necessitated migration from the countryside to the town. The Sovietcensus of 1926 revealed that out of a 147 million population, 26.3 million were urbandwellers and 120.7 million rural; 37% were under 15 yrs of age and 40% were literate.Studies in 1927 classified 32.5 million as proletarians, (27.6 million urban, 5.8 millionrural.) Individual artisans or other self-employed non-agricultural workers numbered 6.8million. There were 3.5 million people classified as the non-agricultural bourgeoisie, e.g.

    employers or traders. Income from agriculture in 1926-7 was calculated to be less than 50percent of national income and the share of the socialized sector was increasing. Paidworkers income rose relative to other groups, this expressed the numerical growth of theclass itself, not individual wages. Price controls and progressive taxation squeezed the

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    bourgeoisie and weakened their relative economic position.

    The concept of class differentiation within the peasantry was inherent in the Bolshevikapproach to the revolution. They divided the peasants between a small, hostile capitalistgroup, and the mass of peasants who were seen as allies of the proletariat, in whose namethe party ruled. The NEP encouraged enrichment and so deemphasized rural classdivisions. (Carr 1971:419-425)

    Economic Equilibrium in the USSR

    Preobrazhensky wrote The New Economics (Preobrazhensky 1965) in the mid-1920s. It wasto be part of a larger work designed to facilitate concrete study of the Soviet economicsystem: a theoretical framework that could be filled with the real data. The premise forPreobrazhenskys model of primitiv e socialist economic reproduction was non-equivalentexchange - this assumes that different systems of ownership compete to regulate theeconomy during the transition to socialism - the law of value and the law of PSA.

    Marxs model of pure capitalism stu died reproduction of the means of production(department 1) and means of consumption (department 11). Preobrazhenskys model ofreproduction under PSA includes petty production and capitalist production as sources of

    accumulation, and as means to acquire sufficient elasticity to maintainequilibrium. (Preobrazhensky 1980)

    Preobrazhensky identified the following contradictory foundations of development andequilibrium in the Soviet economy.

    Accumulation by the state based on non-equivalent exchange takes place whilstadvancing the productivity of labour and raising wages

    Rapid integration into the world market occurs in a hostile environment

    Accumulation from expanding industrial raw materials production takes place at theexpense of peasant producers

    Accumulation from exports of peasant produced consumption goods, occurs whilstindustrial prices fall slowly

    Stimulation of peasant production for the market occurs whilst protecting weakersectors of the peasantry

    Production rationalization and price reduction takes place whilst controlling

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    unemployment.

    He felt that the scale, severity and acuteness of these contradictions revealed the need forinternational assistance. (Preobrazhensky 1980:230)

    During the NEP, the capitalist sector was generally non-industrial and non-productive -exploiting opportunities provided by non-equivalent exchange. Private tradersopportunistically exploited shortages or poor distribution. The main sphere of competitionwith state industry was light industry, where low capital costs and extreme exploitation,predominated in the private sector.

    Wealthy peasants known as kulaks represented agrari an capitalism. The kulaks werehostile to the social system, which they blamed for restrictions on opportunities forenrichment. They engaged in strategies to accumulate at the expense of others. Theirlimited opportunities drove them to seek access to free markets by means of politicalopposition to the state.

    Here, the problem of economic equilibrium rests squarely on the problem of socialequilibrium, that is, the relation of class forces for and against the Soviet system. Twosystems of equilibrium are struggling for supremacy: on the one hand, equilibrium on a

    capitalist basis- which means participation in the world economy regulated by the law ofvalue- by abolishing the Soviet system and suppressing the proletariat, and on the otherhand, equilibrium on the basis of temporary nonequivalent exchange serving as thesource of socialist reconstruction and inevitably signifying the suppression of capitalisttendencies of development, particularly in agriculture . (Preobrazhensky 1980:179)

    Marx and Engels Theory of Socialism

    Preobrazhensky's theoretical framework for the transition to socialism is based on hisreading of the writings of Marx and Engels. (Preobrazhensky 1974) They avoided utopianvisions of socialism and made forecasts based on an analysis of capitalism. Marx presentedcapitalism in pure form and as a complete system, contrasting it with its antecedents and itspredicted communist successor, to identify the unique characteristics and conditions inwhich the finished system of capitalism operated.

    Marx and Engels speculation about socialism and communism contained the followingelements. A dictatorship of the proletariat would be established by a workers revolution,followed by an unspecific period of transition. In this era, classes, and as a consequence thestate, would continue to exist. It was possible to elaborate transitional measures for the

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    system of production and distribution from capitalism to socialism, but not to the higherphase of communism. (Preobrazhensky 1974:65-7) For Engels, the constant transformationof the productive system (the target of revolution) made description of the transitional eradifficult. He explained that a socialist society requires technically educated administrators,but warned of their possible hostility to the revolution. (Preobrazhensky 1974:70-71)

    Some demands of the Communist Manifesto transcended the bourgeois democraticrevolution, e.g., centralization of credit under a state banking monopoly; extending stateownership in communications, transport and industry; the planned development ofagriculture to gradually eliminate the urban-rural divide; and free public education. Marxand Engels also demanded expropriation and nationalization of feudal estates, together withmines, pits etc. The estates would be cultivated on a large scale applying modern science inthe interests of the whole of society. Preobrazhensky described these policies as a gradualistvision of transition, a mild version of the subsequent New Economic Policy in the SovietUnion. However, the sharp class conflict in the Russian revolution provoked a widerextension of nationalization than was originally envisaged.

    A deep sobriety from Marx and Engels in this point is adequately verified through ourexperience, in so far as it concerns the inappropriateness of nationalization in one blow,that immediately takes place the day after the seizure of power. (Preobrazhensky1974:69 my translation)

    Marx and Engels believed that socialist production would have to be founded on a newtechnical level. Theypondered how electricity might overcome urban-rural contradictionsand thought that the inability to adequately utilize electricity exposed the fetters ofcapitalism, which socialization of production could overcome. The effective application ofthe means of production and transportation developed by capitalism could multiply theproductive potential of the workers, increase the consumption of the masses, and herald atechnical and scientific revolution in agriculture. They contrasted commodity productionwith planned socialist production envisaging that the accounting of a socialized economywould replace spontaneous regulation through the law of value. (Preobrazhensky 1974:72-5)

    In a socialized economy, that part of the surplus allocated for subsistence would beapportioned dependent on historical, technical and organizational factors. Marx wrote:

    We will assume, but merely for the sake of a parallel with the production ofcommodities, that the share of each individual producer in the means of subsistence isdetermined by his labour time. Labour time would, in that case, play a double part. Its

    apportionment in accordance with a definite social plan maintains the proper proportionbetween the different kinds of work to be done and the various wants of the community.On the other hand, it also serves as a measure of the portion of the common labourborne by each individual, and of his share in the part of the total product destined for

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    individual consumption. The social relations of the individual producers, with regardboth to their labour and to its products, are in this case perfectly simple and intelligible,and that with regard not only to production but also to distribution. (Marx 1954:82-3)

    Marx held that greater scale and concentration simplifies administrative control,bookkeeping becomes more important and would become generalized under a collectivistproduction. (Marx 1956:137-8) He saw the credit system as a powerful lever in thetransition to socialism, provided it was connected to a revolutionary transformation of theproductive system. However, when the means of production cease being transformed intocapital or ownership of land, credit would lose its function. Under capitalism, efficientresource utilization depends on the cultural level of the workers and enforced discipline -piecework facilitates this process. As the new society develops, supervisory, unproductiveand unnecessary administrative activities would be reduced. He saw the main hindranceswithin capitalism in its anarchic and crisis-ridden nature; the trade distribution system;and contradictions between capitalist and societal interests. He isolated transient capitalistproductive forms from those that would be transformed in the era of socialist transition.However, surplus work and surplus product would continue to exist forever to provide forinsurance costs and investment for society. (Preobrazhensky 1974:76-8)

    Although Marx and Engels prophesied a transitional era in the evolution of socialistproduction they discussed its system of distribution more than its organization ofproduction. Just as capitalist ownership of the means of production and land automaticallyreproduces its corresponding distribution of consumer goods, so, they concluded, collectiveownership would produce a different regularity of outcomes. Marx and Engels opposed

    egalitarian socialism, as the quantity of production would define the distributivepotential. (Preobrazhensky 1974:80-82)

    Socialist distribution would transform surplus value into surplus-product and wage-labourinto average workers rations. In a soc iety based on common ownership of the means ofproduction, individual labour would exist as a component part of the total labour. [8]

    The communist society bears the birth -marks of the old society the individual producerreceives back from society- after the deductions have been made exactly what he givesto it. What he has given to it in his individual quantum of lab our .[9]

    By this is meant his share of the total hours contributed by society for which he receives acertificate (after common fund deductions) and with which he may draw from the socialstock of means of consumption as much as the same amount of labour costs. [10] Eachgets back what they give. This is still a form of bourgeois right as the capitalist exchange

    principle remains, but everyone is a worker, and no-one owns the means of production. Thedistribution principle is bourgeois, as equal amounts of labour are exchanged, andinequality of human skills and consumption needs etc. continue.

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    These defects are inevitable in the first phase of communist society as it is when it has just emerged after prolonged birth-pangs from capitalist society. Right can never behigher than the economic structure of society and its cultural development which thisdetermines. (Marx and Engels 1989:85-7)

    Marx differentiates between the first and the highest phase of communism. In the firstphase, class division of society is not yet liquidated but the capitalists are overthrown, thestate continues to exist and the system of distribution bears the features of its capitalistpredecessor. (Preobrazhensky 1974:85-6)

    Marx and Engels saw the division between mental and physical labour as a product of classdivisions and insufficient productive development. They sought an end to rigid employmentchannels, a reduction in working time, and a system of education that opened science andart to the masses. Emancipation from the division of labour would facilitate theemancipation of women; and productive work would become a source of physical andspiritual liberation. (Preobrazhensky 1974:86-88)

    The division between town and country - exacerbated by development of the cities - haddegraded the countryside and its people; torn the people apart; limited the intellectualdevelopment of the rural population, and bound the urban workers to dull repetitive work.

    A planned socialist world -economy must start with the assumption that industry isconcentrated in the early capitalist countries and this is an unalterable fact. For theworld-economy the same question appears quite differently. Here it is not a question ofthe distribution of large-scale industry over the country in the highly industrializedcountries, but of the distribution of high industrial concentration over the wholeworld. (Preobrazhensky 1974:93 my translation)

    Marx felt that capitalism robbed both the land and the worker. Profit seeking and pricefluctuations caused contradictions in agriculture, as each advance in the fertility of theland, reduced the duration of that fertility. He considered the system incapable ofrationalizing or planning agriculture on the basis of science, technology and data.

    The moral of history, also to be deduced from other observations concerningagriculture, is that the capitalist system works against a rational agriculture, or that a

    rational agriculture is incompatible with the capitalist system (although the latterpromotes technical improvements in agriculture), and needs either the hand of the smallfarmer living by his own labour or the control of associated producers. (Marx citation

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    from Capital Volume 3, Preobrazhensky 1974:94)

    Preobrazhensky pointed to Lenins argument that monopoly capitalism distorted andlimited the law of value. Lenin hoped the bourgeoisie could be compelled to work for theproletarian state. This required an alliance between the proletariat and the peasantry tostop the peasants from supporting the bourgeoisie. (Preobrazhensky 1974:133-138)

    Preobrazhenskys Definition of Political Economy

    Preobrazhensky defined political economy as the science of the laws of development,equilibrium and decay of the commodity, and commodity-capitalist mode of production. Itsfundamental categories are commodities, the law of value, wages, surplus value, profit,price and rent. The commodity expresses the type of general production relations wheremarkets bind together independent commodity producers. Economic laws produce aconstancy of results following from the reproduction of a certain type of productionrelations. (Preobrazhensky 1965:57) Political economy studies these relations betweenpeople in the process of capitalist production and

    the types of regularity inherent only in this form , the types which reveal themselves onthe basis of the operation of the law of value. (Preobrazhensky 1965:48-9)

    The law of value is the law of spontaneous equilibrium of commodity capitalist society.In a society without commanding centres of planned regulation, thanks to the operationof this law, directly or indirectly, everything is achieved which is needed for thecomparatively normal functioning of a whole productive system of the commodity-capitalist type: the distribution of productive forces - that is, people and means ofproduction among the different branches of the economy; the distribution of theproduct of societys annual production between workers and capitalists; the distributionof surplus value for expanded reproduction between different branches or countries, andits distribution among other exploiting classes; technical progress; the victory ofadvanced forms over backward ones and the subordination of the latter to theformer (Preobrazhensky 1965:147-8)

    The operation of the law of value means that aims, plans, aspirations, and expectations ofthe agents of productio n (Preobrazhensky 1965:49) cannot foretell the actual results. Theabsence of a planned distribution of the productive forces means that the law of valuemanifests itself blindly as if it were a law of nature.

    Wages and surplus value are the essence of the relations of production and distribution

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    between workers and capitalists. The category of profit, as another form of surplus value,is a relation of distribution between capitalists, which passes thanks to the mechanism ofthe equalization of the rate of profit and the entire mechanisms of capitalist society into arelation of distribution o f labour and means of production. (Preobrazhensky 1965:148-9)

    Prices express labour productivity and distribution. They also act to redistribute productiveresources between economic branches and shape the flow of values within society. Rent isdefined as a redistributive relation between tenants and owners that transfers part of thesurplus value to the latter. The transformation of the categories of political economy duringthe NEP will be considered in the section on The limits of the Law of Value.

    The Method of Theoretical Analysis

    Preobrazhensky considered capitalism to be an unorganized spontaneously equilibratingsystem in which human relations are materialized. Its laws appear as accidental events andcan only be grasped by critical and abstract analysis of fundamental and pure systemicfeatures, which reveal its specific regularities. Marx developed his theory of abstractcapitalism, within which real capitalism lives and moves to provide the means tounderstand its laws of motion. (Preobrazhensky 1965:43-8)

    Marxist theory is rooted in the thesis of base and superstructure, wherein the study ofeconomy is the foundation and starting point. Marx studied capitalist economic laws byseparating the economic base from the societal superstructure and examining thisabstraction. His identification of the peculiarities of this pure capitalism produced the needfor an abstract -analytical method to c apture this. Preobrazhensky uses this method ofabstraction as his tool of analysis, placing economics at the centre of studying humanrelations. This requires its abstraction from within these relations. He formed his model ofPSA to work out the regularities of economic activity, understand conflicting socialprocesses and develop policy aimed at extending the influence of planning.

    I devote myself to the modest task of first abstracting from the actual economic policy ofthe State, which is the resultant of the struggle between two systems of economy, and thecorresponding classes, so as to investigate in its pure form the movement towards theoptimum of primitive socialist accumulation, to discover the operation of the conflictingtendencies, as far as possible in their pure state, and then to try to understand why theresultant in real life proceeds along one particular line and not another. (Preobrazhensky1965:62)

    Monopoly Capitalism

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    Preobrazhensky describes Marxs model of capitalism as theoretically photographed inpure form in its native spontaneity. (Preobrazhensky 1965:150) But this pure form neverexisted in reality; the influence of large enterprises and banks and the rise of monopoliesamended the law of value by restricting spontaneous competition. Monopolies could pushprices above their value or drive out competition by dumping. Their collective power alteredeconomic dynamics and the laws of political economy. A number of capitalist countriesintroduced state planning, including price controls, the regulation of surplus value, and theredistribution of productive resources. This indicated an objective tendency for socializedproduction to replace capitalism, and laid the basis for socialist production provided theworking class came to power. Preobrazhensky cited German state capitalism in the FirstWorld War as an example where commodity production was planned in key sectors, freecompetition was curtailed, a nd the working of the law of value in many respects was almostcompletely replaced by the planning principle of state capitalism. (Preobrazhensky1965:153)

    Planned Socialist Production

    Preobrazhensky believed that the categories of political economy would be transformedunder planned socialist production. The commodity will be replaced by the product; valueby labour-time; the market by bookkeeping of a planned economy; surplus value by surplusproduct; and social technology - as a science of socially organized production - will replacepolitical economy. He juxtaposed the economic characteristics of capitalism and socialism

    in the following table. (Preobrazhensky 1965:162)

    Capitalism Socialism Commodity Production Socialist Planned Production Market Socialist Accounting Value and Price Labour Costs of Production Commodity Product

    The laws of a planned economy will be governed by regularity and necessity. A science ofsocial technology involving the conscious application, mastery, and use of these laws, willchange the way they appear. This will amend socio-economic regularity, conditionality andcausality, and entail conscious organization of production on a planned basis, bringingmastery of nature through mastery of social organization. Social organization itself will bevoluntary and control objective external forces, enabling history to be increasingly shapedby will, and necessity to be replaced by freedom. (Preobrazhensky 1965:52)

    Under capitalism, changes in market demand lead to under-production, over-production,and distortions in prices and resources utilization. In a planned economy the calculation ofgrowth in demand and associated production would be made in advance. Meeting demand

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    may necessitate redistributing labour and accumulating emergency reserves.

    Regularity remains, but it asserts itself not through the market, it gives notice of itsarrival not post-factum, but in advance - ante factum - in the consciousness of theregulating economic organs of society.

    It is not the prices on the market after production but the columns of figures of socialistbook-keeping before production that sound the alarm and enter the consciousness of theplanning centres: they inform the guiding economic centres of the growth of newdemands, and thereby of an economic necessity to which they must adjust themselves.

    This anticipation of regularity constitutes precisely the first characteristic feature of thenew, socialist produc tion. (Preobrazhensky 1965:54)

    The new science would forecast economic necessity and propose how labour and productionshould be organized to satisfy wants and needs. The study of future impacts wouldsupplant the estimation of consequences; requiring complex regulatory organs of socialforesight and planned guidance. (Preobrazhensky 1965:55)

    Capitalism, Socialism and Accumulation

    Preobrazhensky distinguished between methods by which capitalism surpassed feudalismand those a socialist economy could use to develop socialist capital. Capitalism

    accumulated and established a commodity economy within feudalism before bourgeoisrevolutions. Capitalist manufacture displayed superiority over craft production with a fewadvanced enterprises. Its economic conquest occurred spontaneously and the export ofcapital stimulated capitalist economic development in petty-bourgeois economies.Capitalism also accumulated by means of primitive accumulation, the unequal exchange ofgoods, the seizure of resources from pre-capitalist economic formations and nations, e.g.,through the slave trade, exchanging cheap manufactured goods for gold, seizing commonlands, etc. In contrast, socialist production can only begin after the seizure of power, and itcan only conquer other countries by revolutions. (Preobrazhensky 1965:79-80)

    The nationalization of large -scale industry is also the first act of socialist accumulation,that is, the act which concentrates in the hands of the state the minimum resourcesneeded for the organization of socialist leadership of industry. (Preobrazhensky 1965:80-81)

    For Preobrazhensky socialist accumulation refers to surplus product produced for the self-expansion of the means of production of the socialist economy. This requires highly

    developed technique, organization and productivity of labour, corresponding with highcapital intensity. To facilitate scientific planning and provide the basis for a unified advanceof the whole interdependent state complex, socialism requires an accumulation of capital,equal, at least, to that of advanced capitalism. It requires adequate stocks and reserves to

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    respond to circumstances like poor harvests, changes in market conditions, seasonalvariations in demand etc.

    The Law of Primitive Socialist Accumulation

    Preobrazhensky saw PSA as distinct from capitalist and socialist accumulation. PSA refersto the state economy accumulating resources from the non-state economy. He saw this asthe basic and central law governing, the motion and processes in the Soviet economy in the1920s. It determined the distribution of the means of production and labour power, and thequantity of surplus product made available for the expansion of socialist productionthrough its conflict with the law of value. (Preobrazhensky 1965:84-5)

    Where planning operates, regularity of causation is consciously organized. It fights for itsexistence and consolidation in a hostile environment and takes the form of expandedsocialist reproduction shaped by state actions. This entails increasing the proportion of theeconomy in state hands, integrating more of the workforce around these means ofproduction, raising the productivity of labour, and struggling to expand reproduction of thesystem and maximizing PSA.

    This process is se en as the whole aggregate of tendencies, both conscious and semi -

    conscious and is also the economic necessity, the compelling law of existence anddevelopment of the whole system, the constant pressure of which on the consciousness ofthe producers col lective of the State economy leads them again and again to repeatactions directed towards the attainment of optimum accumulation in a givensituation. (Preobrazhensky 1965:58)

    Defining the optimum rate is a complex task; inadequate foresight and excessiveacceleration can produce negative consequences e.g., a goods famine, private sectoraccumulation, or dangers stemming from a weak industrial base. The characteristics of aspecific period can be concretely studied. The study of economic regularity in the strugglebetween planning and commodity economy pleads for a method of generalization.

    Studying a Transitional State

    The fact that Soviet state policy in the NEP was composed of responses to difficulties and

    anticipatory actions added complexity to studying the system. Some freely chosen policieswere the result of resistance from the private economy.

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    The conscious decisions of the regulatory organs of the State are dictated equally by theoptimum of primitive socialist accumulation and by the need to curtail this optimum as aresult of resistance of private economy and the classes which represent it. To separatethe optimum in its pure form from the actual policy, which is forced to retreat from thisoptimum, is a very difficult task. To fulfill this task we need a concrete analysis of theentire economic and political situation at each moment of time, or at least in a definiteperiod of economic development. (Preobrazhensky 1965:62-3)

    Preobrazhensky suggested that as the material studied was located in this transitionalphase, so a suitable theoretical method is itself transitional between political economy andsocial technology. The regularities of what he called a mixed commodity -social ist economywere the object of study i.e. how collective production is shaped when linked to the privatesector; and how the private sector behaves, in itself, and in relation to the state economy,when it is restrained and channeled by planning. As the commanding heights of theeconomy were in state hands, this created new processes in the state and private sector.Preobrazhensky sought to distinguish, in pure form, the tendencies of the two conflictingprinciples and their methods of utilizing materials and labour. (Preobrazhensky 1965:63)

    He analyzed the decay and disappearance of capitalist production relations and investigatedwhich elements of Marxs political economy remained valid and which were amended in thenew system. Studying a system driven simultaneously by contradictory laws, like the USSRin the 1920s, was complicated by the impurity of both forms. Planning during PSA conflicts

    with the law of value: the state guides the economy, the government, and internationalpolicy, in opposition to world capitalism and the domestic private sector. This relation offorces shapes the character and dynamics of the law of PSA. The problem with studying thelaw lies in identifying its pure form and explaining its limits within this mixed environment.

    PSA in Conflict with the Law of Value

    Preobrazhensky defined PSA as the conscious and semi-spontaneous tendencies towardsthe collectivist organization of labour driven by necessity. The organization of the productiveforces, defensive power, and the determination of material proportions to optimize expandedsocialist reproduction are shaped in conflict with the law of value and pressures from thenon-socialist economy. Wage levels, price policy, trade policies and rules, tariffs, credits,import planning, government budgets etc., and the quantity of surplus extracted from theprivate sector are all subordinate to the law of PSA. (Preobrazhensky 1965:146)

    The law of PSA extends into the private sphere as an alien force, but the law of value alsopenetrates the state economy. (Preobrazhensky 1965:137-8)

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    This produces,

    the coexistence of two systems of economy which are different and by their very naturesantagonistic, with different regulatory mechanisms, this economy, must inevitably be thearena not only of struggle but also of a certain equilibrium, and so, in practice, of acertain coexistence of two different economic laws. (Preobrazhensky 1965:138)

    The two forms of equilibrium differ in that:

    1. The non-equivalent exchange of PSA, conflicts with the law of value until capitalisttechnique is surpassed. The collective economy is in constant and unstable struggleagainst national and international capitalism and the world law of value.

    2. Planning must proportionately balance expanded reproduction to prevent the law ofvalue from breaking into and disrupting the process.

    The import of means of production, for production and consumption, can alleviate internaldisproportions and industrial backwardness. Imports can be paid for by exports, purchasedby the state from the peasantry. Close links to the world economy based on specificnational characteristics, can help equip the means of production and finance raw materialsupplies. Planned imports of means of production become an automatic regulator of the

    entire process of expanded reproduction. (Preobrazhensky 1980:197-203)

    PSA and the law of value produce a unity in their outcomes, but their clash of forcesreflects an underlying and fundamental antagonism between social systems and classesfighting for supremacy and for methods of regulation that correspond to their pure form.

    Preobrazhensky thought that if the law of value became the sole regulator, the stateeconomy would disintegrate. This would entail reorganizing the economy to facilitate thespontaneous reproduction of commodity-capitalist relations. In this scenario he predictedthe abolition of the foreign trade monopoly, a reduction in the rate of industrialization, theclosure of unprofitable enterprises, and the redistribution of productive forces between lightand heavy industry, and town and country. (Preobrazhensky 1965:64)

    If the state sector strengthens in defiance of the law of value this indicates that anotherlaw, suppresses, modifies and amends the law of value. Knowledge of the existence of twoconflicting laws facilitates the study of their relative weight and an understanding of thecharacteristics of this constellation. (Preobrazhensky 1965:138-9)

    If the state sector pursued an optimal development scenario supported by international

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    socialist change, then, planning would dominate, guide and organize the economy. Theproportions of the economy invested in the means of production, its distribution, and theuse of labour, would differ substantially, both from reality, and to the capitalist alternative.

    Thus, the battle for the existence and development of the socialist sector reflects theimpulse of its regulator to reproduce itself on an expanded scale and shape the world in itsimage. (Preobrazhensky 1965:64-5)

    Expanded reproduction of the state economy means increasing production as a whole. Thisenhances the relative weight of the state sector and rearranges economic forces guided byneeds of proportionality. PSA encompasses these processes, and ensures the transfer ofresources from the private economy to the public. It determines the anticipatedredistribution of resources of the future based on the level of organization of the stateeconomy. It organizes investment in capital and construction in anticipation of futureproportions, and attempts to plan under the pressure of necessity, dictated to it as anexternal law. Its unique strength lies in its ability to gather and combine the productiveforces of the state to implement plans corresponding to forecasts. This limits and excludesthe law of value, which continues to dominate the unorganized economy. PSA dictates aproportional distribution of resources within the state sector, requiring preparatoryaccumulation. However, policy failures may lead to crises that strengthen the capitalistsector both economically and politically. (Preobrazhensky 1965:66-8)

    Under capitalism the driving force of production is profit and the regulator is the law ofvalue. Consumer needs are met by this mechanism and workers buy consumer goods out oftheir wages. The state economy must meet the social demands of its era, reflected in

    consumer demand on the one side, and an expanding rate of accumulation, requiring therestriction of consumption, on the other.

    expanded reproduction in the socialist sector means automatic, quantitatively -increasing reproduction of socialist production-relations, together with the correspondingproportions every year in the distribution of productive forces. (Preobrazhensky 1965:72-3)

    The conversion of the state economy into a single trust composed of giant interlinkedcorporations, and improvements in technique and productivity, change the form of valueand its relation to labour-expenditure. These factors help to elevate the technical level ofstate industry.

    If one considers only administrative costs, private capital is more profitable for thewhole economy, and the productivity of labour in private trade is

    higher. (Preobrazhensky 1965:74)

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    Preobrazhensky argued that as the law of value is linked to private ownership of the meansof production, unless public ownership of the commanding heights was merely a formalappearance, proportionality in the Soviet economy was established by planned regulation,with the law of value making corrections to this. Non-capitalist regulation produces its ownobjective economic needs and proportionality in a struggle against the law of value and itsregulation on the basis of labour expenditure.

    It will alwa ys be the resultant of a struggle though the direction in which the law ofvalue and the law of socialist accumulation act may sometimes coincide in particularcases in real life. (Preobrazhensky 1965:75)

    Preobrazhensky tried to work out how the new economic system would oust, subordinate,and eventually eliminate old economic forms, which imposed their laws of resistance. Astudy of this process was complicated by the weakness of the new form of economy. Thesocio-economic influence of petty production and the peasantry meant that an economicstruggle would ensue between capitalist and socialist accumulation from this largeintermediate nutrient base. (Preobrazhensky 1965:77-8)

    The peculiarity of Soviet economy in the NEP was the contradiction that large-scaleindustry was nationalized, so, the law of value was undermined by state monopoly.However, petty peasant production exerted huge pressure to develop on the basis of the lawof value.

    These conflicts between market spontaneity and the state economy, explain thepredominant type of all the upheavals and depressions which we have suffered, aresuffering and will go on suffering in our economy; together, of course, with thosecomplications that are bound to arise from the connection between our economy and theworld market. (Preobrazhensky 1965:162)

    Ties to the world market and the proportions of the economy in state and private handsdetermined the rate of accumulation. Preobrazhensky claimed that over-accumulation offixed capital was impossible at the time of the NEP as decades of development lay aheadand private sector domestic demand would also rise.

    Rather than talk about a crisis of overaccumulation in the state economy, a sector thatdoes not have as its goal the production of surplus value, we can speak of a colossalunderaccumulation, which is reflected in the peasant economy as well, in that it slowsdown its development. We may also speak of insufficient accumulation in the sphere ofpeasant production of industrial raw materials. (Preobrazhensky 1980:196)

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    Methods of PSA in the NEP

    Preobrazhenskys policy proposals during the NEP applied his th eory of PSA to concretereality. He advocated rapid accumulation of state capital so socialist economics couldestablish its dominance and reveal its advantages. He provided examples of policy measuresadvantageous to the state economy as a whole. These included, tax on private profits fromcapitalist and petty bourgeois production and trade. He distinguished between the apparentprofitability of an individual state bank compared to the total societal benefit of creditpolicies. This contextualized how and why banks should determine their lending policies.Loans to the private sector could become a tool to channel, influence and structureinvestments to meet state objectives. (Preobrazhensky 1965:96-8) Legal and illegal lending tothe private sector tended to focus on trade, as state supervision and restrictions, mademobile capital more attractive than industrial capital.

    The capitalist credit system had been progressive relative to the unorganized markets ofsimple commodity production. State lending and credit in the NEP helped to structure thepeasant economy. The credit system reflected the relation of forces between sectors of theeconomy. However, in the state sector, money acted as a means of accounting andcalculation rather than a key instrument for achieving spontaneous equilibrium inproduction. A system of planning, accounting and control, stemmed organically fromsocialization of the commanding heights of the economy and generated different resultsthan capitalist banking. (Preobrazhensky 1965:209-217)

    For Preobrazhensky, foreign loans 'constitute a synthesis of capitalist and socialistaccumulation' they could accelerate socialist accumulation and technology transfer, andcreate employment. The basis on which to judge such loans was practical advantage to thesystem as a whole. (Preobrazhensky 1965:134-5) If basic branches of the state economyneeded to grant concessions to secure investment, foreign capital would penetrate andweaken the system, so too, if the working conditions in such capitalist enterprises weresuperior to those in state enterprises. However, he wrote: When the socialist for m isconsolidated economically and technically, concessions will no longer be a danger tous. (Preobrazhensky 1965:136)

    As land was nationalized rent played a fundamentally different role to that undercapitalism. Rent paid by state enterprises simply redistributed resources. The stateappropriated rent from foreign concessions, mixed concessions, private farms, and wealthykulak peasants, who exploited wage -labour on public lands. These rents constituted atransfer to the socialist accumulation fund. Rent-tax on non-exploiting peasants and on thepersonal labour of kulaks, alienated surplus product from non-capitalist agriculture, butexcluded the poorest peasants. (Preobrazhensky 1965:202-8)

    Preobrazhensky proposed that trade policies between the economic sectors be organized onthe basis of the expedient requirements of PSA, such as reducing costs, edging out

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    intermediaries and taxing private profits. (Preobrazhensky 1965:99-103)

    If private capital were ousted from trading state products this would undoubtedlyintensify the process of transition of private capital into private industry, a process,generally speaking, which is economically advantageous and harmless provided there is arapid growth in the state economy. (Preobrazhensky 1965:103)

    Preobrazhensky saw the state monopoly of foreign trade, or socialist protectionism as acornerstone of primitive socialist accumulation. It protected against the world law of valueand helped regulate the whole economy. As exports of agricultural commodities grew andtrade increased, the foreign trade monopoly secured PSA from the surplus profits of theseexports. Loss-making foreign sales by the state could fund equipment purchases of benefitto the whole economy. (Preobrazhensky 1965:104-8) The world law of value influences thedistribution of labour, e.g., where costs and benefits determine if resources should bereallocated. But state planning may also exploit opportunities provided by the worlddivision of labour. (Preobrazhensky 1965:164-6)

    If the state makes losses in its exchange with the private sector this would underminelarge-scale state production and result in the sale of fixed capital and/or proletarian labourpower at bargain prices. If neither ownership system exploits the other, the conclusionwould be that there is no fundamental clash of economic interests and equilibrium can bemaintained indefinitely. But Preobrazhensky saw capitalism as a system that always seeksto erode the socialist form, which, in turn, expands at the expense of the private economy.

    Preobrazhensky advocated that price policy of monopoly state entities exploit the privateeconomy. But warned that where private competitors participated in the same markets,state price policies could end up assisting private accumulation. And, as state price policiescan adversely affect peasants and workers, he proposed measures to help counteract this,e.g. by means of credit and wages policy. (Preobrazhensky 1965:108-112)

    Accumulation based on expanded reproduction of the state economy exploits the workingclass, i.e. its pays less than the value they produce. In War Communism production to meetemergency needs cost more than it produced, but losses had to be weighed against thealternative of zero production. (Preobrazhensky 1965:116-7)

    Preobrazhensky wrote so cialist production has to pass through a fairly long period ofaccumulation of material resources, during which the individual enterprise of the stateeconomy will inevitably be not superior but inferior to, economically not stronger butweaker than, a contemporary capitalist enterprise in an advanced capitalist

    country. (Preobrazhensky 1965:120)

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    Under PSA reconstruction required rapid accumulation, technical development, and therational geographical distribution of industry. The more developed the initial economicbase, the more surplus product the workers provide - so resources from pre-socialistproduction would be less important. (Preobrazhensky 1965:120-1)

    The struggle of the state against private economy focuses on the accumulation of materialresources and the redistribution of labour power. The victory of capitalism over pettybourgeois and natural economy is the product of competition, technique and efficiency. Thecompetitive superiority of socialist production does not pertain in relation to worldcapitalism. Free competition would disintegrate and destroy a socialist economy unless ithad almost universal superiority in productive technique and efficiency, as the products ofstate industry will be more expensive and of inferior quality to that of advanced foreigncapitalist enterprises. (Preobrazhensky 1965:124-7)

    Inside the country private industry is weaker only because it is not allowed equalconditions for struggle. The state has held from the start the largest and technically mostadvanced enterprises. Furthermore, and this is most important, private industry is inevery other respect placed in a less advantageous position than stateindustry. (Preobrazhensky 1965:128)

    Its enterprises may look like private enterprises, but the unified totality produces its ownnecessities and demands. Its methods of gathering forces and finding and exploiting

    advanta ges derive from the cooperative potential of great economic masses.Preobrazhensky forecast that the field of free competition with private enterprise wouldgradually contract, although competition could be used to discipline and rationalize stateenterprises. Socialism would conquer by suppressing competition with pre-socialisteconomic forms and by unifying state power with state economy. (Preobrazhensky1965:129-32)

    State Relations to Petty Production and Cooperation

    Preobrazhensky wrote: Capitalism by creating a single organism based on exchangeprovides the basis for a transfer to direct relations between state and pettyproduction. (Preobrazhensky 1965:131-2)

    Capitalism conquered society with people disciplined in its forms of stimuli, but socialisthabits and culture had to be created within the new system. In 1923 Lenin wrote that

    cooperation under the economic and political dominance of the working class could realizemany of the dreams of utopian cooperative advocates of the past. He simultaneously spokeof the need for a prolonged revolution in the cultural and educational level of the peasants,and for the remodeling of society to peacefully transform peasant production into

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    cooperative forms. He saw this as dependent on material development and education,predicting it would take a minimum of one or two decades, or an entire historical epoch, toattain the cultural preconditions for this .[11]

    Preobrazhensky believed that cooperatives linked to large-scale state production couldinfluence the character of petty production and exchange, but private agriculture tends toexpand faster than state or collective forms.

    If the development of socialist relations in our economy, which have their basis inindustry, were to stop or to be very much slowed down, and capitalist relations began togrow faster, then regardless of their social structure, the cooperatives would either breakup at once, or else the majority of them would desert their positions as rearguard of thestate economy, in order to go over to the side of capitalism. (Preobrazhensky 1965:220)

    The balance can be changed not by some socialist miracles on the territory of pettypeasant production, taken by itself, but only by a more profound influence of large-scaleurban industry on peasant farming. (Preobrazhensky 1965:222)

    Technology and industrial products from the state could be used to encourage socializationof agricultural production, but the tempo of industrial development at the socialist core of

    the economy would be decisive in determining the outcome.

    The limits of the Law of Value

    During the NEP, commodity production, making goods for exchange on the market,dominated private, state-private, and to a considerable extent, state-state relations. Thiscould be positive, if increasing urban-rural commodity exchange corresponded with rapidstate industrialization and improved organizational capabilities. Monopoly capitalismgained dominance over capitalism based on commodity productio n. In Lenins view thiscreated the foundation for socialism, which would increase the degree of monopolization,undermine free competition and create,

    state monopoly in all large -scale and medium industry, transport, the credit system, andwholesale (and in part retail) trade, a state monopoly which surrounds itself with a

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    powerful cooperative network. (Preobrazhensky 1965:141)

    Exchange with the private economy influenced the proportional development of stateindustry, fostering interdependence and common interest in expansion. Fluctuations inprivate markets influenced the state economy and planning and price policy could onlyameliorate this. (Preobrazhensky 1965:142-5) The influence of the law of value was minimalwhere state monopolies produced to meet state plans and where