Abstract
This article presents the development of ideas on coordination between countries with socialist economic systems during World War II and in its immediate aftermath (1940–64). It studies the theoretical models of Hoselitz and the debates on the possibilities of interaction between socialist states after the war, as well as the first attempts to develop integration within the framework of the CMEA, or the Council for Mutual Economic Assistance, in practice. The lack of a clear theory made these processes difficult. Yugoslav economists considered nonequivalent exchange within the Marxist paradigm and attempts to create a monetary zone of the ruble encountered difficulties from the outset. Monetary reforms in socialist countries showed the need to adapt to the world (capitalist) market.
Introduction
In 1952, Joseph Stalin, in his book Economic Problems of Socialism in the USSR, formulated the concept of two world economic systems that must fight for global supremacy. Stalin's thesis was a direct reaction to the geopolitical division resulting from World War II, and in particular to the Marshall Plan, which was launched in 1948. The declaration of the founding council of the Council for Mutual Economic Assistance (CMEA—popularly known as Comecon) in Moscow on January 5, 1949, noted the following:
In spite of the great successes achieved in economic relations between the countries of the People's Democracy and the Soviet Union, the lack of permanent links for the coordination of their economic policies and especially their trade relations with other countries harms the economic interests of these countries and objectively helps the American and British capitalist monopolies to exploit for their interests the incoherence of action which has been pointed out. This is particularly prominent nowadays when the North American United States, through the “Marshall Plan,” influences the economic policy of the Western European countries, directing it against the interests of the Soviet Union and the countries of the new democracy. (Central State Archives [CSA], Sofia, Bulgaria, 1949, fund 1B)
After Stalin's position, there followed a rapid imposition, within the Cold War, of thinking in terms of rival blocs, where basic economic processes were seen as complete opposites with two different basic mechanisms of coordination, market, and planning.
The aim and contributions of the present study are to offer in a synthesized form the main points of the early theoretical and practical debates on the construction of the model of economic integration between the socialist countries that emerged as a result of World War II. In recent years, publications on the subject have been limited and have been primarily historical and with a (geo)political focus.1
In section 1, we introduce the reader to the pioneering articles of B. Hoselitz and J. Viner, which appeared before the end of the war and where possible models and problems for the eventual emergence of new socialist countries had been debated. In sections 2 and 3, we present the creation of the CMEA in January 1949, Stalin's two-systems approach, and the positions of Yugoslav economists (in particular M. Popović), as well as Bulgarian and Albanian leaders. This is followed by section 4, where we provide an overview of approaches to the theoretical foundations of the ruble zone and its later adjustment to the world market.
Our purpose is to develop more extensively the views on socialist globalization developed by Eastern economists and policymakers, although we also reflect important elements of a Western interpretation of socialist integration.2 Our study is primarily a history of ideas, but ideas cannot be understood outside of historical and economic context, so we also present some basic historical economic facts. We limit ourselves to 1964, to the creation of the collective currency, the transferable ruble, and the institution that issued it—the International Bank for Economic Cooperation (IBEC). In those years, centrifugal forces in the union emerged, which subsequently gained strength (Köves 1981).
1. World War II: Anticipating Socialist International Cooperation
After the Great Depression, the trends toward an increasing role of the state and planning intensified. War preparations as well as the war itself definitively strengthened these processes. The Western world disintegrated into economic and monetary blocs, the role of trade and exchange controls, bilateral barter, and clearing grew. After failed attempts to bring about world revolution (e.g., the Bavarian and Hungarian republics lasted briefly in 1919), the leaders of Soviet Russia changed strategy and adopted a model of “socialism in an isolated country.” This concept was developed by Lenin and later consolidated by Stalin.3 In the international sphere, Soviet Russia introduced a state monopoly on foreign trade and a currency monopoly, basic principles that, despite fluctuations, remained in force until the end of the system (see Loevetsky 1926).
1.1. A Brief Overview of “International” Marxism
Marx did not have a clearly developed theory of world economy. He had planned to develop it in a future volume of Das Kapital. According to him, international relations were secondary to national ones, the former serving national class interests (Economic Manuscripts 1957–59).4 Indeed, Marx vacillated in his preference between free trade and the partial protectionism needed for underdeveloped countries. The choice varied according to the interests of the working class, that is, the movement of real wages, and also the shifting of the factors of production as a function of the organic structure of capital and the average rate of profit (the mechanism set out in the third volume of Das Kapital).5 The argument for national differences in the organic structure of capital was subsequently refined by O. Bauer and R. Hilferding, who developed the theory of the transfer of surplus value from poorer to richer countries. According to Marx, there was no formation of “international socially necessary labour costs,” that is, value was formed nationally.
Soviet practices and the expansion of planning in the aftermath of World War I sparked the debate about the possibilities of calculation under socialism.6 We note, however, that the “socialism calculation debate” did not deal with the international dimension of the problem, which was explained by the fact that in those years there were two socialist countries—Soviet Russia (1917) and partially independent Mongolia (1921).
Later, in the 1930s, several studies attempted to theorize planning at the international level and proposed some elements of supranational solutions.7 These models, however, met resistance mostly from liberal economists (Hayek 1937; Robbins 1937). In Hayek's and Robbins's books, one can only indirectly judge the possible limits of a fully socialist internationalization, such as that which emerged after World War II. Bert Hoselitz's (1943) article, “Socialist Planning and International Economic Relations,” was the first to go a step further.
1.2. Bert Hoselitz and His Three Models
The Austrian economist Hoselitz attempted to present future, hypothetical relations between socialist countries and their forms:8
In most of these discussions the problem of international trade relations between socialist states and the analysis of the consequences of international exchange of goods and services and the movement of capital in a world composed of socialist planned economies has been neglected. Yet in view of the fact that socialism is essentially international in character, an analysis of these relationships is clearly necessary. (Hoselitz 1943: 839)
Hoselitz presented three hypothetical theoretical models of coordination among planned socialist countries. Curiously, all three models, in one form or another, have subsequently been used in the practice of the CMEA. We take the liberty of using the author's definitions:
There are, in principle, three ways to solve the problem. One is to establish a supreme World Economic Planning Board which regulates international trade and to which the various “national” planning boards are subordinated.
The second way is to establish state monopolies of foreign trade which are in contact with the national planning boards and carry through bargains with foreign countries. These state monopolies would be similar in function to the present foreign trade monopoly in the Soviet Union.
The third way is to leave the individual units of production free to buy abroad or at home and to interfere only if the plan seems to be in danger of being upset by the behaviour of these units of production. In the first case the allotment of international capital investment would be made through the supreme World Planning Board; in the second and third cases specific arrangements would have to be made under which international long-term capital movements would occur. (Hoselitz 1943: 840)
The first model, that of supranational planning, was proposed by Lawley (1938) and Wibaut (1935). This model bears the disadvantages of any planning, that is, the difficulties of calculation and the failure to consider differences in the levels of development of countries—that is, wages and productivities.
The second option, that of interaction between national trade and currency monopolies, similar to the Soviet model, also has its supporters. The British economist G. Cole proposed automatic trade credits between the countries in the bloc. This second model, which began as a system of bilateral linkages, logically evolved into multilateral clearing.
And the last option, of direct links between economic entities (proposed by A. Lerner), known as the “model of international market socialism,” implies the assumption of substitution of the factors of production and of the products between individual countries.
1.3. The Position of Jacob Viner
Hoselitz's article is truly visionary. Perhaps as a reaction to this article, Jacob Viner's “International Relations between State-Controlled National Economies” (1944) appeared in the same journal. In contrast to Hoselitz, who was interested primarily in planning, Viner emphasized property rights. He analytically contrasted the roles of private and public property from the positions of competitiveness and efficiency, giving primacy to private property. Viner believed that international business transactions were ruined by the political elements “injected into them.” The latter reinforced the role of diplomacy, the skill of negotiation, and worst of all, they brought power and force into international economic relations (Viner 1944: 320).
Furthermore, according to Viner, the more the state intervened and planning grew, the more frequent international conflicts and wars started. The author criticized G. Cole, according to whom only national planning within the framework of socialism could lead to international cooperation and overcome war. Viner argued the opposite: that the chances of conflicts between national planning in the socialist countries increased. There were four arguments for this:
In the first place, the socialist state, with its unified and centralized administration, would be technically better equipped to harness the national resources to national policy than would a loosely organized capitalist democracy.
In the second place, the equalitarian element in the socialist doctrine, while it might create an ideological barrier against making demands on poorer countries, would provide a moral basis not available to capitalist countries for aggression against richer countries reluctant to share their riches with other countries. The egalitarian logic of socialism has no natural stopping place at national boundaries.
Third, in the full-fledged socialist state an aggressive foreign policy directed toward economic objectives could not be checked at home by an opposition believing or asserting that the profits of the aggression would go exclusively to a small, privileged class. One of the disadvantages of the socialist state in this connection, as compared to the capitalist state, would be the absence of an antipatriotic socialist opposition.
Fourth, there would not be in the socialist state a powerful middle class with property interests to protect against risks of all kinds, including the risks of war. (Viner 1944: 325)
Both Hoselitz and Viner practically did not deny the possibility of realizing some form of international socialism, but they questioned its effectiveness (this was truer for Viner).
2. Soviet Reactions to the Marshall Plan and the Beginning of Socialist Integration
After World War II, the problem of building a socialist community became practical. States called “people's democracies” appeared in Europe. Within a few years, their governments quickly implemented the basic principles of socialist economy—nationalization of industry and banking, collectivization of agriculture, establishment of planning institutions, limitation of monetary system, etc. (Brus [1981] 1986).
The Soviet Union participated in the Bretton Woods Conference but did not ratify the documents or take part in the international financial institutions. Very soon afterward, in March 1946, Churchill made a speech that launched the Cold War, and sanctions and embargoes against the Soviet Union soon followed. After the meeting with the Western powers in Paris in the summer of 1947, the USSR finally decided to build its own political, ideological, and economic bloc by continuing to trade with Western countries. This was the concept of peaceful coexistence and competition of the two systems.9
The Marshall Plan, as well as the sanctions against the USSR and other Eastern European countries, gave birth to the two approaches to globalization as well as to the two international organizations—the European Economic Community and the CMEA.
Immediately after the institution of the Marshall Plan, the accompanying US military-economic treaty in an alliance of five countries (England, France, Belgium, the Netherlands, and Luxembourg) signed in March 1948, and the four-year plan for Europe (1948–51), there followed a powerful propaganda-theoretical reaction by Soviet economists, where, along with the familiar clichés, there were some attempts at building a serious analysis.10
As a typical Soviet reaction, we can mention the 1948 article published by the organ of Gosplan, Plannovoie hozyaistvo (Planned Economy), titled “‘The Marshall Plan’–a Weapon of US Imperialist Expansion.” The author, I. Faignar, analyzed the Marshall Plan in the spirit of Soviet Marxism and the Leninist theory of state monopolistic and financial imperialism. According to Faignar, the war and the conflicts within the Marshall Plan were the product of the “law of the uneven development of capitalism,” the behavior of monopolies and financial capital. According to the author, the Marshall Plan did not aim at the reconstruction of Europe but had the following five tasks: (i) the subordination of the European economy to the American monopolies—Western Europe becoming the “Marshallised countries,” turning them into colonies; (ii) securing a market for American goods (the credits granted implied purchases from the United States); (iii) seizing the colonies of the European countries; (iv) imposing obedient regimes in Europe; and (v) restoring the German economy and preparing for a new war. The concentration of gold reserves in the United States and the deficits in Western Europe have also been interpreted from these positions. These deficits were increasingly filled with loans in dollars and in the form of Lend-Lease transactions (initially the US demanded payments in gold). Claims by the United States for the convertibility of Western currencies essentially benefited the United States by making its trade with Europe easier.
The devaluation of the British pound and other European currencies in 1949 were analyzed as pressure from the United States and American monopolies (Polyakov and Trubenkov 1949; Polyakov 1950). Zakhary Atlas (1949) devoted an entire book, Inflation and the Currency Crisis in England, to the study of the devaluation and currency crisis in England from the positions of Marxism and monetarism.
The emergence of the CMEA was seen as the logical antithesis of the above asymmetric and predatory processes and as the bearer of the “new” principles in international economic relations.11 The CMEA was created primarily as a political alliance but also with certain economic objectives. Its main tasks from the founding meeting in Moscow were reduced to the following:
(a) elaboration of plans for the economic relations between the participating States and the necessary coordination of their economic plans on the basis of specialisation and cooperation of production; (b) coordination of import-export plans for goods of importance for the economic relations of the participating countries; (c) coordination of transport and transit development plans related to the interests of the development of economic relations between the participating countries; (d) development of assistance measures in the event of natural disasters and also in the event of discrimination used by capitalist countries against participating countries; (e) development of multilateral clearing and exchange rate issues; (f) development of scientific and technical cooperation arrangements and the exchange of technical experience which the participating Parties shall have with each other in terms of cost; (g) monitoring the implementation of the economic cooperation plans and activities. (CSA 1949, fund 1B)12
Until Stalin's demise, the CMEA did not really function, because he preferred to influence the countries through bilateral and personal contacts.
In the early years after the war, socialist countries continued the familiar practice of barter and clearing that had begun after the Great Depression.13 Eastern economists claimed that under socialism it took on a new content. Following the Marxist theory of money, Eastern bloc economists believed that “the multilateral or bilateral equilibrium of commodity supplies means ultimately the settlement of all mutual claims and obligations by means of non-cash reckoning. Under these conditions, the settlement currency functions as ideal settlement currency” (Mazanov 1970: 15).
In the first few years (1947–49), national currencies, as well as foreign currencies, including the dollar, the British pound, and the ruble, were used as clearing currencies. In June 1957, in an effort to develop a multilateral scheme, the clearing between Albania, Bulgaria, Hungary, DDR, Poland, Romania, the USSR, and Czechoslovakia began; the program lasted from 1957 to 1963. A significant innovation was the creation of a second level: the Clearing House. Goods could be sold without observing the calendar-year equality of bilateral supplies. Parity was sought between each country's total exports and imports with all others. This system was borrowed from the experience of the European Payments Union (Georgiev 1955: 58).
In Eastern Europe, the “economic successes” of the socialist bloc countries began to counter the “crises and the slow development” of the West. In 1952, Stalin's pamphlet, which finally formulated the concept of two globalizations, appeared in the context of the debates on the first manual on the political economy of socialism (see Kosyachenko 1952):
The most important economic result of the WWII and its economic aftermath must be considered the collapse of the single all-encompassing world market. This fact determined the further deepening of the general crisis of the world capitalist system. . . . The economic result of the existence of two opposing camps was that the single all-encompassing world market collapsed, and as a result we now have two parallel world markets also opposing each other. It should be noted that the USA and England and France themselves had, of course, in spite of their will, contributed to the formation and strengthening of the new parallel world market. They subjected the USSR, China and the European people's democratic countries that were not part of the Marshall Plan system to an economic blockade, thinking thereby to strangle them. In fact, what happened was not strangulation, but the strengthening of the new world market. (Stalin 1952: 80–82)
The CMEA was established by interactions between nationally formed trade and payment monopolies, where the principles of self-sufficiency and building structurally whole economies were the guiding ones. At the center of each country's economy stood industry and metallurgy in particular. All this was based on a directive national planning expressed in material, physical measures. These features, with few exceptions, were accompanied by state (or “all-people”) ownership. The “law of value” was replaced by the “law of planned and proportional development,” with individual labor not valued by the market but its social necessity valued immediately, directly (Rumyantsev 1966). Commodity-money relations (i.e., money and the market) theoretically had a limited perimeter and function, served planning and accounting (primarily between enterprises), and played a certain role in the consumer market.14
In the above model, export was residual, a function of import, which was part of the national plan. The production plan was accompanied by a foreign currency plan. Trade and payments took place within the framework of bilateral clearing, in which the Soviet ruble and later the clearing ruble (having the gold content of the ruble) played the role of settlement currency. Settlements between countries took place at international prices formed on the capitalist market.
In the early years, there was no theoretical model, only some mention of the need to develop the international socialist division of labor (ISDL). The main manifestations of the ISDL were specialization and cooperation mainly through the coordination of five-year national plans. In general, relations within the CMEA were more political and strategic, dominated by the USSR, which provided “all-round assistance.”
In 1952, the Soviet Union attempted to ensure the “peaceful existence of the two systems,” stopping the West's armaments, and overcoming sanctions at the Moscow Economic Conference held April 3–12, 1952. Despite the difficulties, it brought together a significant number of foreign delegates and made it possible to conclude some business deals. It is noteworthy to mention the presence of a number of well-known Western economists and left-wing theorists, including J. Robinson, P. Sraffa, M. Dobb, S. Steve, A. Cairncross, L. Bourgeois, A. Sauvy, and Ch. Bettelheim.15 Oscar Lange was among its conveners and a main speaker, being the first to analyze the danger of forming two trade blocs (Lange 1948). The leading figures on the Russian side were primarily politicians such as V. Molotov, A. Mikoyan, M. Bulganin, and L. Beria (see Moscow Economic Conference 2017: 447–562; Lipkin 2011; Cairncross 1952; Hoeffding 1953).
3. Nonequivalent Exchange according to the Yugoslav Economists
The first, early theoretical critique of the model came from Yugoslav economists. Yugoslavia was among the two countries (the second was Albania) to win its independence from Fascist Germany on its own, where Josef Broz Tito took power without the help of the Soviet Union. Having followed the Bolshevik experience closely at the outset, the Yugoslav Communists quickly realized the viciousness of the Soviet bureaucratic model. They did not accept Stalin's economic and political dictates (Djilas 1962).
According to various testimonies and recollections, in 1950, the three leading intellectual leaders of those years—Boris Kidrič, Edvard Kardelj, and Milovan Djilas16—persuaded Tito to leave the Soviet state bureaucratic model and move toward “authentic” socialism. In the new conception, the workers’ collectives had to solve the problems of production and its realization, within the framework of some form of market socialism and socialist commodity economy. This corresponded to (early) Marx's vision of a “free association of producers.” Yugoslav economists introduced the name “workers’ self-management model.” The decision to change course is described by Djilas as follows:
One day—it must have been in the spring of 1950—it occurred to me that we Yugoslav Communists were now in a position to start creating Marx's free association of producers. The factories would be left in their hands, with the sole proviso that they should pay a tax. . . . A little later, a meeting was held in Kardelj's cabinet office with the trade union leaders, and they proposed the abolition of the workers councils, which up to that time had functioned only as consultative bodies for the management. Kardelj suggested that my proposals for management should be associated with the workers councils.
Shortly there began the debates on the issues of principle and on the statutory aspects, preparation that went on for some four or five months. Tito, busy with other duties and absent from Belgrade, took no part in this and knew nothing of the proposal soon to introduce a workers council bill in the parliament . . . Kardelj and I, convinced that this was an important step, pressed him hard. . . . The most important part of our case was that this would be the beginning of democracy, something that socialism had not yet achieved; further it could be plainly seen by the world and by the international workers’ movement as a radical departure from Stalinism. Suddenly, he stopped and exclaimed: “Factories belonging to the workers—something that has never yet been achieved!.” A few months later, Tito explained the Workers’ Self-management Bill to the National Assembly. (Djilas 1969, quoted from Milenkovitch 1971: 66–67)
The liberal model of self-management evolved from 1961 to 1965 into a full-fledged version of market socialism. Initially, the sources of the model were solely the classics of Marxism (there was no trace of Western debates on socialism). Yugoslav Communists had the ambition to interpret Marx and Lenin more correctly than their Soviet comrades.
On the topic of international aspects of socialism, two publications are interesting. The first one is the book focused on foreign policy matters, Lenin on Relations among Socialist States (Djilas 1949). The second one, titled On Economic Relations among Socialist States (Popović 1949), dealt with interstate economic problems.17
Popović believed that, in addition to the exploitation within countries as a result of the transfer of surplus value from industries with a low organic structure of capital to those with a high one, under competition and the market (which led to the formation of a uniform average rate of profit), there was also external exploitation of countries where the average organic structure of capital was low for countries where this structure of capital is high. According to Popović (1949: 6–7),
Under the conditions of a capitalist economy then not only is labour exploited by capital. In addition to this basic form of exploitation an extra profit is extracted from backward production branches for the benefit of more advanced branches. . . . This is wholly valid also for the formation of the world average profit and the world market prices. . . . From these national prices and on the basis of world competition the world average profit and the world price are formed on the world market in mutual competition. Only on the basis of a world price formed in this way is it decided how great the share shall be in the world profit that goes to each competing producer (i.e., each single national economy).
On the world market come commodities from countries with different national organic compositions of capital, i.e., countries of different technical equipment and economic development. So those countries, in which organic composition of capital exceeds the world average at the time draw and extra profit at the expense of those where the composition is lower.
As a fair and correct example, Popović gave the pricing in trade between Yugoslavia and Albania. It was not done at international capitalist prices (at the average organic capital structure of these markets) but at precalculated national prices, which included national labor costs according to a structure defined by both countries. In this sense, Albanian prices were higher than what they would be if capitalist prices were taken (Popović 1949: 51–58). In short, in order to have an equivalent exchange between the countries, and no exploitation, it was necessary to have national prices and an exchange rate that allowed equalization of real wages in the two countries. It is interesting to note that in Popović’s text the theoretical sources were kept to a minimum, to a few quotations from the third volume of Capital, quotations from Lenin, Stalin, Tito, Djilas, and references to Kidrič and Dedijer.
Particularly interesting was the position of the Bulgarian delegation led by Vasil Kolarov18 at the founding meetings of the CMEA held in Moscow January 5–7, 1949. The Bulgarian delegation was one of the few to present its own position (“considerations,” apparently written by Kolarov and presented on January 8) and to raise important economic issues. On its initiative, the issues of multilateral clearing and exchange rates were included in the tasks of the CMEA (CSA 1949, fund 1B). In addition to the coordination of plans and specific proposals for commodity lists, we read:
On prices—some of our agricultural products cost our country more than it sells them on the international market. Our state is taking measures to make it cheaper by developing agronomic technology. But some of our agricultural products are more expensive than, say, Turkish ones because European capitalists are cruelly plundering and ruining Turkish peasants. Are we also obliged to bring our peasants to the same stance as the Turkish peasants? Or should prices be fair, established on the basis of a study of the factors determining them? The relationship between our countries is not simply a market relationship. They cover all aspects of their economic—and not only economic—life. (CSA 1949, fund 1B)
Further:
Multilateral clearing will become increasingly important as the exchange of goods expands and trade ties between our countries strengthen. Experience will show how we will concretely resolve this issue. So far as exchange rates are concerned, it seems to me that there are now discrepancies which need to be removed by establishing a firm basis for calculating the real value of each country's currency. (CSA 1949, fund 1B)
Kolarov, like the Yugoslav Marxists, without being explicit, addresses the problem of nonequivalent exchange.
Shortly afterward, at one of the next sessions of the CMEA in August 1949 in Moscow, the Albanian delegation reported on compliance with the sanctions and the embargo initiated by the USSR against Yugoslavia.19 In contrast to Popović, the Albanians pointed out the existence of nonequivalent exchanges with Yugoslavia (CSA, fund 1244, file 1).
Stalin's death in 1953 brought about changes within the socialist camp and restarted the theoretical debate on integration, albeit with difficulty.
4. The Ruble Zone and Some Theoretical Problems on Money
The beginning of the Cold War intensified Russian ambitions to establish an alternative center to the dollar. This task was accomplished in three stages, which have been conventionally called (i) postwar stabilization, (ii) formation of the gold ruble zone, and (iii) adaptation of the gold ruble zone to capitalist trade. The reforms led to interesting theoretical debates on money.
4.1. The Ruble Zone: From Isolation to Adjustment
The first wave of monetary reforms occurred during 1944–47,20 and its main objective was to eliminate the accumulated surplus currency stock, which was supposedly held by the “capitalist elements” and at fixed prices led to a shortage of goods and services.21 Although confiscatory in nature, these reforms were still in the context of popular democracy. Of particular significance was the monetary reform in the Soviet Union, carried out in December 1947. The threefold reduction of the money supply and giving gold content to the ruble were accompanied by the abolition of the coupon system and a move to open trade. This was followed by a reduction in prices.22 The Soviet reform became the model for the second wave of reforms in Eastern Europe.
The second wave of reforms in Eastern Europe in the years 1950–53 came after the Communist Party took power, and the immediate stimulus was the Soviet decision in March 1950 to decouple the ruble from the dollar and peg it directly to gold. To this end, gold was mined and accumulated in the USSR between 1946 and 1949. At the end of 1949, a devaluation of the major Western currencies against the dollar was carried out. Determination of the new gold content of the ruble was the result of various combinations to calculate purchasing parity mainly against the dollar for the period 1937–49. Attempts were made with retail price indices, wholesale prices (nonfood goods), and service price indexes. Once the dollar-ruble exchange rate was determined, in this case one dollar = four rubles, the gold content of the ruble was also determined. It was 0.222168 g per ruble, thus increasing its gold content by 32.5 percent.
Following this move by Moscow, the other countries whose main creditor was the USSR (Smirnov 1960: 262–74) undertook complex monetary reforms, where, in addition to reducing the money supply, they fixed their currencies to the ruble, and through it to gold. The coupon system was also abolished, and the switch was made to commercial prices. The announcement of the reforms was accompanied by the Council of Ministers’ decrees for reducing prices, which were listed in detail. The price levels of the individual CMEA countries generally converged (Wronski 1954: 150). The countries of the CMEA broke away from the dollar, and clearings began to be measured in gold rubles. Reforms were carried out under the direct supervision of Moscow.
In the end, the relations between the CMEA currencies as depicted in table 1 were reached.
The formation of the ruble zone was enshrined in official documents. For example, Poland's finance minister, Konstanty Dąbrowski, in his report to the Sejm of the Republic of Poland, noted that “thanks to the reform, the Polish zloty will take its rightful place among international currencies and will be equal to the world's most powerful currency, the Soviet ruble. The stabilization of the zloty will contribute to the expansion of economic and cultural relations with the USSR and the countries of the people's democracy.”23
In Bulgaria, the governor of the Bulgarian National Bank (BNB), Atanas Mechkarov, who in January 1950 was in Moscow to order the printing of banknotes, urgently returned to Sofia to inform the Prime Minister Vasil Kolarov that monetary reform was needed before ordering banknotes:
The foundation on which the reform should be built should be the ruble. Given the relation of the ruble to gold, we can, on the basis of the ratio of the lev to the ruble, determine the prices of commodities and the wage rate in different cases, in order to determine such a money mass of circulation as well as meet the needs of the commodity circulation. For this purpose, I even included in my questions on the Gosbank survey the question of the ratio of the ruble to gold. . . . Knowing approximately in total by how much the purchasing power of the lev will be increased and possibly what relation the same will have to the ruble, it can be determined at what value and in what denominations the banknotes will be printed. (BNB, archival documents, Sofia, Bulgaria, vol. 3, 358)
The third stage in the development of the ruble zone that of adjustment to the world economy, began with the reforms of 1961–63. Soviets were forced to devalue the ruble and lower its gold content. The task was to relieve the budget by removing export subsidies, often as high as 40 percent of its cost.
The new exchange rate of the ruble makes it possible to correctly compare prices on the world market and domestic prices in the USSR in rubles, the cost of producing goods in the USSR and other countries, and the level of labour productivity accordingly. Better conditions are created for a comparative calculation of the results of the economic competition of the USSR capitalist countries. In the new exchange rate of the ruble the successes of the USSR in the growth of labour productivity and especially in heavy industry are correctly reflected. The prices on the world market of a large part of the exports of heavy industry, expressed in rubles, exceed the domestic wholesale prices in the USSR and make the export of this production profitable. (CBRF 2008: 62)
The beginning was set by the reform in the USSR, launched on January 1, 1961, when a parallel denomination and de facto devaluation of the ruble (77.5 percent against the USD) was carried out. That is, the price scale was raised 10 times, while the gold content rose only 4.4 times (it became equal to 0.987412 g). Instead of setting 1 USD = 0.4 RUB, the rate was defined at 1 USD = 0.9 RUB.
The Soviet authorities urged other countries to make the appropriate changes. Only Bulgaria responded, and the Bulgarian delegation left immediately for the USSR.24 There are minutes of the meetings of the top leaders of the USSR and the BNB held in March in Moscow (BNB, archival documents, vol. 3, 626–36). In the conversations, Finance Minister Gorbuzov explained how the parity calculations were made:
Comrade Garbuzov pointed out that in working out the question of the purchasing power of the rouble the Soviet comrades had applied the following method: 1. They have taken the prices of the means of production a) in the USSR b) in the USA. . . . In this comparison they have obtained a ratio—for example 1 dollar = 0.60 new rubles. 2. Prices of means of consumption (1 dollar = 1.2 new rubles). 3. Prices of services (1 dollar = 0.30 new rubles).
The structure of the national product in the USA and the USSR is weighted both by individual industries and by the three groups mentioned. As a result, it turned out that the average purchasing power of the ruble against the dollar fluctuates between 80–90–100 kopecks per dollar. He pointed out that when the American specialists reported their calculations to the US State Department, before the USSR had even announced the new exchange rate for the ruble, they had also stressed categorically that the purchasing power of the dollar would be equal to the purchasing power of 80–100 new kopecks, i.e. . . . Garbuzov stressed that as a result of the reform in the USSR, subsidies to foreign trade enterprises had been eliminated, that Soviet wholesale prices were now broadly equal to world prices, making it possible to directly compare domestic and international prices. We also need a real exchange rate, under which subsidies and unnecessary budget bloating will disappear. (BNB, archival documents, vol. 3, 626–27)
One year later, from the first of January 1962, the price scale in Bulgaria increased 10 times and the gold content only 5.81 times, with one new lev containing 0.759548 g. This determined the exchange rate to the ruble: 1 ruble = 1.30 leva (and accordingly 1 dollar = 1.17 levs).25 Tsarevsky acknowledged more bluntly the unreality of the rates from the previous reform in 1952:
The small increase in the gold content of the lev (5.81 times) compared to its domestic purchasing power (10 times) was essentially a hidden devaluation. It was necessitated by the unrealistic overvaluation of the lev exchange rate carried out in the 1952 reform, when the lev exchange rate was raised 42 times while its purchasing power was increased only 25 times. (Tsarevsky 1976: 47)
Bulgarian lev appreciated against the ruble and the dollar. According to the Gosbank archives, the other members of the CMEA hesitated to make reforms:26
It is necessary to report that the official exchange rates of the currencies of the socialist countries, established at their request by gold parity, do not correspond to the real purchasing power of their currencies and are therefore inflated. This is well understood by the representatives of the socialist countries, who, during the consultations held in Moscow, stated that they are not prepared at the present time to change the gold content of their currencies in accordance with the real purchasing power, primarily for political reasons, because this could be regarded as a devaluation of their currencies. It would seem that the socialist countries will gradually carry out the necessary measures in the field of monetary circulation and will put the exchange rates of their currencies in order. Moreover, Bulgaria has been ready to carry out such measures since the first of January 1962. (CBRF 2008: 62–63)
This reluctance to change exchange rates on the basis of price parity was one of the reasons to move toward the creation of a special collective currency serving only foreign trade between the CMEA countries (primarily in the form of clearing). The transferable ruble, a noncash and closed currency, together with its issuing bank IBEC, was launched in January 1964.
4.2. Theoretical Issues: The Place of Gold and the Volume of Currency
The demarcation of the socialist monetary zone also required a convergence in the theoretical views of the economists of the CMEA. We limit ourselves to two questions—the place of gold and the determination of the volume of currency.
The question of the place of gold under socialism became central to the economists of the CMEA. According to Marx's quantitative theory of money, developed in the mid-nineteenth century, in domestic circulation gold fulfilled the role of money fully but ideally, that is, it could be replaced by currency tokens. In foreign trade, however, gold performed the role of international currency, fully and directly.27 After the reform of 1950, two theoretical approaches were formed: roughly speaking, “gold” and “commodity.” The first group of scholars argued that gold was the objective basis of currency circulation in domestic and in foreign trade, and it determined the price of the ruble, this being dictated by the law of value under socialism. The other group believed that gold was only important in foreign trade, and within the country the basis of the ruble was directly commodity-based. In the first group, for example, were the Soviet economists F. Mikhalevsky and Z. Atlas, the Bulgarians D. Poryazov and M. Velyov, while the second one included Y. Kronrod, V. Batyrev, and the Bulgarian N. Tsarevsky.28 After Stalin stated that the ruble was covered with goods, the first group came to a compromise, which was illustrated by Z. Atlas.
Related to the purchasing power of the socialist currency are its gold content and exchange rate. . . . Between the purchasing power of currencies on the one hand and their gold content and exchange rates on the other, there must be some correspondence. . . . As a consequence of the dual expression of the value of money and its stability, it also possesses a dual backing, commodity and gold exchange, in which the former predominates. (Atlas 1969: 345–46)
Later the thesis of the double collateral (commodity and gold, as additional) was imposed, despite the resistance of Y. Kronrod. In fact, there was also a debate about the demonetization of gold in the capitalist system. In 1974, a discussion was held in Leningrad where opposing views emerged. According to some scholars (the Soviet economist G. Solus, the Hungarians I. Hagelmayer and N. Tsarevsky), gold had been demonetized, while according to others (the Soviet economist A. Alexandrov and the Bulgarian scholar D. Poryazov) it continued to play its role physically (Tsarevsky 1976: 78).
The second theoretical debate was related to the nature of the non-cash funds of the population and enterprises and how to take them into account when calculating the optimal volume of currency. In Marx's formula in volume I of Capital, which was taken as a practical tool under socialism, there were no cashless payments and deposit money. According to the majority of economists, among whom Z. Atlas, cashless funds of the population and enterprises were not money tokens and did not affect the purchasing power of money. In order to influence prices, they had to be converted into cash and gain access to the consumer market. According to Atlas, noncash money was only a right to get cash money. Mikhalevsky (1947) argued that, whereas under capitalism cash gave rise to cashless money, the causality under socialism was the reverse. According to Y. Kronrod, however (and also G. Kozlov), noncash funds were part of the money supply; they also served the commodity turnover. They should be regarded as credit money tokens, like banknotes. The law of monetary circulation applied to them, and they must be accounted for.
In any case, this debate set the task of studying in detail the channels of transition from cashless to cash money (and vice versa) and of extending Marx's formula. The controversy over what to include in Marx's equation led to interesting analytical developments. One of them was a focus on the structure of cash and noncash money in geographical, social, and temporal terms (the pioneering work of F. Mikhalevsky [1930]). Subsequently, structural analyses expanded in the direction of calculating sectoral velocities of money and constructing matrices of money balances. These topics became an important analytical priority for the CMAE's member states’ central banks. In 1956, the importance of measuring the velocity of money (i.e., the demand for money) was indicated in the report of the BNB governor Vela Lukanova to the Politburo of the Communist Party:
In connection with the continuous increase in the size of the money circulation, the main question that has arisen to the Bank is whether this increased size corresponds to the actual needs of the national economy, or whether it is above them. Such a calculation, based on the theory of Marx and on some methodological premises assimilated in the practice of the Gosbank, was made at the BNB. The main point of this calculation was to ascertain the velocity of circulation of the money available in the different population groups in order to obtain the average circulation in the country. The calculations showed that the average velocity of money in circulation in days was 30.6, or money made 11.76 turnovers during the year. (BNB, archival documents, vol. 5, pt. 3, 391)
5. Concluding Remarks
In the first place, World War II raised the question not only theoretically (the models of Hoselitz) but practically of the possibilities of building an alternative to capitalism, a socialist integration model. This led to the emergence of the CMEA and was incorporated in its programmatic documents. However, a clear theoretical basis was lacking, and placing international exchange on the labor theory of value, within the framework of clearings, led logically to a nonequivalent exchange, according to Marx. This was perceived by the Yugoslav Marxists, who as early as 1949 set out to develop their own economic model. Later attempts to formulate integration in terms of comparative advantage could be seen as a search for more efficient criteria for trade.
Second, the formation of the ruble zone as an alternative to the dollar, and its linking to gold, was clearly outlined in the reforming documents and analyses at the time. The initial enthusiasm, especially after the reforms of the late 1950s, when CMEA exchange rates were unrealistically inflated and aligned to the ruble, quickly melted away. The Soviet reform in 1961, aimed at adapting the Soviet economy to the constraints of the world economy, and at reducing budget losses, put other member countries in a difficult stance. They wanted to set new exchange rates by the gold content of their currencies to the ruble, rather than calculate price parities and change the gold parity (only Bulgaria accepted the Soviet proposal).
Third, the difficulties of practice fostered attempts to develop the theory but still within the framework of Marxist formulations. The place of gold and the determination of the optimal quantity of currency became at the core of the theoretical debates. The latter contributed to advances in the treatment of the cashless/cash dichotomy, as well as interesting analyses of the structure of currency circulation (the demand for money) and its velocity. In general, the complications of building a workable socialist political economy were manifest in its detachment from practice, where the “laws and practices of capitalism and the market” continued to be used.
Notes
See, e.g., Lipkin 2019a, 2019b; Broad and Kansikas 2020. See Stone 2002, which extended the contemporary research on the international political economy on the East European states dominated by the Soviet Union, mainly covering period after 1965. We outline the basic studies on socialist integration such as Kaser 1967, Wiles 1968, Korbonski 1990, Balassa 1992, Machlup 1977, Wilczynski 1978, Schiavone 1981, and Lavigne 1985. See also the important recent book by Sanchez-Sibony (2023a).
One of the referees rightly pointed out that there are serious discrepancies between what is claimed in socialist literature (theory) and what is done in practice.
A number of recent studies testify to a constant desire of the Communist authorities to integrate into the world economy (Sanchez-Sibony 2023a, 2023b). The New Economic Policy (1921–28), according to Sanchez-Sibony (2019), was the first Soviet global project.
See the Grundrisse of 1857–58; Marx, “The Intellectual History of the International Economic Socialist Order,” is presented in Tamedly 1969.
The organic structure of capital shows the ratio of constant capital (mainly machinery and material/“dead labor”) to variable capital (labor/“living labor”). According to Marx, only variable capital created new value, constant capital only transfers its already existing value onto the product.
For a review, see Lavoie 1985.
Among them were G. Cole, F. Lawley, F. Wibaut, and A. Lerner. In 1942, Neurath published International Planning for Freedom and developed the idea of societas societatum.
Hoselitz (1913–95) was for many years a professor at Chicago, a student of Mises, a translator of Menger, and the founder of the journal Economic Development and Cultural Change. He reviewed theories on integration among socialist countries (Hoselitz 1949).
Subsequently, voluminous annual reports began to be published by the Russian Academy of Sciences under the title Competition of the Two Systems (until 1990).
As examples of Soviet economists familiar with Western theory, we can mention the director of the Institute of World Economy and World Politics, Eugene Varga (1879–1964), and the two financially trained scholars who attended Stalin’s international conferences and meetings with Western leaders, Alexei Smirnov (1884–?) and Zakhary Atlas (1903–78). See the publications of Varga (1948), Smirnov (1960), and Atlas (1949).
Delegations from six countries (the USSR, Bulgaria, Hungary, Poland, Romania, and Czechoslovakia) took part in the founding meetings of the CMEA on January 5–8, 1949. The initiative was jointly submitted by the USSR and Romania (CSA 1949, fund 1244; Lipkin 2019a, 2019b; Ágoston 1965; Nikova, 1989).
The April 1949 session approved the staff and salaries of the CMEA, consisting of 28 councillors, 36 assistants, and 64 technical and domestic staff (including 24 drivers) (see CSA, staff establishment plan, 1949).
Probably the first Western study on Soviet prices and exchange rates with Eastern Europe was Wyczalkowski 1951.
However, the extensive research of Ironside (2021) shows that money was actively used by the authorities to achieve certain goals especially on the consumer market. On price reductions, see Ironside 2016.
On Charles Bettelheim, see Allisson’s article in this issue.
Boris Kidrič (1912–53), Edvard Kardelj (1910–79), Milovan Djilas (1911–95), and Moša Pijade (1890–1957), who was the translator of Capital. The Yugoslav model immediately became the subject of attention by Western authors (see Milenkovitch 1971).
The study was subsequently translated into French (1949), German (1950), and English (1950). Popović (1913–71) was an important figure of the Yugoslav leadership and a prominent economist. He was chairman of the planning commission, minister of finance, and from 1967 until his death, president of the Assembly (Strausz-Hupé 1950).
Vasil Kolarov (1877–1950) was at that time prime minister of Bulgaria. He was also a Communist with an outstanding international career who studied in Aix-en-Provence and Geneva.
In 1947, Albania pegged its currency to the dinar, at a one-to-one ratio.
Czechoslovakia and Hungary in 1946; Albania in 1945, 1946, and July 1947; Bulgaria and Romania in 1947; the DDR and China in 1948. The Bulgarian reform, mostly carried out by the minister of finance Ivan Stefanov (a student of L. Bortkiewicz), was subsequently criticized (Archives of the Bulgarian Academy of Sciences, fund 138, Sofia, Bulgaria). Allegedly, the minister of finance and the governor of the BNB decided to release cash checks for payments between enterprises, which increased the money supply (Velyov 1956). Later on, they were accused of sabotage and espionage. There were similar trials in almost all socialist countries.
Among the motives for the Polish reform, Minister Dąbrowski noted in his Sejm speech that “the main aim of the reform is to transfer a large part of the capital accumulated in cash by capitalists to the pockets of the working class in the towns and villages. . . . It has become urgent to move towards a reduction of the reserves in cash accumulated by capitalists during the past period” (Le Service des archives économiques et financières [SAEF], Paris, box B0060366/1).
The reform was conceived before the war in 1939, when two academic teams were formed, respectively in the Ministry of Finance (headed by V. Dyachenko and coordinated by Minister A. Zverev) and in Gosbank (an expert bureau headed by M. Bogolepov and Z. Atlas and supervised by Governor A. Korovushkin). In determining the exchange rate, price parities were taken with the United States. Different calculations were made for the exchange ratio, ranging from two to fifteen old rubles for one new one. Not without Stalin’s participation, the ratio of 10:1 was chosen. See Chudnov 2018 and recently Belykh and Mau 2023.
The report began as a speech given on October 28, 1950 (SAEF, box B0060366/1).
On the Bulgarian side was also present Nesho Tsarevsky, deputy governor of the BNB. Tsarevsky defended his dissertation in 1956 in Moscow under the supervision of the famous economist Professor Nikolai Lyubimov, a participant in the monetary conferences between the wars and a translator of Keynes. Tsarevsky was well integrated into Soviet academic circles.
Cuba made an independent reform in 1965.
Later, Marxists such as R. Hilferding, R. Luxemburg, O. Bauer, K. Kautsky, E. Varga, etc. believed that in the twentieth century prices were determined without a direct link to gold, and paper money directly reflected commodity flows (see the collection of translated texts in Shmelev and Shern 1929).
