Thursday, September 15, 2011



In spite of recent bailouts, favorable legislation, and regular money dumps from the Federal Reserve, we don't have socialism in America. Not even close. This is the case even if you count government safety nets, which don't cost anywhere near what we've committed or disbursed to Wall Street since 2008 (at least $13 trillion). But if you're going to make the "socialism in America" argument this is how you might want to start .... 

In an effort to explain the logic behind market economics, in my book I tell the story of Russia's peasant economies after the October Revolution of 1917. One of the biggest problems Russia ran into was getting peasant farmers to produce. Things took a turn for the worse during Russia's Civil War (c. 1918-1922), when the nation was faced with frustrated revolutionaries and mass starvation. This was a critical moment since Russian revolutionaries wanted to sell surplus agricultural production to facilitate industrialization. But there were no surpluses.

While agriculture production increased with the introduction of the New Economic Policy in 1921, the program was abandoned by Josef Stalin and replaced with forced collectivization. Not surprisingly, agriculture production slipped, again.

To better understand why revolutionary peasants weren't producing surpluses - which were necessary to help fund industrialization - teams of anthropologists were sent to study peasants societies throughout Russia. This was a tremendous undertaking as it meant spending months, and even years, at a time in distant rural communities. But the findings were extraordinary.

Headed by researchers like Aleksander Chayanov, various institutes studied and learned about peasant societies throughout Russia. One key finding was that peasants would work until they had enough to feed their families, and not much beyond this point. As I point out in my book, they learned that subsistence peasant households didn't particularly care about wage or price incentives. Instead, for a variety of reasons (discussed in class), they focused primarily on the “use-value” of a good in the immediate term rather than its “exchange-value” in a market. Producing more than what they needed was viewed as “drudgery.”

Though the findings of Chayanov and others were instructive because they helped explain what was wrong with collectivization in the Russian countryside, they didn’t sit well with Stalin. He wanted to know how he could get peasants to produce. As a result, because of his own paranoia's and twisted world views, he saw the reports emerging from the countryside as an unwarranted defense of rich kulaks (productive peasant farmers). All he knew was that the revolutionary state demanded surpluses, and the peasants weren't producing.

Stalin saw traitors in his midst.

After Stalin took control of Russian agriculture the studies done by Chayanov and others were virtually ignored by the Soviet state, and many of the institutes were closed. But this was just the beginning. Repression and purges in the early 1930s were followed with large-scale disappearances of "non-revolutionaries."

Chayanov was among those branded a non-revolutionary. He was arrested, tried, and then shot on the same day in 1937 [photo below is not Chayanov].

In Stalin's world, the Russian revolution and the worker's paradise would be a success, even if he had to use the levers of the state to spin lies, send misfits to labor camps, or kill his political enemies (both real and imagined). This is where it gets interesting.

While Chayanov's story is instructive for what it tells us about peasant economies (and capitalism; a topic for another day), it's also significant because of what it tells us about Russian revolutionaries and die-hard Bolsheviks like Stalin. They were so committed to their theories of socialism that they would use the state - which was supposed to wither away according to Karl Marx, mind you - to make sure that agriculture surpluses were created and transferred to the more productive industrial sector.

It was deemed unimportant that the state became increasingly repressive as it forced collectivization on peasants, suppressed living standards in the countryside, and then transferred resources from Russia's agriculture sector to industry and the city. The needs of backward peasants could be put off.

Part of the rationale for this line of thinking was that Stalin believed peasants would soon benefit from the availability of manufactured goods, agriculture equipment, and other products that would eventually reach the countryside. As Cambridge economist Ha-Joon Chang points out, this was trickle down theory, Soviet style.

I tell this story because, as Ha-Joon Chang suggests in 23 Things They Don't Tell You About Capitalism, policymakers today who claim to be die-hard capitalists and free marketeers are actively using the state - which is supposed to stay out of the marketplace, mind you - to bailout Wall Street, facilitate money dumps when markets fail, and to rewrite the rules to suit the needs of a specific class.

At the same time, by using the state to pursue union-busting trade agreements (while doing little for labor), winking at weak immigration laws (which helps suppress prices and wages), and then ignoring collapsing wage and living standards for America's middle class, America's policy makers are acting very much like Stalin's Politburo.

They're even promising that by transferring wealth to a designated productive class that the benefits will eventually reach those at the bottom. And they've been doing this for the better part of 30 years, in spite of a history of spectacular failures and budget deficits.

Like Stalin's planning authorities, today's proponents and willing recipients of bailouts, money dumps, and favorable legislation understand the importance of using the state to create and transfer wealth from one sector of the economy to another. With more than $4 trillion disbursed, and a total of 13 trillion in tax payer backed dollars committed to Wall Street's collapse, you can be sure of this.

But this is precisely the problem.

As I point out in my book (Ch. 11), by using the state to transfer wealth to achieve market results (profitability), America’s bailed out and subsidized market players are on no firmer intellectual ground than the Soviet Union's Vladimir Lenin and Joseph Stalin. Pushing for and accepting government favors, while speaking admiringly of the wonders of the market, imposes an Alice in Wonderland character on modern markets in America.

Seriously, at what point do we stop using the resources and authority of the state to prop up failed banks, wink at market busting Wall Street schemes, and continue to believe in the value of disastrous trickle down market ideology?

- Mark

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