THE TEMPTATION OF KEYNESIANISM?

Jen Varga and the Soviet economic science in the 1950s Andr MOMMEN

Attacking the Citadel: Making Economics Fit for Purpose

1st World Keynes Conference Izmir/Turkey 26.-29. June 2013

Abstract After Stalins death in 1953, Soviet economists wanted to break with the Stalinist legacy and started a debate on the Stalinist thesis of a constantly impoverishing proletariat in the developed capitalist world. Jen Varga (1879-1964) admitted that technological progress could have a positive effect on a workers family consumption. He argued that there existed as a redistribution of the realised surplus value among the different interest groups and that state-monopoly capitalism regulated the accumulation of capital. Like all Soviet economists, Varga saw in Keynes a false prophet and an ideologue of the reformist social-democratic labour leaders. He saw in Keynes an eclectic bourgeois economist. Deficit spending was intended to justify unproductive consumption and the expenditure on arms. In his view Keynesianism was unable to prevent overproduction crises. Hence, he predicted a worldwide economic crisis in 1958. Many Soviet economists attacked him on this point, because they believed new developments would postpone such a global crisis. Especially the establishment of the European Common Market attracted their attention. Meanwhile Varga criticized the dogmatists who were always reiterating that inter-imperialist wars were unavoidable and he stressed the importance of the anti-colonial struggles. He remarked that the capitalist cycle was showing an tendency to become shorter as rapid technological changes were making machinery and equipment earlier obsolete. He explained the phenomenon of instable currencies and inflation by the influence of monopoly capital increasing prices in order to uphold their benefits. However, some of Vargas fellow economists were also interested in investment booms engendered by technological changes. They accused him of catastrophism and criticized his belief in a coming recession like that in 1929. By 1960 all Soviet economists could agree on the role of the planning capacities of the state with regard to the investment cycle. Leading conservative economists, whom always had denied that capacity, now argued that military spending had distorted the normal capitalist cycle and the course of the 1958 crisis. Keynes and the Soviet Union In the 1920s and 1930s John M. Keynes was rather well known for his political writings, not for his theoretical economic works, a fact Soviet economists and party leader could not negate. As such, Keynes was also quoted in Soviet publications. The fact that Keynes visited with his Russian wife, the ballerina Lydia Lopokova, in September 1925 Petrograd and Moscow (Keynes, 1925) and he had there talks with Russian economists during a meeting for the 200th anniversary of the Russian Academy of Sciences, may indicate that there was a real interest from sides both sides at least. But this interest from Soviet side was inspired by political motives because Keynes was also known as an adversary of the Versailles Treaty and a special of war financing. Until Keyness death, Soviet economists would only pay attention to Keynes as the British wartime advisor and financial expert. Maybe that Eugen Varga, who was at that time Stalins preferred economist and advisor, appeared as the only really interested Soviet economist paying attention to Keynes and his General Theory, but in this case only to the premises of the states ability to combat the economic crisis and secure accumulation of capital by means of sustaining consumption and investment. However, all Soviet economics would later reject Keynes as a typical bourgeois economist serving the interests of the big monopolies having made an alliance with the state in order to avoid the realization problem of capital. But they also recognized Keynes as a progressive

economists having amended classical economic theory and inspired all social-democratic governments in Western Europe. Furthermore, most Soviet economists could not agree on the premises that the capitalist state would be able to overcome the realization problem of capitalism and manage the business cycle of capital. Especially the coming of a post-war slump after the Second World War was attended by Stalin and most Soviet economists because they all; denied the capitalist state its ability to secure economic growth by solving the realization problem of capital. In reality, they believed that history would repeat itself and that after some minor crises the general crisis of capitalism would be a fact. In this paper some aspects of the debates this critical acceptance of Keynes in the Soviet Union will be discussed at the hand of the writings and interventions of Stalins chief economist Eugen Varga (1879-1964) and some of his colleagues. Lenin on Keynes At the Second Congress of the Communist International (19 July-7 August 1920) Lenin debated extensively in his two reports on the international situation and the fundamental tasks of the Communist International and the national and colonial questions the problems of created by the Versailles Treaty. His analysis was that the Treaty had reduced Germany to the status of a semi-colony, thus to poverty, starvation, ruin, and loss of rights. Lenin argued that this treaty would bind the Germans for many generations, placing them in conditions that no civilised nation has ever lived in. Exploitation by a brutal capitalism and by a monstrous intensification of oppression that is far worse than before. Most of Lenins arguments could already be found in his pamphlet on Imperialism written in 1916. However, empirical data and the core of his analysis of the Treaty of Versailles are based on Keynes and the latters book The Economic Consequences of the Peace. However, Lenin also observed that Keynes was not only a diplomat, but also a well-known bourgeois and implacable enemy of Bolshevism () like the British philistine he is, imagines as something monstrous, ferocious, and bestial. But apart of this demonising tirade Lenin also recognized that Keynes had arrived in his study on the Treaty of Versailles at conclusions which are more weighty, more striking and more instructive than any a Communist revolutionary could draw. That striking conclusion was, according to Lenin, that the Peace of Versailles would lead the whole world to bankruptcy. Debts should be annulled and international trade should be normalized. In the view of Lenin, cancelling of debts, as Keynes proposes, was an idea popular among petty-bourgeois people (writers, poets, the clergy). And also: Is it not a fact that the bourgeois Keynes declares that, to survive and save the British economy, the British must secure the resumption of free commercial intercourse between Germany and Russia? How can this be achieved? By cancelling all debts, as Keynes proposes. This is an idea that has been arrived at not only Keynes, the learned economist; millions of people or will be getting the same idea. Lenins report would serve as the guideline for the Cominterns position vis--vis the Treaty of Versailles, the League of Nations and the position of Germany in the capitalist world system. Keynes would remain, within this context, a reference after Lenins death (1924). Meanwhile Lenin had attracted the Hungarian economist and former Peoples Commissar Eugen Varga as the main economist of the Comintern charged with studying international economic and political development. Varga became the author of all economic reports to all following congresses of the Comintern (1921, 1922, 1924, 1928, 1935). In his reports Varga

used to refer to Keynes as well. Also Vargas analysis of the economic situation of Germany was largely inspired by Keynes. Varga and Keynes Varga commented on the problem of inter-allied war debts and the Treaty of Versailles in an article in which he analyzed the economic basis of US imperialism and growing antagonisms between the USA and Great Britain (Varga 1921a): First of all the question of the war debts. The cautious United States lent money for carrying on the war to England directlychiefly to England, and the latter supplied France, Italy, Belgium, etc. under the present unfavourable rate of exchange these debts are now laying an extremely heavy burden on the countries of continental Europe. The demands of England on these countries are creating a considerable risk. Frances ruthless altitude towards Germany is partly due to the fact that she is oppressed by her debts to England. Therefore the English politician, Keynes, in his book on the peace of Versailles proposed as the only way of solving the question that America should annul her demands to all the allies and debtors, that England should do the same in respect to the continental countries of Europe, while France should reduce her demands for the reparation of her war losses to the proportions which would be acceptable to Germany. However, the semi-official attempt of England to obtain the consent of the United States for the carrying out of this financial plan met with a decisive refusal. The capitalist rulers of the United States are in no wise inclined to sacrifice their milliards in order to restore European capitalism. This is to our advantage, but England was annoyed by this fiasco. In a report on the economic crisis in Germany summarizes Keynes views by underpinning them additional statistical materials and witnesses of contemporaries. Varga: This impoverishment is a slow, but varying process. The fate of the German workers changes with the exchange rate of the mark. If the exchange rate rises, imported goods will become cheaper and that will lower the cost of living, thus easing that the workers both ends meet. Because of a rising exchange rate of the mark exports are also declining. Hence, German goods are any more competing in the world market. Economic conjuncture will also worsen. Unemployment and short-time work will therefore rapidly grow. Thus industrialists are now pleading for wage cuts and increased productivity in name of a threatened German industry. Wages will diminish. Wages of workers will fall beneath the existence level. In addition, Germany will now be obliged to pay a yearly tribute of some 3 milliards of gold marks, i.e., about some 50 milliards of paper marks. At average some 800 mark per capita per year will be taken away from Germanys gross domestic product as payments to the Entente bourgeoisie. Hence, intelligent English people like Keynes, Norman Angell et al. are raising their voices. But the French bourgeoisie turns a deaf ear and is pushing the German proletariat towards the revolution though the leaders of the Social-Democrats and the Independent Social-Democrats are opposing that together with the trade-union leaders.(Varga 1921b) Varga on Keynes and international monetary reforms At the outbreak of the Second World War Varga was in charge of writing reviews or translating books concerning the armed conflict and the belligerent states. Some of these revues were published in journals, but they were originally destined to Stalin and his Politburo

worrying about the inter-imperialist conflict. Previously, Stalin had hoped by signing an agreement with Hitler to avoid being involved in the conflict. Varga reviewed Winston Churchills book Step by Step (1939) as well as Keyness pamphlet How to Pay for the War? (1940) in Mirovoe khozyastvo i mirovaya politika. In order to inform the Soviet rulers he supervised a Russian translation of Hermann Rauschnings book Gesprche mit Hitler (1939). During the Second World War, Varga became adviser to the Ministry of Foreign Affairs for post-war economic problems and German reparation payments. As such he had to pay attention to international monetary problems as well, but this time not from the point of view of the world revolution. Varga: Of special interest among post-war economic problems is the question of currency stabilization. Undoubtedly, there is a danger of general devaluation of currencies as was the case after the first World War. At the present time it is quite clear that when the war is over European countries will be threatened by a new currency devaluation. A situation of this kind is bound to arise after the war unless timely measures are taken to prevent the threatened devaluation of money. This problem is the subject of lively discussion in the foreign press, and a number of schemes have been advanced, the most important of which are, first, the British scheme drafted by the well-known economist Keynes, providing for the setting up of an international clearing union; and secondly, the American plan, elaborated by White,1 which calls for the creation of a huge stabilization fund, and international bank. The Keynes plan takes into account the special position of Britain. Implementing the Keynes Plan would undoubtedly help Britain to recover the role of international banker in the postwar period, although stabilizing currencies on an international scale could never be secured by means of the creation of an international clearing union. The existence of an international clearing union could, to a certain extent, modify or postpone foreign devaluation but could not eliminate it. The Keynes plan alone cannot secure currency stability after the war. Only with the continuation of government restriction or individual consumption and investment, with strict control of foreign trade, and also with extensive capital export from rich countries to countries ruined by war, could the aim of the Keynes plan of currency stabilization be achieved. But the employment of all these means - which incidentally are hardly possible of realization in peacetime under the existing social system, inasmuch as they run contrary to the selfish interests of influential circles - could secure a stable currency without an international clearing system. (Varga 1944) There is no doubt that the currency fund planned by White could become a substantial factor in world economy and secure currency stabilization more effectively than the clearing union proposed by Keynes. The leading position envisaged for the U.S.A. by the White Plan not only rests on the anticipation of the U.S.A. being the dominant partner in the currency fund, the British press stresses, but also on the anticipated participation of the countries of Central and South America, which are under the strong economic and political influence of the U.S.A. In addition to the stabilization fund, the White Plan also provides for the organization of a bank for reconstruction and development by the United Nations and nations joining them. Undoubtedly the planned bank, together with the currency fund, would represent a tremendous economic power.
1

Harry Dexter White (1892-1948) was an American economist appointed at the Treasury. He was a major architect of the IMF and the World Bank.

But precisely because of this there is considerable opposition to this plan, not only outside, but also inside the U.S.A. For fully understandable reasons, even stronger objections to the White Plan are raised in Britain. Compromise between the two plans is hardly possibly, since Keynes is trying to solve the problem of stabilization of currency by eliminating gold, and White on the basis of gold; moreover, both these plans correspond to the special economic interests of their respective countries. Naturally, Soviet public opinion cannot but be interested in economic plans of post-war reconstruction discussed in the countries of our allies. The special character of the economic system of the Soviet Union determines its attitude to the question of the stabilization of currencies. As a state engaged in foreign trade, the Soviet Union, just as Britain or the U.S.A., is interested, in the stability of the currencies of the countries it is trading with, in preventing currency speculation in other countries from interfering with the normal course of foreign trade. If all the Soviet Unions trade with the rest of the world could be conducted on the basis of gold currency with an unchanging value, this would undoubtedly render trading operations easier. As regards the Soviet Unions currency, it is known that here prices - and consequently also the purchasing power of the ruble - in the state trade turnover, are fixed by p1an. This means that the stability of Soviet currency is secured by methods entirely different from those in other countries. This also obviates the possibility of any kind of proposals in the field of economic policy as far as the Soviet Union is concerned by any future organization, be it international bank or currency fund. On the other hand, the Soviet Union is undoubtedly interested in the beginnings of measures capable of accelerating the restoration of her economy, as well as of the economies of other countries devastated by the fascist brigands. This question is of the greatest importance in estimating the financial plans on the part of the Soviet Union. Post-war economic problems Discussing the General Theory and its impact on governmental policies only started after the death of its author in 1946 when Soviet economists had to define their position vis--vis the possibility of capitalism to overcome a coming economic crisis as a consequence of the war. This debate was also linked to reparation payments the Soviet Union wanted to impose on Germany and her former allies, a debate in which Varga played a first role as a specialist in this field. Firstly, Keynesian economic policies could be linked to successful war production realized during the Second World War not only by Hitlers Germany, but also by democratic bourgeois regimes like the United States and Great Britain. Moreover, the United States had expanded their production capacity enormously by investing in new production capacities and war demand. Secondly, reconversion of war industries for peace production would require a state-led incomes policy enabling the governments to manage demand and expenditures. It was clear that the labour movement in all countries was tempted by Keynesian demand-

managed policies and that the British Labour Party wanted to nationalized all basic industries and city services in order to facilitate this reconversion process and modernize this process from the very beginning after the war. At any rate, it was very clear that the major capitalist countries wanted to avoid a new Great Slump and that the Marshall Plan launched in 1947 was aiming at coordinating this process under American leadership. Would the Soviet Union and the new democracies of Central Europa and the Balkans willing to participate in this American-guided reconstruction project for Europe? After some tergiversations Stalin refused any collaboration within the framework of the Marshall Aid. This marked the beginning of the Cold War as well because from now on the countries of New Democracy explicitly opted for a socialist regime based on central economic planning and nationalization of big industries, banks and large estates in case they had not yet been socialized just after the war. From parliamentary regimes these new democracies which were in the words of chief economist Varga neither a bourgeois democracy nor a proletarian dictatorship they became a form of dictatorship of the proletariat led by a Communist Party having in some countries (Hungary, Poland, the GDR) also reintegrated the Socialist Left. Meanwhile it appeared that there was no place for Varga anymore and that any positive reference to Keynes was an ideologically defined crime against Marxism-Leninism and a cosmopolitan deviation. Planning in capitalism was impossible. Hence, why discuss Keynesian policies as everybody could predict a new world-wide slump after a more or less short period (not more than 10 years) of post-war economic recovery. In 1947 Stalin not only refused to participate in the Marshall Plan, but he also decided to resuscitate the former Communist International in the form of the Kominform, on organization which had to coordinate and supervise all foreign communist parties. In the Soviet Union, Andrey Zhadanov was entrusted with all tasks of ideological realignment. Scientific institutes were ordered to support this process and to break with all western influences. Varga, who had been enticed by US economic development and its ability to finance the war, would become one of the victims the successive purges. In an article published in an issue of Foreign Affairs in the summer of 1947 he had called President Roosevel a great statesman and hailed the British Labour Party for having nationalized all basic industries and public services. Vargas recently published book Changes in the Economy of Capitalism as a Result of the Second World War (1946) became the object of organized polemics. Vargas institute of World Economy and World Politics was closed down and merged with the Institute of Economics. He lost thus his directorship and was assigned to write a book on recent imperialist developments. His close collaborators were also criticized for having a bourgeois outlook on world affairs. In the second edition of the Great Soviet Encyclopaedia Varga was described as a bourgeois economist as well. Main criticism was targeting Vargas overvaluation of the role of the capitalist state and his failure to analyze the subjecting of the capitalist state to the monopolies. Varga was blamed for having omitted the impoverishment thesis as well. This campaign went hand in hand with attacks on cosmopolitanism and on admirers of Keynes economic theory and Beveridges full employment policy in a free world. These attacks were led by I. Blyumin who reviewed British publications (of Keynes, Beveridge, Kalecki, J. M. Clark, Bretherton, Burchardt and Rotherford). Blyumin concluded his attacks with the following appeal: Only a socialist society creates the possibility of suppressing capitalist anarchy in production and avoiding economic crises. Only a socialist country will establish the right on labour. (Bljumin 1948: 52) A discussion of Keyness ideas was from now on banned from the Soviet Academy of Sciences and its institutes. The Varga incident was thus a typical incident having occurred in

the aftermath of the Second World War and at the beginning of the Cold War. It was a harbinger of internal political and ideological shift marking a retreat from Soviet cooperation with the west. However, after Stalins death in 1953 and Nikita Khrushchevs rise to power an open discussion on Keynes was launched in the Soviet Union. Its initiator was Vargas longstanding former colleague and close friend A. I. Trakhtenberg (1954a, 1954b, 1956a, 1956b). This had also to do with Khrushchevs new course stressing peaceful coexistence with imperialism and the peaceful forces in the world. Especially India was considered by the Soviet economists of the Varga school as an example of progressive development in the post-colonial world. Especially Keynes theory of full employment and the role of credit in capitalism was highlighted. This happened at a conference in New Delhi (India) where Trakhtenberg gave a lecture on the Basic laws and special features of economic crisis (Trakhtenberg 1956b). These rather modernizing views on capitalism and the latters ability to manage the investment cycle was not shared by all Soviet economists. There was still a hard core of Stalinist economists defending the impoverishment thesis and the final breakdown theory of capitalism (roughly based on the underconsumptionist thesis). Though Varga rejected the latter theory, he nevertheless was very critical to Keynes and the ability of governments to manage capitalism. Varga objected that Keynes was a typical eclectic economist only dealing with the superficial phenomena of capitalist economy, because his theory was a confused rag-bag for not having created an economic theory of his own or having refuted the teaching of the founders of bourgeois political economy (Varga 1968: 305-6). Vargas main charge against Keynes was the latters muddling thinking (Varga 1968: 320) and that any class analysis or historical approach was absent in the latters writings. In his pseudo-psychology, Keynes had forgotten that competition forced the individual capitalist to make a profit or perish. Keyness abstract economic man and psychological laws had no validity in the real capitalist world in which there were at least a thousand million people whose incomes are so low that they are forced to live in perpetual hunger, or people whose incomes are so large that it would be simply impossible to spend them on consumer goods. Hence, Keyness policy of overcoming the narrowness of the market by increasing unproductive consumption among the non-working classes was not as absurd as it would seem at first glance (Varga 1968: 307-9). Deficit spending was also intended to justify the expenditure on arms. In the theory of Keynes, unemployment was caused by the fact that not all people wanted to spend their whole income on consumption or o investment. But the principal cause of unemployment was the capitalist system itself. According to Varga, Keyness economy could avoid crises of overproduction and mass unemployment. That was albeit in complete harmony, with the interests of the monopolies and the wishes of the reformist union leaders and politicians (Varga 1968: 316). Varga recalled that the laws of capitalism are tendencies which are always opposed by counter-tendencies and that social formations or modes of production do not exist in a pure, static form. There was thus no such thing as an immutable thing in itself, he reasoned. Meanwhile meanings were modified by circumstances depending on the average point from which it is observed. The debate on the state had since 1947 centered round the question whether under the monopoly capitalism the state is a state of the whole bourgeoisie, [] or state of the whole bourgeoisie, [] or a state solely of the whole bourgeoisie, [] or a state solely of the monopoly bourgeoisie (financial oligarchy), as asserted by my opponents.

However, depending on the concrete historical situation either thesis may be correct or incorrect, but under normal conditions the capitalist state was serving the interests of the monopoly bourgeoisie to continue the exploitation of the working class (Varga 1968: 45). The state could thus only act on behalf of the interests of the whole bourgeoisie at times when the existence of the capitalist system is in danger (Varga 1968: 45). The state could thus only act on behalf of the interests of the whole bourgeoisie at times when the existence of the capitalist system is in direct danger (Varga 1968: 45-6). Due to an aggravation of the general crisis of capitalism, the safeguarding of the capitalist system had become a more important function of the capitalist state. As all classes and strata of the population were receiving a direct and indirect income from the exploitation of the working strata, the state was much contributing to capitalisms survival as well. Capitalist breakdown theory Soviet economic science still rejected the idea that Keynesian policies were able to finetuning the economy. Regularly economic downturns occurred and the moment of a general economic slump was approaching. The 1958 cyclical dip the USA was not a transient phenomenon of overproduction, but announcing a worldwide recession and slump resembling the slump of the 1930s. US monopolies, Varga argued in that year, were now weakening the labour movement and increasing their profits while unemployment was rapidly rising. But Varga did not believe that Keynesian remedies could help. More spending and less taxes could only prolong the crisis the crisis, render it more severe and impair the interests of the country and the whole business community. Manufactures were selling at higher prices than in 1955, while labour costs were dropping. Varga concluded that intensive re-equipment had caused higher productivity, so that labour costs could drop. Meanwhile the living conditions of the backward countries, the former colonies and the semi-colonies were severely hit by the crisis because they had to lower prices of their exports (raw materials). The drop in primary goods prices meant extra revenues for the capitalist economies as well, but also less export revenues (derived from the export industrial products) that accentuated the economic crisis in the developed capitalist world. The biggest sufferers were the old industries (coal, steel, cotton textiles and leather), while the new industries had suffered only slight damage (Varga, New Times 1959/5: 10-12). Varga argued that the export of all capital to the former colonial and semi-colonial countries had stopped now that the latter had embarked on the socialist road. Thus capital export was limited to a few numbers of politically and economically stabile countries. However, this tendency was not at all hastening the process of imperialist breakdown as long as large-scale export of capital could continue in the form of economic-military aid (New Times 1964/8: 4-7). This new tendency had only brought a temporary expansion of the market and, all other conditions being equal, a lengthening of the trade cycle (Varga 1968: 220). For the time being, no predictable breakdown of imperialism could be expected as modern technology was helping the capitalist countries to open up many new deposits or develop sources of raw materials. The long post-war boom in the US was a result of postponed consumer demand for durables and a tremendous unsatisfied demand for means of production for the peaceful branches and for consumer goods (Varga 1968: 222). The well-to-do people and even some categories of industrial workers had to wait for spending their savings because of the shortage of consumer goods. The three factors were responsible for the lengthening of the post-war cycle were (1) an expansion of fixed capital until 1957; 9

(2) large commodity stocks accumulated during the war; (3) an artificial expansion of consumer credits. Increased additional demand (or future purchasing power) had now been used to save the present situation (Varga 1968: 226). Vargas commentaries on the economic cycle have to be situated in the ongoing debate on the post-war capitalist cycle and the role of the state in which many Soviet economists tried to mark points. Already in 1956, I. A. Trakhtenberg had pointed out that the course of different crises and cycles was marked by peculiarities determined by temporary operative factors in the given country and in a given cycle.. The continued militarisation of the economy and military expenditures had not prevented the outbreak of the crisis in 1953, but this crisis was not followed by a credit crunch or a slump or a downturn in the European capitalist countries It was noted that the increase of the American automobile production was playing an important role in the boom. This is because sharp competition compelled the production of a greater quantity of 1955 models in a shorter time. This brought about in its turn a rise in steel smelting which is reflected in the general index of industrial production. However, Trakhtenberg retracted when adding that such a temporary factor could not by any means be a prolonged stimulant for general industrial growth (Trakhtenberg 1956b: 27) In 1957 Varga observed in a second edition (first edition 1953) of his book Basic Questions of Economics and Politics of Imperialism (Osnovnye voprosy ekonomiki i politiki imperializma) that industrial production in the capitalist world had already grown by 80 percent. Meanwhile, cycles had become more frequent, but they were also more moderate than before. Employment and wages had increased as a consequence of a high rate of capital accumulation. Military consumption contributed to a certain market expansion as well, which indicated that in the post-war period no depression of a special kind existed anymore. How to interpret all these changes? Would there come a deepening crisis and a further breakdown of US economic power in the world? At any rate, Varga easily concluded in 1958 that the crisis hitting the USA would spread all over the world (Varga 1958). Varga published his views on the problems of the post-war industrial cycle and the new crisis of overproduction in Kommunist (1958/8: 140-157) and in Mirovaya ekonomika i mezhdunarodnye otnosheniya (1958/6: 18-35). These views were also published in the USA (Varga 1958) and attracted the attention of commentators and analysts. Was Varga expressing the opinion of the leaders in the Kremlin as well? In this publication he attacked some Soviet economists having expressed the opinion that the war itself created the conditions for a crisis of overproduction because of the excessive development of the war industry and its associated branches and the lagging behind of industries producing consumer goods. That theory, he argued, echoed the bourgeois and revisionist view that it is not capitalism itself that is responsible for the crisis of overproduction, nor it is the contradiction between the social character of production and the private capitalist form of appropriation with the ensuing poverty of the proletarian masses, but a disproportion between the various branches of production (Kommunist 1958/8; 148-9). Varga thought that disproportions may explain a partial crisis in separate branches, but an explanation of the business cycle as a whole had to begin with aggregate demand and supply. The beginning of the post-war cycle had started in 1947. Several factors had contributed to postponing the attended slump. Lengthened phases of recovery were mainly due to increased military orders during and after the Korea boom and to expanding consumers credit. The decaying colonial system had influenced the cycle as well, while increased capital exports from the US were influenced by US military expenditures. But all these factors could only have postponed the crisis to a later date. Varga predicted now that the US downturn in 1957-58 would spread to other capitalist countries as well. For the

10

moment, he already diagnosed a fast decrease of the prices of raw materials, a crisis in shipbuilding and shipping and a decline in investments. Although it was at that moment too early for giving an analysis of the world economic crisis, Varga sustained that without any doubt the crisis in the USA was the beginning of a worldwide economic crisis (Kommunist 1958/8: 157). Vargas prediction of a worldwide economic crisis was met with unbelief by his colleagues and party officials. On 29 April 1958, a meeting was organised at the Institut Mirovoy Ekonomiki i Mezhadunarodnykh Otnosheniy (Institute of World Economy and International Affairs, IMEMO) in order to discuss Vargas thesis. The meeting presided over by V. P. Dyachenko ended in confusion with discussants vehemently rejecting Vargas prognosis and accusing him of catastrophism. I. Shmidts opinion was that Vargas prognosis was wrong. I. M. Lemin predicted a new investment boom as a result of technological progress. Ya. A. Kronrod could not discern the signals of a coming financial and stock market crisis. N. V. Orlov rejected the idea that investment in Europe would slow down because of a recession in the US. V. D. Kazakevich criticised Vargas belief in a coming of a recession like that in 1929 (Mirovaya ekonomika i mezhdunarodnye otnosheniya 1958/7: 148-51). Unfortunately for Varga, but no profound economic crisis would spread from the US over the rest of capitalist world. The publication of his announced book on the politico-economic problems of capitalism was delayed until 1964. His incriminated article published in both Kommunist and Mirovaya ekonomika i mezhdunarodnye otnosheniya was rewritten (Varga 1968: 207-239). Vargas arguments concerning the postponed crisis and the working of the capitalist cycle had meanwhile become common knowledge. By 1960, all Soviet economists could agree on the role of the planning capacities of the state with regard to the investment cycle. The state could hence serve the general interests of the whole bourgeoisie by redistributing income to many sectors and branches of the economy. Leading conservative economists like I. I. Kuzminov, A. I. Kats and S. L. Vygodskiy thought that the permanent militarisation of the US economy had distorted the business cycle. Different opinions among Soviet economists still persisted in the early 1960s. Kuzminov argued that militarisation, like war, could not have a great influence upon the process of reproduction, the capitalist cycle and the course of the crisis phase. Unevenness of the development of the crisis together with short-term upward trends had concealed the development of the crisis in Britain and elsewhere. A main reason for the special features for the developing crisis in 1957 and 1958 was the disruption of the synchronism of the world capitalist cycles as a result of the Second World War (International Affairs 1959/3: 2937). During the post-war period Kuzminov, an unrepenting Stalinist, and Varga were profoundly at odds. In 1961, when attacking Kuzminov, Varga called for a better understanding of the working of the capitalist production cycle (Mirovaya ekonomika i mezhdunarodnye otnosheniya 1961/3: 93-103; Varga 1968: 207-39). Vargas position was clear. He preferred focussing on all distinguishing features of the post-1945 economic cycle. US economic supremacy over all other capitalist countries had decreased and American goods were not dominating the world market anymore. A constant drain of gold reserves undermined its monetary system. In spite of high labour productivity based on up-to-date equipment, the US economy could not play the role of the sole defender of world capitalism. Even complaints about American dumping practices were heard. Structural unemployment was growing in a period that economic growth rates were slacking down. It would be illogical that two different cycles exist in the future. Sooner or later a cycle of a

11

single type will be established throughout the capitalist world. In our opinion this cycle will resemble the post-war development of the USA (Varga 1968: 232). During the post-war boom this renewal and expansion of capital was characterised by new factors, such as the speedy methods of factory construction, the rapid technological progress making equipment sooner than before obsolete, the rapid replacement of equipment, capital investment in the modernisation of operating factories, etc. All these factors would accelerate the break-out of an overproduction crisis and shorten the capitalist cycle. Varga foresaw a period of economic stagnation in the US with available equipment constantly underemployed and thus also a general intensification of the class struggles. A general aggravation of the contradictions of capitalism would follow as the laws of competition operating under monopoly capitalism were forcing capitalists to renew and expand their fixed capital. The reproduction cycle is determined, Varga argued, by the fixed capital, or [] every crisis is the starting point for a mass renewal and expansion of fixed capital undertaken for the purpose of lowering production costs. Extra-economic factors could be invoked in order to explain the long post-war cycle with growing prosperity. On the one hand, Varga noticed that the capitalists now have a far deeper knowledge of the overproduction following a boom and also of world market conditions than they had in Marxs time or even 30 years ago. He thought that efficient projected statistics existed in combination with market-research reports enabling capitalists to pre-gauge consumer demand and thus avoid an overproduction of commodities. Even the state could increase effective social demand. But on the other hand Varga refused to believe in demand management under capitalism. Under capitalism there can be no state planning, no crisisfree capitalist reproduction, he recalled. In the future the long and powerful growth in output would thus come to a standstill. The deepening of the general crisis of the capitalist system is expressed by the growth in the number of industries which are in a state of perpetual crisis, such as coal, textile and ship-building industries, and those being gradually drawn into this state the iron and steel and motor industries (Varga 1968: 238-9). However, the reproduction cycle after the Second World War differed from that of the interwar period because of the (1) contraction of the capitalist world as a result of the appearance of new socialist states; (2) sharpening of the contradictions in some of the capitalist countries; strengthening of the Communist parties and weakening of the SocialDemocratic parties of these countries; (3) disintegration of the colonial system of imperialism. As a result, striking differences existed between the business cycle in Britain and the continental European countries, where no crises of overproduction had occurred. Fortunately, the laws of the reproduction cycle, like all laws, were no more than scientific abstractions, and they were determined by the different tendencies and counter-tendencies at work in capitalist economy (Varga 1968: 207). Meanwhile, cyclical economic upsurges had not led to a full-fledged boom in the US. The dialectic of the general crisis of capitalism was such that its effect was greater in the richest capitalist country (New Times 1962/32: 4-7). In the mean time, the American economy was caught in a vicious circle of undercapacity caused by low purchasing power, low investment and increased competition compelling the entrepreneurs to automate their factories. In hindsight, Varga regarded the year 1947 as the beginning of a post-war cycle lasting some 10 or 11 years. The cyclical movement of world capitalist production was all the time feeble and its main function was the creation of the conditions for a crisis of overproduction (Varga 1968: 212). The disintegration of the colonial system had a telling influence on the course of the cycle. The war weakened all the imperialist powers with the exception of the United States. They could no longer hold all the colonial nations in subjection by armed force. The crisis of 1958 had not been the beginning of a depression either as in 1959. The 12

1959 output level was considerably above the preceding peak. Post-war production growth had been almost entirely due to economic growth in the developed capitalist world. How to explain the fast recovery of the Japanese, German, Italian and French economies and slow economic growth in the US and Great Britain? Economic recovery in Japan and West Germany should be attributed to their comparatively low military expenditures and to a rapid expansion of their fixed capital. Due to the Cold War, the US could take up large-scale arms production soon after the end of the Second World War. Thus, even in peacetime, the US monopolies could get new and highly profitable orders. Meanwhile, no idle production reserves existed; the result was an overstrained and unbalanced economy similar to that in times of war (Varga 1968: 218). Varga concluded that war production was able to lengthen the upward and overstrain phases, and hence the whole cycle, but cannot avert a crisis of overproduction, as has been conclusively proved by the 1957-58 crisis (Varga 1968: 219). Regarding the business circle, Vargas views were the following: (1) the period of the Second World War should be excluded from the cycle; (2) 1947 should be considered the beginning of the post-war cycle; (3) the first post-war cycle continued to the 1957-58 crisis of overproduction; (4) the second post-war cycle began after that crisis. In the long run, a single cycle would establish itself for capitalism as a whole and it would be similar to the post-war cycle in the US and Britain, i.e., would be shorter than it had been before the Second World War. In his reply, Kuzminov asked for a better analysis of the specific features of cyclical development in post-war capitalism and for a correct conception of the post-war cycle which conforms to reality (International Affairs 1961/8: 61). Kuzminov distinguished four groupings of countries with a different capitalist cycle which should be assigned to the influence of the Second World War on the economies of those countries. The US, Canada, Mexico and Australia had taken advantage of the favourable war boom, which had led to substantial economic growth. A second group of countries the European countries having been occupied by Germany had suffered from destruction and pillage. A third group included the impoverished countries of the former Hitler coalition. A fourth group was formed by the underdeveloped colonies and semi-colonies where industry had expanded after the war as well. The problem was that after the war one group of countries was confronted with overproduction, while other groups faced the need to restore their economies. Kuzminov attacked some economists proceeding from a schematic conception who could not explain the origins of the 1948-49 and 1953-54 crises in the US. He hit the nail at the head when putting that the Second World War had upset the synchrony of the investment cycle and aggravated all the contradictions of capitalist reproduction as well. As the US could export capital to Europe, the American economic crisis of 1957-58 did not develop to the full in the US and affected most European countries only to a small extent. This was confirmed by the new economic crisis having begun in 1960 in the US. He attacked Varga for having said that this crisis could not be called local or intermediary. It was thus a world crisis. Kuzminov referred to the fact that the recent US crisis had an intermediary character exerting a marginal effect on the other capitalist economies. Though the modification of the post-war capitalist cycle had led to intermediary crises, some economists (i.e. Varga) had unduly defined an intermediary crisis as a crisis of a separate branch of production in contrast to a general crisis of overproduction. Kuzminov referred to Marx and Engels who regarded intermediary crises as specific, but specific not in one (a branch), but in two senses. Crises could occur in a branch, but also locally. Intermediary crises in the US after the war were thus of the second type and were a consequence of the desynchronisation of the world circle. He reminded Varga that the US economy was an integral part of the world economy.

13

Thus the first post-war cycle had started in 1945-46 in the US and ended in the world crisis of 1957-58. The cycle had thus lasted for eleven or twelve years. Could local crises acquire a more or less regular character? Did intermediary crises affect the cycle? According to Kuzminov, Vargas assertion that an intermediary crisis was not followed by a phase of depression was painting a one-sided picture as well. For Kuzminov the US economy was in a phase of chronic crisis: chronic crisis in some branches of production, chronic unemployment of industrial capacity and chronic mass unemployment. War preparations might therefore prevent the deepening of the crisis or cause a temporary upswing of production, but on the whole militarisation of the economy can bring about only secondary changes in the main picture of the cycle, Kuzminov concluded (International Affairs 1961/8: 68). Commenting on Vargas analysis of the cyclical course of reproduction in PoliticoEconomic Problems of Capitalism, V. A. Cheprakov (1968: 3-10) argued that many views among Marxists existed on the post-war cycle. Cheprakov agreed with Vargas warning against an overestimation of the anti-crisis measures taken by the capitalist state, but he added that it is undeniable that state activities can influence the factors determining the intensity and duration of the upward phase and the depth and duration of the crisis phase in future cycles. The European Common Market Soon the discussion on the business cycle would become connected to the problem of domestic market enlargement, in-depth investment and rising purchasing power of the masses. Nobody could deny anymore the rising living standard of the workers in the USA but also in most Western European countries. Income policies developed by SocialDemocratic governments and Keynesian budgetary measures had proved to be successful in most countries. Notwithstanding concentration of capital and penetration of monopoly capitalism in all sectors of the economy, technological progress had not been halted by Malthusian industrial investment policies. New developments in capitalism could be observed with the European Common Market aiming at overcoming economic rivalries between the German Federal Republic and France. Could inter-imperialist contradictions be superseded or postponed by monopoly capital? Were Keynesian policies off-shoots of monopoly-capitalist influences at the governmental level where Big Capital was meeting Big Labour as well? On 15 April 1957, the Department of Political Economy of the Academy of Social Sciences of the Central Committee of the CPSU organised a debate on the recently established European Common Market. The meeting, which was attended by economists, publishers, journalists, post-graduates and lecturers on international problems, discussed the present situation in the capitalist world. I. I. Kuzminov, S. L. Vygodskiy, B. M. Pichugin, A. M. Sharkov, M. N. Smit, V. V. Rymalov, A. I. Shneyerson, Y. Y. Kotkovskiy and A. M. Alekseyev gave a lecture. Obviously, Varga had been forgotten when organising the debates (International Affairs 1958/5: 76-102). In March 1957, Varga had nonetheless published an article on the European Common Market. If the ruling element in these six countries wanted to establish a real common market, and were in the position to do so, it would be enough to set out in a few pages the basic provisions for abolition of customs tariffs and other trade impediments, unification of taxes, repeal of export subsidies, etc. (New Times 1957/10: 11). Increasing military,

14

financial and economic dependence on the part of France and Britain vis--vis America had been the result. The costs of the presence of American troops amounted to nearly US$2,000 million a year. A Common Market might help to increase trade between the six founding states, Varga argued, but it would change nothing in their economic relations with the rest of the world. A radical change in their foreign and economic policy would require a genuine peaceful coexistence, an expansion of foreign trade with the socialist countries and an allEuropean collective security system embracing both capitalist and socialist countries (New Times 1957/10: 12). Varga saw the Common Market as a return to the conditions existing before the First World War, thus as an attempt to overcome the dividedness of the world market by uniting the markets of six countries (Varga 1968: 71). The Common Market was also an attempt on the part of the West European imperialist powers to consolidate their position following the political liberation of the colonial countries, to enable them to conduct a vigorous policy of neo-colonialism and to compete with the United States. Equal conditions for competition, however, served primarily the interests of the big monopolies. For him, the Common Market was nothing but a politically desperate attempt to resolve imperialisms inevitable internal contradictions and to oppose the socialist world system by a single imperialist front (Varga 1968: 71-2). By 1962, a debate on the new phenomenon of regional economic integration and supranationalism could no longer be avoided. In the GDR a congress debating on imperialist integration or self-determination? was held on 7 and 8 June 1962. In his keynote speech Professor K.-H. Domdey (University of Rostock) argued that European integration had been concocted by American imperialist interests and German monopolists. (Wirtschaftswissenschaft 1962: 1726-31). Between 27 August and 3 September 1962, an international conference of Soviet and foreign communist economists met in Moscow at the invitation of IMEMO and the Prague-based World Marxist Review. Varga was allowed to contribute to the lengthy debates on the European economic integration process. In his contribution, he (1964a: 324-32; 1962b: 49-72; 1968: 286-301) argued that the Common Market was a plan of capitalist integration, thus an attempt to perpetuate the economic exploitation of the former African colonies and to unite monopoly capital against US supremacy. Not the market, but only an increase in demand could expand production in the future. However, the laws of capitalism and imperialism would lead to increased centralisation of capital in combination with a lowering of the wage level, thus to a shrinking market of consumer products. Regional integration would not provide a solution to the realisation problems of capitalism (Varga 1964a: 332). Italian Communist journalist Emilio Sereni repudiated Vargas thesis as abstract and wrong, because market integration would also mean a change in the international division of labour and a lowering of production costs. The accumulation process of capital would not only create a larger market, but also growing production in other sectors of the economy. Later, Varga reformulated the question of European integration as follows: can such an association lead to a constant, or enduring non-cycle expansion of the populations consumption capacity? (Varga 1968: 290). His answer was negative. Market expansion for Department I goods would not ensure an enduring upswing of production as a whole. If the demand for goods produced by Department II was not high enough, the production of Department I goods was bound to decrease. Only adherents of Tugan-Baranovskiys theory can believe that a constant expansion of fixed capital can ensure a steady crisis-free upswing of capitalist production (Varga 1968: 290). The economic consequences of a Common Market would be insignificant as long as there were no changes in the operation of the objective laws of capitalism, thus capitalisms realisation problem would not be solved. No constant or even protracted expansion of the market for consumer goods (Varga 1968:

15

291) could be expected for a more or less enduring period. Varga predicted a contradictory development with the largest monopolies attempting to corner the newly acquired markets. Social labour productivity would grow and the socially necessary labour time embodied in a commodity unit would decrease, but, all other conditions being equal, less workers would also mean a decrease of the total wage sum. Even if the size of real wages of every individual worker would remain unchanged, the market for commodities produced by Department II would shrink. Increase in the demand for consumer goods would thus be essential, which ultimately would depend on a redistribution of the national income in favour of the working class. However, the outcome of the predicted intensified competitive struggle would be the ousting of all weaker competitors combined with a rapid centralisation of capital and a concentration of industrial production would tend to a decrease of real wages, with a resulting drop in the demand for consumer goods, and hence an aggravation of the market problem. Varga considered the European Common Market primarily as influenced by a mercantilist spirit. As the key to a stable economy, exports were favoured with credits and subsidies. If the European Common Market would be able to increase its exports by 50 per cent, its general market capacity would only be expanded by even less than 7.5 per cent. A country exporting commodities received reimbursements for their value from abroad, but these reimbursements would take the form of other commodities, since no country was able to pay for all its imports in gold. These imports often consisted of commodities also produced in the country in question, which naturally would result in a narrowing of the market for domestic goods. Finally, Varga warned that his analysis was abstract and theoretical, because it did not touch on the concrete historical conditions, but referred to the theoretical assumption that if full economic integration could be realised, the problems capitalism was facing would not be solved. A complete economic union would also mean a single currency, a single budget, a single state, i.e., complete political integration, the rejection of all individual sovereignty by the countries in question (Varga 1968: 302). He prophesied that the chances of this happening were so slight as to be negligible. Capitalisms decay On 26 November 1959, a meeting was scheduled at the conference hall of the Department of Economics, Philosophy and Law of the USSR Academy of Sciences at the occasion of Vargas 80th birthday (Arzumanyan, Lemin and Khmelnitskaya eds 1959). Some 1,500 invitations had been distributed. K. V. Ostrovityanov delivered the usual keynote address in which he praised Vargas contribution to the development of economic science and his selfless devotion to the cause of the working class. The text of Vargas lecture was published in Kommunist (Varga 1959) and many other journals as well (Varga 1962a). In 1961, Varga published a little book entitled Twentieth Century Capitalism (Varga 1962b) in which he broadened the subject of his lecture. In his lecture, Varga put forward that the capitalist system had outlived itself, because imperialism did not determine the course of societys historical development anymore now that socialist system was expanding over the world. During the Second World War, he argued, the struggle between both systems had not ceased, which explained why the cold war in the post-war period could develop (Varga 1962b: 49). However, radical changes in the relation of forces of socialism and capitalism had meanwhile occurred at the disadvantage of capitalism. Western Europes economic recovery during the post-war period should be explained by the influx of American capital in the form of direct investment, 16

loans, the purchasing of shares, state aid, etc. That period of extraordinary but temporarily expansion ended, however, in the economic downturn of 1957-8, when the dominant trade position of the US on the world market had deteriorated. Although the US dominated all other capitalist countries, the difference in the level of economic development may become smaller (Varga 1962b: 64). Varga enumerated several relevant phenomena having contributed to this slowdown, such as the ever-growing organic composition of capital and the concentration of wealth and income in the hands of the propertied classes. As a result an increasing number of people had become employed in unproductive jobs in the services sector. Vargas seized this unique chance to criticise the dogmatists who were always reiterating that inter-imperialist wars were unavoidable because Stalin, the chief arbiter, had said that those who were denying the inevitability of wars between imperialist countries saw only the external phenomena and failed to see the abysmal forces which, operating almost unnoticeably, would decide the course of future events (Varga 1968: 75). Stalin had however completely forgotten Lenins law of uneven development under imperialism when arguing that the US would always conserve its economic supremacy over the other countries. The law of capitalist development was nonetheless leading to a growing exploitation of the underdeveloped world. Monopoly capital still exploited the ex-colonies by neo-colonialist methods and economic aid. The countries in the underdeveloped world had yet an opportunity to decide on the choice of two paths of development the capitalist and the socialist paths (Varga 1962b: 10). Varga pointed out that unequal exchange mechanisms and trade monopolies were at the disadvantage of the developing countries. This was one of the reasons why the economy of the imperialist countries had suffered so little from the loss of political power over the colonies (Varga 1962b: 102-3). No real changes in the price levels in favour of the underdeveloped world should be expected. In the developed capitalist world, technical progress had led to the production of substitutes such as synthetic rubber, plastics or artificial diamonds, and mechanisation had profoundly transformed agriculture. As usual, Varga limited his analysis of economic changes in capitalism to a long enumeration of phenomena and facts, such as increased state regulation, state-owned enterprises or the appropriation and redistribution of the greater part of the national income by the state. The big monopolies could not go bankrupt as long as they were not obliged to reduce their prices, but in case of necessity the state would always float them. In a period of economic crisis, the entire burden was borne almost exclusively by the working classes, the population of the underdeveloped countries and the weaker sections of the national bourgeoisie. All state spending was to the advantage of monopoly capital. Even the schools training the work force or the medical services keeping the workers healthy were working at the service of monopoly capital. In Vargas analysis, state-monopoly capitalism appeared as extremely reactionary because it exists in order to defend a capitalist system that is doomed to collapse (Varga 1962b: 116). The financial oligarchy was now employing complicated ways and means to make use of the savings of the people for their own enrichment. The relations between banks and industrialists had thus changed since the burden of the crises of overproduction was distributed in society in a different way (Varga 1962b: 109). The capitalist cycle was showing a tendency to become shorter as rapid technological changes were making machinery and equipment earlier obsolete. The economic crises would become more profound than they had been during the first fifteen years after the Second World War. Again Vargas analysis comprised a mixture of Hilferding finance capital and Luxemburgs underconsumption thesis as well. The social character of production and the private character of appropriation created a chronically narrow market compelling the 17

capitalists to sell their consumer goods on credit. Inflation and unstable currencies were the effect of monopoly power, while armament spending had become a technique to overcome the effects of the narrowness of the domestic market. As before, superfluous capital was exported. The volume of state loans had meanwhile increased in importance as a weapon in the struggle against the socialist system. The independent entrepreneurial class had disappeared, while hired managers were leading the enterprises, while growing section of the bourgeoisie had become parasitic (Varga 1962b: 129). The monopolies were taking advantage of inflation. High monopoly prices were set in order to meet the demands of the workers in part. Meanwhile, growing numbers of unskilled workers were replacing skilled personnel and at the same time levelling out workers wages. As technical progress had brought about a rapid increase in labour productivity, a reduction of the working week in combination with the creation of more office jobs was nonetheless possible. Productivity growth was meanwhile five times greater than the reduction of the working week. That meant, in turn, that the bourgeoisie was receiving constantly growing profits while at the same time buying over a growing section of the working class, with a relative impoverishment of the working classes as result. Finally Later on, in the 1960s and the 1970s, Keynes was more thoroughly discusses by Soviet economists. However, they always blamed Keynes for not explaining the very nature capitalism, i.e. its exploitative nature. Hence, Soviet economists rejected Keynes as a bourgeois ideologue. Moreover, Keynes had not broken with classical theory of perfect markets and private ownership of capital. In Keynes, there is no theory of value based on exploitation of labour power or the laws of motion of capital. Profit is not the independent variable driving investment. Keynes macroeconomic model does not reveal the exploitative nature of capitalism with its profit-driven mechanisms. Keynesian spending policies do not pay attention to the impact of boosted aggregate demand on profitability. Crises and economic depressions are the result of a failing credit system and effective demand, not the consequence low wages, overinvestment or distorted markets (monopolies; economic dependency, imperialism, etc.). This rejection of Keynesian economic thought was, however, amended after the death of Stalin in 1953 when Soviet and other economists made more thoroughgoing evaluations of Kenyesian policies and the functioning of state-monopoly capitalism. Soviet economic scientists catalogued in a more positive way Keynesian economic thought and Keynes works. This tendency was followed by the Moscow-oriented communist parties as well, although all communist economics would still rejected Keynes on several grounds. A good example here is the book the Cuban economist Benito Besada Ramos (1981) wrote on Keynes in which he listed his arguments against the General Theory of Keynes: From a methodological point of view the theory of demand is identical to that of the marginalists. The theory incorporates within its reasoning the Pigou effect, although there are parts of his book wherein he explicitly rejects it. The law of the diminishing returns is literally accepted. The General Theory is based on psychological. Marginalism and a static model prove the influence of neoclassical theory. 18

Involuntarily unemployment is an important new element. The General Theory is based on a static model and influenced by neoclassic thought. The interest rate is a strictly monetary phenomenon based on two elements: liquidity preference and money mass. About the same critics were expressed by Soviet economist I. Ossadchaya, but her political appreciations were more explicit. She admitted that the apparition of the theory of Keynes has been one of the most important phenomena of bourgeois political economy in the era of the transformation of monopolist capitalist into state-monopoly capitalism. This theory has brought qualitative new elements into bourgeois political economy [] and has laid the ground for a new bourgeois political economy, i.e., macro-economics, without it would be impossible to approve state-monopolist regulation. (Ossadtchaa 1975: 4) At the same time Soviet economists recognized that Keynesians like Harrod and Domar had understood the role of technological progress in economic growth and that Domar had integrated demand and offer of production capacity. Domars dynamic model had overcome Keyness static model by stressing that income growth is in function of investment growth (Ossadtchaa 1975: 48-9). From now on Soviet leading economists were not opposed anymore to theories on price elasticity and repartition. Not Keynes, but post-Keynesians represented by Pierro Sraffa, Joan Robinson and Nicolas Kldor (the School of Cambridge) or Michal Kalecki obtained the favours of several Soviet economists. Since the late 1960s reformist Soviet economists were in two camps. The image of the Soviet economy as a single factory was abandoned in 1970 in an article written by Petrakov in Novy Mir (Petrokov 1970).Aleksey Kosygin, the Prime Minister, had Leonid Abalkin among his advisers for incremental change, but the optimal planners were fighting for more radical reforms. During the perestroika of Gorbachev they would become dominant. One could also recognise in this move the result of a new thinking about economic planning in which price mechanisms could play a role in adjusting supply and demand of the factors of production. Especially the New Economic Mechanisms of the Hungarian model had already gained adherence of the economists of Novosibirsk. Most of these new economists were born in the 1930s and were fluent in English. The were socialist reformers, which was not the case with the younger generation educated by them. They established their own research institutes and think tanks outside the Soviet Academy system and led by Yegor Gaidar they became neoliberals (Wagener 1-32). References Bljumin, I. (1948) Probleme der Vollbeschftigung in der gegenwrtigen englischen Wirtschaftsliteratur, Sowjetwissenschaft, vol. 1, no. 2, pp. 40-52. (Originally published in Mirovoe khozyaystvo i mirovaya politika, 1947, no. 4, pp. 81-8) Besada Ramos, Benito (1981) Estudio critico de Teoria general de Keynes, La Habana: Editorial de Ciencias Sociales. Keynes, John Maynard (1920), The Economic Consequences of the Peace, London: Macmillan and Co., Limited. (1925) A Short View of Russia, London: Published by Leonard & Virginia Woolf at The Hogarth Press.

19

__________ (1940) How to Pay for the War? A Radical Plan for the Chancellor of the Exchequer, London: Macmillan. Ossadtchaa, I. (1975) De Keynes synthse no-classique (tude critique) , Moscow: ditions du Progrs. Petrakov (1970) N. Ya Upravlenie ekonomiki i ekonomicheskie interesy, Novy Mir, no 8. Trakhtenberg, A. I. (1954a) Kapitalisticheskoe voproizvodestvo i ekonomicheskie krizisy, Moscow: Gospolitizdat. _____________ (1953, 1957) Osnovnye voprosy ekonomiki i politiki imperializma, Moscow: Gosudarstvennoe Izdatelstvo Politicheskoy Literatury. ______________ (1954b) Kredito-donesnaya kapitalizma posle Vtoroi Mirovoi Voiny, Moscow: Izd-vo A.N. S.S.S.R., Moscow: Institut Ekonomiki. ______________ (1956a) Keynesian theory of full employment, Keynesian Economies. A Symposium, Delhi: 211-15. ______________ (1956b) The basic laws and special features of economic crisis, New Age (New Delhi), vol. 6, no. 11: 16-40. E. Varga (1944) Plans for currency stabilization, originally published in (War and Working Class) (Moscow), no. 13, pp. 3-10, English translation in Commercial and Financial Chronicle (New York), no. 4230, 2 March 1944, and The Communist, March 1944, pp. 282-3. ____________ (1957) Forum: The Common Market Plan. Contributions by E. Varga and P. Suslin, New Times, no. 10, pp. 11-15. _____________ (1958) Problems of the Post-War Industrial Cycle and the New Crisis of Overproduction, New York: International Arts and Sciences Press. ____________ (1959) The capitalist economy in 1958, New Times, no. 5, pp. 10-12. ____________ (1962) Trying to solve the insoluble, New Times, no. 32, pp. 4-7. ____________ (1962a) La production capitaliste au XXe sicle, Cahiers dhistoire mondiale. Journal of World History. Cuardenos de historia mundial, vol. 7, no. 1, pp. 195211. ____________ (1962b) Twentieth Century Capitalism, Moscow: Foreign Languages Publishing House. ____________ (1964) E. Varga (UdSSR), in A. A. Arsumanjan and A. M. Rumjanzew (eds) Probleme des modernen Kapitalismus und die Arbeiterklasse. Materialien eines Meinungsaustauches, der von der Zeitschrift Probleme des Friedens und des Sozialismus und vom Institut fr Weltwirtschaft und internationale Beziehungen der Akademie der Wissenschaften der UdSSR durchgefhrt wurde, Berlin: Dietz Verlag.

20

____________ (1968) Politico-Economic Problems of Capitalism, Moscow: Progress Publishers. Wagener, Hans-Jrgen (1998) Between conformity and reform: economics under state socialism and its transformation, in Hans-Jrgen Wagener (ed.) Economic Thought in Communist and Post-Communist Europe, London and New York: Routledge, pp. 1-30.

21