The Hayek Foundation (Moscow)
According to the 2005 Economic Freedom of the World – an annual report published by Cato Institute - Russia’s economic freedom rating has gone down from 114th to 115th place out of 127 nations surveyed. The whole world keeps asking the question, “Why such a large and self-sufficient country happens to be one of the world’s poorest?” What’s the secret of modern Russia? What has ruined a major nuclear power? There is a simple answer to that – socialism! Socialism established in Russia by a military force regardless of its people’s interests ruined a once great Russian empire. The Communist Party’s efforts turned Russia into a ‘black hole’ (Zbigniew Brzezinsky).
Today’s Russia is a nation of surrogates or a surrogate state, wielding an enormous nuclear potential deployed on technically outdated hardware. Markets, money, stock exchanges, stocks, oligarchs and banks, as well as parliament, parties, the government, courts, and, finally, democratic presidential elections – all those are surrogate in Russia. They are a sham hiding behind familiar words. The words remain the same the world over, but they have acquired different meanings in Russia. The right words conceal topsy-turvy phenomena in Russia.
The author imparts to the word “surrogate” the meaning of the Soviet-age practice of renaming scientific categories into their antipodes: money was renamed into ‘non-money’ - a surrogate of money (‘labor unit’, ‘work money’, ‘labor money’, ‘work coupons’, ‘Soviet banknotes’ whose value scale was determined by ‘work time’ or direct human energy expenditure (‘energy equivalent’). Given the cost is measured by work as a social activity, and the labor’s natural scale is gauged by work time, the latter should also be a value criterion. Hence, work time is both a value scale and the substance of banknotes, i.e. a unit to measure the cost. Energy equivalent that emerged in Soviet Russia back in 1918-1921 and following the Second World War (in 1960s-1980s), evolved into a qualimetric (qualificare – Latin for ‘to determine quality’) complex labor recording theory has translated a Soviet individual’s productive labor into a surrogate, similarly to money. A qualimetric volume of production is a value calculated by multiplying the quantity of the goods produced (in items, tons, meters, etc) by specific indicators of consumer properties (quality) of output units. Specific indicators of quality are called qualimetric indicators (‘quali-gross output’ and ‘quali-price’).
The concept of 'state value' is a surrogate for the concept 'value'. It was no accident that vulgar political economics has renamed the concept of value into a ‘constitute’ or ‘state value’. A major Pomeranian landowner Karl Rodbertus-Yagezov (1805-1875) was the founding father of ‘state value.’ He was a Prussian landlord, a big Pomeranian landowner. The German economy’s backwardness and underdevelopment forced junkers to count on government assistance. Thus, there occurred a purposeful merging of the ‘use value’ with the ‘exchange value’, and the ‘exchange value’ as an economic category was negated. The ‘state value’ concept is far from new in the history and theory of economic thought. ‘State value’ was preceded by such concepts as ‘labor value’ elaborated by Robert Owen, J. Bray, and D. Gray, as well as ‘conventional value’ developed by P.J. Proudon and F. Lassal. Rodbertus only put finishing touches to a protracted process of turning a classical political economy inside out – at odds with economy. The ‘state socialism’ banner united such great thinkers of the 19th-20th centuries as I. Fihte, G.B. Say, G. Sismondi, W. Windelband, G. Rickert, F. List, L. Blanc, G. von Schmoller, L. Brentano, G. Wagner, U. Wolf, L. Woltman, G. Kunow, W. Sombart and other pre-war-Europe policy makers that ‘installed’ Lenin, Stalin and Hitler.
Rodbertus’ state socialism logically finalized the elaboration of the theory of ‘consecutive constituting of all exchange values’ (P. Proudon). State socialism is a socialist conclusion of economically remaking value law into utopia. The socialist theory treated three concepts – ‘labor’, ‘value’, and ‘state’ – as one: ‘a closed commercial state’ (Fihte). The latest history treats the word ‘socialism’ solely as ‘state socialism’ of the Gestapo type, and not in any other way. By 1917 ideological preparation for the October revolution was complete.
In 1917-1991 political economy in Soviet Russia and other European nations was targeted against human economic activity. There emerged a closed repressive system of state economy, or ‘national socialism’, according to Friedrich von Hayek. Werner Sombart wrote about Karl Rodbertus, “his earlier works had a bearing on Karl Marx and through him triggered the development of viable economic ideas. Such is his historical relevance.”
Since 1917 Russia has seen a systematic destruction of the capitalist mode of economic activity, engendered by Tsar Peter the Great’s reforms in the early 18th century. The ‘closed commercial state’ that emerged in Soviet Russia was dubbed ‘non-monetary state economy.’ The idea of a closed labor state and non-monetary commodity exchange on the ‘labor equivalent’ basis was borrowed from reality and put into effect by applying the military force.
Following the First World War Russia was left with inadequate monetary, fiscal and lending systems. The market was disintegrating, money was devalued. Effectiveness and reliability of monetary records of ‘complex labor’ and currency circulation took the plunge. In the runup to the October 1917 revolution Russia lost all economic groundwork for correct pricing. Ways of determining business profitability changed. Monetary records of ‘complex labor’ gave way to non-monetary records. Naturalized and centralized economic relationships increasingly brought about fewer monetary functions and the shrinking of the overall financial system.
The February 1917 bourgeois-democratic revolution ended in defeat for a young and fledgling Russian bourgeoisie, in the transfer of industrial enterprises under workers’ control and – as a result – in the establishment of the proletariat’s military dictatorship following the October 1917 revolution. Between 1917 and 1991 Russia lived under a repressive and illegitimate regime, i.e. a surrogate of democracy. To bankroll the Soviet power the proletariat’s dictatorship reinstated the tsar-era currency circulation, natural economy, a communal use of land, barter, and labor conscription. All these questioned the need for developed commodity-monetary relations to flourish under the Soviet system (1917-1991). The establishment of fixed prices and the emergence of ‘commercial money’ were the state non-monetary economy’s distinctive features. Eliminating the results of the February 1917 bourgeois-democratic revolution clearly pulled Russia back toward a medieval, patriarchal economy based on non-monetary equivalent exchange.
Naturalization of Russia’s overall economic life brought about monetary hunger, communal, collective use of land, and consequently – an end to commodity-monetary relationship throughout the Soviets’ protracted existence (1917-1991) by bringing monetary surrogates – the Soviet banknotes - into circulation. Socialism as a labor mode was designed as a repressive state economy based on non-monetary natural circulation. Social equality based on reducing ‘complex labor’ to ‘simple labor’ (work of an esthetics professor was measured in horse-power) was always a surrogate of social justice in Soviet Russia (S. Strumilin). Under the Soviet regime there was no answer to the question, how to measure labor under socialism? The USSR State Bank had the sole function as the country’s cash agency. Labor conscription and the use of non-economic state coercion methods are still described as government economic regulation. The Soviet breakup was provoked by internal contradictions proceeding from the very nature of state socialism.
1980s-1990s saw the Soviet system’s internal contradiction: collectivized industry was combined with individual use of land and, as a result, there was parallel functioning of valueless paper money that later on took the shape of ‘commercial money’ under the market law, “the best money crowds out the worst money.” Contradiction between natural circulation and money circulation resulted in, first, the emergence of ‘commercial money’ and later on – other forms of non-monetary equivalent. The particulars of ‘commercial money’ circulation are such that it functions beyond any government regulation and accumulates property inequality in the country, thus preparing a social basis for a bourgeois revolution, since economic and political power centers come into conflict with one another. At the same time, the circulation of uncovered Treasury notes – ‘the Soviet rubles’ – as ‘labor money’ leads to turning surrogate banknotes into capital even in the first round of circulation. Money loses its ‘labor origin.’ The social justice and social equality theory elaborated by the founders of utopian and state socialism on the basis of state value was refuted because it was not put into practice while the Soviet Union and the world socialist system existed. It was no accident that Russia took a turn to the right – toward economic liberalism and the free capital flow theory. It made this move due to historical necessity.
The Soviet Union as a world power imploded, suffered a defeat due to internal reasons and contradictions rather than in an armed conflict. The Soviet collapse caused a geopolitical shock in the West. The world’s strong historic confusion shaped up a lasting illusion in Western countries that Russia was implementing liberal reforms. The 1990s liberal reforms were arrested by the Chernomyrdin Cabinet after the Gaidar Cabinet liberalized prices (1992). Privatization of government-run property initiated by Anatoly Chubais clashed with free competition and was also suspended. Open economy and the emergence of oligarchs not from among the bureaucracy, but from another environment enraged the orthodox bureaucratic apparatus.
2000-2005 saw the launch of secret re-privatization and appropriation of successful private businesses. Instead of addressing the restructuring of national economy, Russia’s ruling circles have taken the road of least resistance. During Boris Yeltsin’s tenure Russia’s free-market reforms gave way to foreign loans as an easy way of combating the economic crisis.
The Clinton Administration that approved all Russia’s foreign loans in the early- and mid-1990s caused the Russian Federation an irreparable damage: the Russian people have lost faith in themselves, in private ownership and economic freedom. Disenchantment has led to fear, mistrust, anxiety, and suspiciousness, which helped the shaping of a maniac-depressive psychological type, paranoiac mindset and ideological insanity. Pathological belief in Russia’s nuclear superiority has triggered anti-American patriotic hysteria (not unlike the Germany’s patriotic hysteria targeted at Britons’ mercenary ideology in 1914, in the run-up to the First World War). Business has given up a legal creation of new value, the tax base has shrunk, private businesses are lying idle, the number of small operators has dropped nearly twofold, entrepreneurs live in the fear of repressions, pogroms and property confiscations, and business awaits a forcible seizure of private property.
The problems the government faces are also tipping the balance of domestic policy. High world oil prices have imparted it with a feeling of an unlimited power, while systematic goofs in the social sector reforms have communicated pathological complexes to the Kremlin and the government. They have started suspecting the country of a pervading “conspiracy against Putin”. They believe stock exchange crises were “coordinated”. The powers that be wield repressive official ideology. Society is rife with rumors about the “Kremlin conspiracy” and “secret services’ conspiracy” against business. Russia is widely discussing and studying the lessons of Ukraine’s “orange revolution”, and the “color revolutions” in Georgia and Kyrgyzstan. Opposition united under a common slogan “Russia without Putin” has emerged in Russia. The Russian people realize only too well that economic and social reforms in the country should better start after the 2008 presidential election – with restructuring the primitive credit and monetary relations.
Such leading think tanks as the Heritage Foundation (USA), Cato Institute (USA), Fraser Institute (Canada) and others clearly have been hasty to number Russia among free-market economies. The concept of the “index of economic freedom’ is incompatible with a non-market government-run economy that is predominant in Russia and which is the legacy of the Soviet Union. What measure of economic freedom can we speak about within a closed and monopolized state economy, which still prevails in Russia? Today’s Russia is a phantom of demised communism, wounded and embittered by property inequality within itself, dashing different ways and waging a desperate struggle against both a mercenary spirit of individualism inside itself and the surrounding capitalist world.