THE DEVELOPMENT OF THE SOVIET BUDGETARY SYSTEM By R.W. DAVIES, ALEXANDER BAYKOV CAMBRIDGE AT THE UNIVERSITY PRESS 1958ot Prin in Get Bri ae Univ Pr, Canbrige (Gite Cri, Cais Prnte) CONTENTS Foreword page ix Praface si List of Tables w List of Figures, wi Explanatory Notes i Abbresitions xix People’s Commissors of Finance 1917-41 xi Parr I. Revorurion axp Crvit WAR, 1917-20 Chapter’ rWe mAcKGROUXD AND THE POLICY 3 1. The economic and financial background to 1917 ‘2, Finance and the war 7 5. Provisional government 9 «4 The policy of the Bolsheviks 10 Chapters Finer exes, ooromEn 1917 ocromEn 918 14 Chapter vOWARDS A BUDGET IN KIND, 1918-20 26 1. Thedecline ofthe money econosny 26 2, The growth of the sope ofthe budget 30 (@) lnvdustry and ehe budget 3 (@) Local finance 33 3. Control of budget expenditure 35 4. The moneylesseconoay and the material budget 32Chapter we Chapt Pant Il. Tue Mixtp Ecoxowy, 1921-9 syste, 192t—$ ee 49 1. The New Economie Policy, 19at 49 2. The inflation of 1921-2 st 4g. The restoration of the budget, 1921-2 ot 4 The abolition of the budget deficit, 1903-24 ey 45. Prewar features in the NEP. system, cn 6, Innovations & (a) Budgetary revenve & (6) Budgetary expendisure 7% 27. The budget and the economy 7 8. The system of lagal budgets * 9. The system of republican badgers 8 AND THE PLANNED ECONOMY, 1925-9 8 1. The decison to industialise 85, 2. The suppressed inflation of 1935-9 8 1 The policy of price reduetion 3 4 The policy of industialiation and the growth of iret planning on 15 The beginnings of financial planning 97 6, The problem of accumulation 100 1 Internal industrial aecumlation 10g 8. ‘The budget and accumulation 106 9, Budgetary accumulation and the private sector 109, () Taxation of the private sector in the towns 109, (}) Taxation of the private setor in the ‘countryside 10, Accumulation from the state sector (2) Deductions from profi, and income tax (8) Promtax (© Eeises 1, State loan 12, Budget expenditure Ghapter vt Chapter vn Chapter ve Parr IIL Tuk PLaxxen Ecoxomy, 1930-1 FINANCIAL PLANNING AND THE BUDGET page 139 139 at 1, Economie planning in the USS.R. 2» Money and divect planning Accumulation and investment Accumulation through profits and dhe budget "The unified financial plan and the budget [Refinements ofthe simplified system (2) Indusury (8) Relations with the nonstate sector (6) Modifications in the revenue system (@) Balancing the retail market 7. The financial planning system as 2 whole the budget are 8, How financial plans a compiled, 9, The budget and the national economic plan to, Balancing the budget sysrea, 1928-30 1, Failure ofthe accumulation plans 2. The tem of budgetary revenie 3. Control oF expenditure svar 1950-4 1. Reform ofthe revenue sytem 2. Tumover tax 4. Profits tax (deductions from pris) 4 Taxes on agriculare 5 Other sources of revenue 6. Budgetary expenditure 7. Expenditure on agriculture and transport 8. Other budgetary expenditures 198 198 199 203 215 234 26 239 240Chapter MPROVEMENTS AND MODIFICATIONS #8 THE 0, 1935-41 1, The administration of budgetary expenditure afer the abolition of rationing («) Capital investment (8) Non-investment allocations tothe economy (© The financing of institutions maintained by the budget 2 The financial control of industry after the abolition of rationing 4+ Changes in the revenue system after the abolition of rationing (@) Revenue directly from the population () Method of payment of turnover tax (© Rates of timover tax Chapter < vith SYSTEM OF LOCAL AND REPUBLICAN Chapter xi THE BUDGETARY sySTEM IN PERSPECTIVE 1, The war years, 1941-5, 2. Pontewar changes 4 Limitations ofthe sytem 4. Possible changes in the sytem () Decentelisation (8) Innovation and investment atthe level of the Com 15. The pre-war budgetary system in perspective Bibliography dex age 244 255 262 264 a2 280 30 283 284 297 a4 34 315 322 329 329 332 335 337 3H 353 FOREWORD Oven ten years ago, in the preface to my book The Decelopmen of the Soviet Beonomic Sysiem, T expressed the hope that it would arouse further interest in problems which I had only touched upon, stesing ‘my awareness of the shortcomings of my work, which were partly due to the fact that *in my approach and method of treatment, “I was thinking alone™”. Since then, several serious studies have been published on diferent aspects of Soviet economic development and ‘on come aspoets of the functioning of the Soviet economic system. ‘A number of major fields of study, however, have not yet been subjected to sufficiently close analysis by scholars. Such has been the ‘ease with the role played by finance in the Soviet economic system, Both actual financial developments in the U.SS.R. and the working principles ofthe Soviet financial system have so far remained almost ‘untouched as subjects of serious and comprehensive study. The gap hnas now, to a large extent, been closed in this systematic survey of the subject by De Davies Despite the fact that he is concerned mainly with the development of the Soviet budgetary system, he has not only studied it in its relations with other aspects of the Soviet financtal system, but has analysed it in the light of the application of the general economic policies of the Soviet government to the development of the national economy during the whole past period. He has applied a method of | historical approach to his study of the financial system somewhat similar to that which I tried to apply in my very general intraductory ‘work to the stuly ofthe development of the Soviet economic system asa whole, ‘This method has enabled him to distinguish to what degree some ‘of the features of the Soviet financial system have been, on the one Ihand, the products of specifically Russian environment, a heritage having its roots in pre-tevolutionary conditions, in the circum stances ofthe initial stages of building the system during the N.E.P. period, or in particular policies ofthe Soviet government; or, on the other hand, have been the products of ayy system of diet economic planning in which the financial system, as such, plays a part of butsecondary importance, that of facilitating the carrying out of the ‘main economic decisions of the government, Tn a historically short period, the U.S.S.R. has been converted from a comparatively backward agricultural country into a highly industrial one. It has been possible to achieve this only by th concentration of effort in allocating the material and human r= sources of the country for carrying out the economic policy pursued by the government. What roles have the budgetary system and the financial system as a sehole played in the allocation of resources between competing ends? In an attempt to answer this question, i hhas been necessary, first of all, co make a detailed study of the actual developments in Soviet finance in the light of the application ‘of economic policies. But, in order to appreciate the functioning of the financial system, to clucidate its working principle, it has been necessary to go further and ta try to answer the question not only as to what role it has played, but fow it has played it. How is the accumulation of financial resources for investment catried on in an allembracing nationalised economy? What kind of problems arise in seeking to promote efficiency in the use of financial resources for capital investment and current production and in controlling their use? What partis finance playing in promoting efficient manage- ‘ment, in ensuring technical and economic progres, in costing and wgsupply and consumers’ demand, in the organisa ve and individual saving and their application to the productive and cultural activities of society? To what extent have the problems been solved inthe Soviet financial system of reconciling the rigidity of centralised planning with the flexibility of administra tive decision, of encouraging experimentation, and of ensuring the roduction of useful innovations by executive units? Bt pirst GE este ED rset setae tee is constantly aware of these problems. It is for this reason that 1 consider that this work is of great value, not only to economists who are interested in financial and economic development in the Soviet Union, but to all economists who give some thought to macro economic problems, to the problems of the functioning of an econo mic system a8 a whole, ‘One of the main economic problems of our time is that ofinvest- ‘ment, the problem of the efficient allocation of the material and Inuman resources of society as whole between competing ends. In a capitalist economic system the financial processes play a decisive role in this socially vital funetion. In the Soviet economic system, finance is subordinate to the direct planning of production and distribution. Despite this subordinate role, however, financial opera- ‘tions are sill of paramount importance in determining the succes oF failure in practice ofthe plans of economic development drawn up. Dr Davies's work throws much light on Soviet approaches in th field and poses many problems deserving serious examination by ALEXANDER BAYKOV PaBREART, 998PREFACE "Tus essay attempts to trace the development of the Soviet budgetary system before the second world war through three main periods— War Communism (1918-20), the Mixed Economy of the New Economic Policy (1921-9), and the Planned Economy (1930-41 Tn the light of wartime and postwar experience, a final chapt ventures some suggestions on how far the pre-war budgetary system was a purely historical phenomenon resulting from the special conditions of Soviet industralisation, and how far it is ikely to be permanently appropriate to directly planned economies in the USS.R. and elsewhere Tn dealing with so large a theme over so long a period T have necessarily had to concentrate my attention on those aspects of the Soviet budgetary system which appear to be most important for a general assessment of ts main characteristics, and which most distinguish it from the systems of other countries. The technical problems of the organisation and administration of the assessment, collection and disbursement of budgetary funds are therefore treated in summary fashion, although reference is made to sources in which ‘these matters may be pursued further. Similarly the annual budget figures and data on ther flfilment are not analysed in detail, but are adduced only to illustrate the main features of the evolution of the system, Particular attention is given to the part played by general ‘economic policy and development in shaping the main features of the budgetary system in each period; but in this treatment the ‘economic policy of the Soviet government is taken as given—no attempt is made ata critique of this poliey or at a fresh analysis ofthe development of the economy; my aim is rather to see how far ‘budgetary policy was appropriate to the general policy of the ‘government. Thus the scope of the argument is restricted. "The present book is a revised version of a Ph.D. thesis presented at the University of Birmingham in 1954, with a final chapter added. 1 should like to express my gratitude to the Treasury Committee in Foreign Languages and Cultures, which awarded the scholarship that enabled me to pursue studies inthis field, and to the ResearchBoard of the Faculty of Commerce and Social Science of the Univer- sity of Birmingham, which in the person of its chairman, Professor P. Sargant Florence, acted as sponsors for ths studentship, In both its original and its revised form this study was prepared ‘under the supervision of Professor Alexander Baykov. His con- ‘tinuous traning and guidance, and unfailing patience, were the sine (qua non of my research; and T should like to express my warmest gratitude to him forall his asistance. T should also like to thank those who gave me asistance and advice during the revision of the original thesis. These include Profesor ‘Caimcross, Dr Schlesinger, and Messrs E. H. Carr, M. H. Dobb, A. Mackintosh, J. Miller, and A. Nove, each of whom read part ot all of the typescript and made valuable comments and suggestions. Mrs B. M.D. Smith undertook the painstaking work of preparing the index. R.W, DAVIES prcewarn, 1955, TABLES State budget revere and expenditure, 1969 and 1913 Page 4 Revenue and expenditre of state budget, 194-17 8 Garren crculstion, 1914-47 9 Gurreny circulation, 1917-18 4 Garreney circulation, 1918-28 3 Budgetary revene as proportion of expenditure, r918-20 gr Reduction of eimates, 1948-20 37 Revere of state budget, 1917-21 2 Expenditure of state budget, 1917-28 2 Gucreney creation, 1921-4 53 Variations in budget estimates, 1920-4 6: Budgetary revenue and expenditure, 1913 and 1924/5 65 Local budgets, 1921-4 6 Revenue of state budet,1922/5-1929/30 Os 5 Expenditure of state budget, 192/3-192930 83 [A Soviet index of prices, 1004-9 &% Financing of sociale industry, 1904/5-1928/9 103 3. Redcton of industrial cons, 1925/4-1928/9 105 [Nasional income and the budget, 1924/5-1929/9 107 Direct taxon diferent income levels ad group, 035-3018 Agricultural tax by income groups, 1904/5-1900/80 16 Distribution of profits of state industry, #905-9 120 Reverie fom exces, 1918-1927/8 133 State loans and national debt, 1924/5-1928)o 126 Expenditure of overall budget, 19245-19389 139 "The financing of agriculture, 1927/8 135 [National economic plan data wed in comping the sate budge’ example af NK of coal industry, 44 108 Rates of turnover taxon selected goods 1930-2 a8 Sources of agricultural tax, 1991-5 233 Some changin price levels, 1908-48 a8 Wage find, 1055-40 249Expenditure on defence and the NKVD, 1037-41 page 250 Social insurance budget, 1990-41 234 Allocations to foreign affairs as set out in 1917 and 1995 beige Sources of capital investment, 1932-40 279 Total turnover tax and profits, 1934-41 to Loans to sate, 1031-41 282 “Turnover tax rates on selected goods, 1992-41 208 ‘Uses of turnover tax for discrimination 289 (i products: percentage rates of turnover tax 291 |. Turnover tax by branches of the economy, igagigongs 292 Revenue ofstate budget instandardived classification, 1928/9-41 295 Expenditure of state budget in standardised classification, TyaBlo-g 29h - Expenditure of Union, republican and local budgets, 19256-4100 - Expenditure of republican budgets, 1925/6-41 301 Local budget expenditure, 1924/5-39 301 Expenditure of all-Union bodies by republics, 1926/7 and 1936. 305 . Expenditure per head of local and republican budgews, by republics, 1926/7-39 = 307 Percentage of turnover tax deducted to republics om amount ‘collected on thir territory, 1932-40 310 Local revenue, 1924/5-39 312 Profits, turnover tax and price reductions, 1949-55 318 Reduction in industrial costs, 1949-55, 319 FIGURES The Soviet system of financial planning: a fist approximation pace 154 (a) The finances of an industey 166, (6) Soures of the capital investment plan 67 [e) Thestructure of budgetexpenditreon thenational economy (industry) 168, (a) Distribution in kind of gross agricultural production of alert fare sett (8) Money income and expenditure of collective farm {c) Income and expenditure of eoletve frmers (@) Relations of budget with collective farm agriculture ‘The adoption ofthe budget and the national economie plan Soviet financial planningEXPLANATORY NOTES (0) Abbreviations are given in fall and Russian terms are defined when ‘they fist appear, and a Iistof them is appended. (2) Sources are given in fll when they ae Gist cited; and ful tiles are given inthe Bibliography. (3), The official collecion of laws and decrees published by the RSFSR. government (Sobrane wzakonnil frwporachei...) 5 eited 28 SU ‘this was the main eolletion until the formation of the U.SS.R. ‘Eeversment bu 1904); ed the Sobran calor f reprpacha of the USS.R. government i cited ax 82, In both cases the symbol is fllowed by numer of decree, year of publication, and date of approval of the decree by the government "The verbatim reports of scsions of TSIK. (listed in the Bibliography) are refered to inthe text a8 TaIK, fllawed by number of eon (sta) jn Arabic mumerals and number of convocation (aye) im Roman numerals, (4) Dates are given Old Style before the calen 1918 (ie. 13 days behind the Western calendar). reform of February ABBREVIATIONS ASS.R, Autonomous Soviet Soilit Republic (dstmmnnaya edsaya ollie rai. AU.GEILU. AltUnion Central Couseil of Trade Unions (Foon antl pofeional th oa), Gc. Cental Commitee (Tian omit) ofthe Communist Party. Bleirobank Bank eat), Bank fr eectrifeaion E.G. Excetve Commie (Dolly Kan) ERT. Exusordinary Revolutionary Tax Fino (Paeneyl aie). Financial department (of locl soviet), FUBR (Pond chr yt beri sha)” Fao improve the welfare of workers and employees (later Directors Fund now Faery Fun) Haat (Gres spre). Chef administration (of branch of indy ceplaced temporarily by combines (0 dn), 1929-5. 1932). Gooplan(Gandantromaye lance Komi). State Panning Commision pat (ihcpitemmt rack). Economic, proficandlas of cam Latte) (lie Hogyin). Callective farm) MIS (Maiknetraltomaya senna) Machine-Tractor Station. REP. New Econo Policy (Novae eanmicetee pla). NAL National Income NK (ard lms). People’s Commas) NRE (Naredytfomiser-at) fant). Peoples Commisar(at) of Financ, KEP (Nave hoist psc promos). eople's Cominie tara of te Food Industry NKPS (Nardi fmol soibcheia), People's Commimarat of "Tranport ANKE (Nara mana! ply ter). See NK. Sea NERKI (Naredtdamltarasebhetreiyendt pts) People’s Commissariat of Worker’ and Pesant Inspection NK Stab (Nay! Homisarit able). Peoples Comninarat of Supply (Internal Trade), 1930-4 INK Seyaui (Vary komad et). People’s Commissariat of Poste an Telegraph, 132 NKVD (Nara Romsriat mdremith dd). Peoples Commissariat of Trternal Afi. NKYu (Varo knisral ys). People’s Commissariat of Justice. NKZ (Nerd hist onldela). People’s Commissariat of Age= aur.EXPLANATORY NOTES (1), Abbreviations are given in fll and Russian terms are defined when they frst appear, and a lst of them i appended, (2) Sources are given in full when they are fist cited; and f siven in the Bibliography. (Q) The cial collection of Tas and decrees publohed by the RSFSR. government (Sabrane ncaone i aiorachn.») cited a8 SU (this was the main collection unt the formation of the USS.R pe ee GIES government ed sn SZ. In both caves the oymbel i Bllowed by number of decre, year of publication, and date of approval of the eae see “The verbs report of sonions of TIK (lite in the Bibigrepty) ae referred to inthe text a8 TSIK,fllowed by number of xeon sc) Ip pee eee seal eeaetol loan il are erases ae (4) Dates are given Old Site befine the calendar reform of February 1918 (Le. 13 days behind the Western calendar) Liles are ABBREVIATIONS ASSR. Autonomous Soviet Socialist Republic (difownnaya soestaya soslichsaya repli). AU.GG-T.U, All-Union Central Council of Trade Unions (Vaeoyeen luo’ profesional nth soc). €.G. Central Committe (Toeialey fama) of the Communist Party. lektrobank (Bant dette). Bank for clecticaton. E.G. Executive Committe (Isola kumi). ER(T, Extroodinary Revolutionary Tax el (Finan ae). Finacial department of local soviet) FUBR (Fond uciheiya bya rate fslazhaleikh), Fund to improve the welfare of workers and employees (ater Director's Fund; now Factory Fund), slack (Glance wraseni). Chief administration (of branch of industry — replaced temporarily by combines (ob dinenya), i. 1929-ix. 1932) Gosplan (Canadotonaye plasocaye koe). State Planning Coraission Hlncrschat (Ulacyaitemnyt rics). Economic, proivandlos ot cost Iolo nil) (letioneKdneyiteo). Colletive frm) MITS (Mavkin-trtiomaye sania). Machine“Tractor Station NEP. New Economie Policy (\orya elommichetaye pl) NIL National Income. [NK (Narodny koma (st))- Beople’s Commissariat). EF (NarodnyiKomiisar(at) nano). People’s Commisarat) of Finance. NKPP'(Naredyi homistariatpshchoot romps). People’s Comiise sariatof the Food Indust: ody Kossrat Jd sheng). People’s Commis of PT (Naradii homisaiat pact itligafa). See NK. Seyazi IRKI (Nerodeyi domicriat rabochlrs ansoi insets). People’s Commisariat of Worker’ ani Peasants Inspection. Shab (Naedayilomiuria! mabghnja). People's Commisariat of Supply (Internal Trae), 1930-4 Saal (Nod kamisariat sya). People’s Commissariat of Posts and Telegraphs, 1932-~ NKVD (Varainytkomitoiatsmromith dd). People's Commissariat of Tnternal Affi, [NKYu (Varednyikomisnarit ysis). People's Commissariat of Justice. NKZ. (Neve komisriat zemeieya). People’s Commissariat of Agric cltre, NOGPU (Obsteygortortzemce plitchaboe spree). General State Political Administration (~political police). Prombank (Bonk Finansnceiy. --promyeMlowat élite). Bank for Financing industry and election, Promtax (rompsliyinalog). Tax om rafts and industry. RKI. SeeNKRKI. RKP()) (Resishaya lommnisticestaye partya (bo'seitos)). Russian Communist Party of Bolsheviks. RSFSR. Rusian Soviet Federative Socialist Republic (Revista smtayefedeatonayasotilsiesyanspll), SHS.R. Soviet Federative Socialit Republic (Siedstaya fadeationaya ‘lilies vepble), SNK (Sve narodipth komssaes). Council of People's Commissar. SSR. (Soveiianesotialsichelaya respulla). Soviet Socialist Republic. STO {Sot trade aboray). Cosme of Labour and Defence (in practice Economie Council. 1s1K on [etre aq) WLSIK ((Veroust)leta ap ete 9 Romi “at, (AllRusian) Central Exceutive Commitee (of soviet) TSU (Tootral’sce satitichsoe wpraclaie), Central Statistical Adzini= USSR. Union of Soviet Socialist Republic (Soy oe otitis. “it republi) LVSNKh or escbha (Fit eet nordnogo Mngyaistea). Supreme Council ‘of National Economy (—in practice # commisariat dealing with industry asa whole, 1917-33). VIMIK. See THK. VIUZ (Tule ublnicetoe whenoe saved). Higher technical education VUZ (she whebaecaedes). Higher educational insti PEOPLE’S GOMMISSARS OF FINANCE 1917-41 October 1917 LL Sxvorrsoy (StEPANov) October 1917-March 1918 V. P. Mexzanseit March 1g1f-August 1918 1. E. Guxowsktt August 1918-21 N. Krestixsei 1ga1-6 Ya. SOKOL'xIKOV 1926-30 LP. Bayuxnaxov 1930-7 GLE. Grin’Ko. 1937 ‘A. Curunar’ 1937- A. ZverevPART I REVOLUTION AND CIVIL WAR 1917-20CHAPTER 1 THE BACKGROUND AND THE POLICY, ‘ackoRoUND TO 1017 ‘Tu establishment of « moder iron and steel industry in the south in the 1890's and the subsequent expansion of industry in the eve-of- war boom of 1909-13 marked the beginnings of industealisation in Rusia, But in 1914 the economy was stil predominantly agrarian, at a low technical level, Internal capital accumulation was small; industrial expansion had taken place principally through the invest- ment of foreign capital. By West European and United States standards the economy was backward and unstable, This was reflected in the banking and credit system: efficient joint-stock banks, largely foreign-owned, worked in close association with the State Bank and served the new industries in the main industrial owns, but ‘elsewhere the banking network was sketchy. The financial policy of the government stood out in contrast vo the unevenness and instability of the general economic background, The government strove to maintain Rusia as a leading economic and military power. To this end, the currency had been put on a strict gold standard by Witte in 1897, and the budget had on paper been, kept in surplus, This apparent surplus was made possible, however, ‘only by large increases in the national debt, which appeared on the revenue side of te budget as Sexttauidinary revenue’. By 191g the debt totalled some 8-9 milliard roubles (over half the national income); a large part of it was held abroad. Repayments on the debt were a major item of budget expenditure by 1913, The attempt with the economically more advanced western powers meant that very large defence expenditures had to be met by the budget, The active economic policy of the government also involved considerable budgetary expenditures, and the eost of administration, which tended to be archaic and bureaus cratic, was high. As a result of all these factors (for details see 3 "‘Table 1. State budget rreme and expenditure, 1909 and 1913 Atnount———-% —Atmount Revenue of rena state badet (lo ras) ‘Tac ice on ea yo BS ‘Su ws tps Tinea cgtctetubrand paper iS) ‘Sea on 2 Sate nl mma ey (cout aoe 0 Toul She sens (uli) ® ao “Teal om ate tee noses uins Grosrevemeatpattad idee sho 26 tawo ren ea ereea teen 436 207 eras Spi monopalysbalaning~ Tyee pp ayy Feou fears cane sak Ons gale hnty Teal Br pie fine ey al 3) v. oma too BD Sgt teed event ooh 88 Total revemie ster] moana taro (0) xpedine of premar wate tg (ilian rb) ‘Simin ana tntary yon 8 Sig e513 Bg ‘i woo ry sot ‘OT 706 ayo 69 ‘Table & (cominaed) semen a eos ta ‘int peri Coat mes ry Isr Aan" wn ‘Minay of Faunce" aoe ine of ures oO Biinay of Fegn Ain sos ‘otal naintraie erien wor aye fetter eee) 1 8 alse 783 “Tua expendire soon saie0 te Sa: Rain oc vn te wr (28); Rout i de ba de Empire rar eso i) Prt pet enh 97 od (9). (1) Tats land as, ton an property ad enon ding hus (3) Nan ah" wh war ter ene oe at (@) cs samp tx and tae rograton of ded, on Se ams of po rs an on tanpert pang and Bode (a) che ng millon Pout rom arta in pate ray (3) tenes 25min rots fom paren private ral. (@) locates seve om ie, oe led an ean and sl of ate property. (5) tate ae amie an Fone eo Sate Bn ae epuynen anes aS “Gees operational expen always (G) Excudescomtrctin an improvement 2 way, which spear ur extra rete ass sae aaa SG) Ee iy mtn’ ct cm ra pr ‘ems (1279 mon rain 1), hich aes ude extanday epee Tar) Siac Gowns Cunel iter, Sra aad ts) Sate Du (G2) Exling pots and grap (G9) Exloing taper teed memo. {cp} Incas ity Syd millon osm npg and 46 milion in 99, (59 Malay hon raed tn mes) a (0) he“Table 1 i) the percentage ofthe national income pasing through the budget was very high for that period, particulary for a backward country with a population mainly engaged in subsistence farming! Thisexpenditure was financed mainly from revenue raised from the lower income groups, There was no tax on personal incomes and the rates of tax on the rent received by landowners were not high, ‘Taxes on busines were alo relatively smal: the mest important was the tax on industry, crafts and trade (prone nalog—neferred to here asthe Promtax), which was imposed in two parts, a graded liencesfo (patent shor) andl a progressive tax om pratt (waemil shar or “equalising levy’). The principal sources of budgetary revenue, asisshown in Table (i), were excises and other formsof indirect taxa tion, mainly imposed on consumer goods, principally alcool, sugar, kerosene, and tobacco. These exeises were mainly oflongstanding, and had been increased to their current importance the budget when the ld direct soul tax’ (poduinye pda’ on the peasantry had been abolished in the 1880's. The remaining revenue came from various incomes from state property and other dues which are of purcly Iistorical interest. ‘The state budgetary system had been modernised by the financial reforms of the 1060's, awociated with Tatarinoy From 1063 the Ministry of Finance was given unified control of all state revenue and expenditure—all revenues had to be deposited in the pay-offics (las) of the ministry and all allocations paid fom them. The budget was published for the fist time and was made subject to documentary audit by the State Control Department. Forty years later, after the constitutional changes of 1905-6, the State Duma ‘was given the right to debate and vote the budget. However i spite of the progres that had been made towards a rmodeen budge subject to parliamentary control, thesysem remained backward in several important respecte Ukimate budgetary powers remained wih the Gar, and some items of expenditure in any ease ‘were the imperil prerogative, and not subject to audit by the State Control Department. The work of the Control Department was + Acuing oS. Pekopovich ed), Ot tien nade daa 2» pend aps ost go ar9e 938), pO he tale nana cme wat 6 ‘mle rote in tory The net renee a the state bate lng thn ent aes cide ec ig nae, pa and sera mal eo a the eal be 6 largely formal and in need of radical reform. ‘The Ministry of Finance ‘was bureaucratic and not very efficient, particulary in ity methods of tax collection. The classification used in the buelget estimates was ‘out-ofdate and confused. Local budgets, which were largely independent ofthe state budget, hhad grown rapidly since the reforms of the 1860's, and were respon sible for most education and health expenditure! This expansion had mainly taken place at town and provincial (gubsria) level Village and solo" (sce p. 77, text and n, 7) financial powers were limited and the budgets were small. Loa financein the Transcaucasus and Central Asia was controlled by governors who were appointed centrally, and lite effort was made through the financial system to ‘encourage or subsidise the development of backward regions ‘The economy proved unequal to the strain of war against a great industrial power. After an initial boom in 1914-15, a food, fuel, and transport crisis developed rapidly during 1916, and by the beginning of 1917 the economy appeared to be on the verge of collapse." The relative financial stability of the pre-war period was replaced by inflation, instability, and speculation.! Normal methods of raising revenue proved incapable of meeting the state expenditures entailed by the war. Excises on most goods were inereased, but the introduction of prohibition at the outbreak ‘of war resulted in a net fallin revenue from indirect taxation, The rates of Promtax were raised drastically (so that the yield from the tax trebled), and an excess profits tax was imposed. A. progressive tax on personal incomes was introduced for the first time in 1916, rising to a maximum rate of 12°5%- A war tax was imposed on persons exempt from military service But these increases in taxation were barely suffi increases in civifan expenditure in 1915, and provided a surplus on For material a ets in 14 eV fone nos 12 (124) 9. 1-20 1 Ses beg Ge dual mas Us bedgrey ren tka er Boe meee tel Vers a epee stg ra Fee pe Lights pp gb ao a¥s Cary Mo ay he Maury of eC Wi vo (090 ‘all thee tans ee ALL Michela in asian Finance dig the War (ogaD: Hog, Vinny (7) pl ly Fara mile ‘eli eh. 26.5703, Su Ruf sree ede ale ‘het dre edn ia Hs omni 7the ordinary account equal to only one-fifteenth of wilitary expencl ture on the ‘extraordinary [war] account’ in 1916. As Tables 2 and 3 show, the tremendous growth in military expenditure had to bbe met by internal and foreign loans, and by currency issue. By January 1917 the state debt including short-term issues) had grown to over 30 milliard roubles, and currency in circulation had increased sixfold as compared with the outbreak of war. ‘Table 2. Revome and expenditure of state budge, 1914-17 (million rubles) ru 16% wr) Tem merce 438 snro¢6 284697 ‘Srna nue a8 sory anes Tota ‘nemal event ob 453 ext Towra ane 7 4a7sy rao inl tae “s eee sks Beas els Peter) Tora aeons 420 fa Bs gob Totalmormal’ expendivare®! ang ayy S379 Exaordnary warempens” bsg Mat aggneeaSghoy Teter on shotterm ies — 03 m0 bv. ‘Teta war ents 1s Rp BS 6 1607 (e) nial (3) apne fost rr. ‘oan taiwan fm te State Cato accounts (oye p> Tha hoe ea fran etininry data of the NEF. (i) ens 4g mn rus erree”rerene independ on sh sci taf aay tolcheping chan (3) Ths nea both“ expenditure aa "extsrdiaay” expenditure no Fee mar press In 1914 all military expenditure had been transferred to an extraordinary budget’, od from a_war fund exempt from Duma control. Criticism ofthe use ofthis fund was widespread, and fn June 1916 the Duma passed a resolution complaining of extrava- sgance in expenditure, This was a reflexion of the mounting dis a satisfaction of business and liberal circles with the way in which the ‘government and the court were managing the war and the economy. The military situation and the growing chaos throughout the ‘country finally led to the overthrow of the tsarist government in February 1917, and its replacement by a provisional government, supported both by industrial and commercial interests and by the St Petersburg Soviet, the newly formed couneil of representatives of the revolutionary scctions of the population, which was under ‘Menshevik leadership. ‘Table 3. Cureny circulation, 1914-17 yet) a 7 Sows P.1 Lzascenn, irs mange heya SSSR, vol. (198) Gy sein oh fan. a cigs it a a torte Cae 1,27 3. Prov Serious attempts were made to overcome the economic risis between March and October 1947, but as a result of the continuation of the ‘war the situation progresively worsened. The politcal developments Which took place against this background and culminated in the srizure of power by the Bolsheviks in October need not be described here. ‘The provisional government drastically inereased dieeet taxation, The maximum rate of income tax vas raised to 30-5%7 an extra ‘ordinary Invy om Inrge inenemen was intmduced, and excess pris tax wat raised from 50 t0 90%, The government raised 4 milliad roubles by means of a ‘liberty loan’ (zaem svobed), but Hensel and ‘Tugan-Haranovski’s proposals for a compulsory loan of ro milliaed roubles? were not put into effect, and no substantial loans were raised from the allie. The government prepared measures to increase indirect taxes, but here it met with the opposition of the left-wing 1 Rerdetll e Micon oh. 2st wan ty howe atualy pone in 197 Pat trary Fn fan no Wael 1 (94). See alo Gye al () Th tr of be al Wr ee USSR. 78 9ties, who considered that direct taxation should be further Increased Even if all these measures had been put into effect, they would have been inadequate to cover the mounting war cast, and in fact over 60% af the military expenditure incurred in 1917 had to be amet by currency issu. Total currency in circulation increased by 70% between March and October, so that it reached over ten times the preswar level (ce Table 3). It proved imposible to draw up a satisfactory budget for 1917, and expenditure was caried through on the basis of the 1916 estimates supplemented by extraordinary allocations. When they assumed power in October 1917 the Bolsheviks were faced with acute economic crisis and sever . They took over « budgetary system which had been modified considerably ince 1984 by the introduction of new taxes, but which had failed to raise the revenue required for the conduct ofthe war, and was in comequence disorganised and ineffective. 4. THE POLICY OF THE poLsHEVIKS Marx and Engels had made Few specific statements about socialist, society which could provide ghidance for the Bolsheviks in drawing ‘up their economic policy. In their general comments on the nature of the socialist economy which would replace capitalism, made at various times between 1848 and 1890, Marx and Engels had con fined themselves to saying that the ‘means of production’ would be ‘centralised in the hands of the proletarian state, and that a system of planned economy would be needed to regulate the expansion of ‘production by ‘direct and conscious control’, rather than by ‘the 4 capitalist society. Distribution of the social product in “the higher phase of Communism’ would take place “according to needs’, but society would have to pass through an intermediate socialist stage of distibution ‘according to work done’. Marx and Engels assumed that in socialist and communist society commodity circulation, and money, the medium for this circulation, ‘would no longer exist. There would perhaps be ‘paper cheques’ 1 See Mars Gils Ker ed vo (1s) pp 61-2 ita of te Gata Fraranne (tendon, 93). 27 8 ets Mare and Eng Sted open (94). 2% Co Hej (15 Canin sn). 19 On tis wb Quo ee Pecliy HH Cay Tie Bld Rectan, gry ie, tL (950, Pe 937 3B 99 indicating work done, and the ‘keeping of accounts’ in connexion with planning, but these cheques would not be money, for they ‘would not circulate? However, Marx and Engels did envisage a transitional stage after the seizure of politcal power by the proletariat, in which the economic power of the bourgeoisie had not been destroyed. In this stage, the money system would be used to bring about ‘despotic in- roads on the rights of property” by measures different in different ‘countries, but including, at least in the most advanced countries, “a heavy progressive or graduated income tax’® and the ‘centralisation ‘of credit in the hands of the State by means of a national bank with State capital and an exclusive monopoly’. Like Marx and Engels, the Bolsheviks did not attempt to work out their economic policy in detail before their assumption of powcr. Instead, they treated ‘every point in the economic platform” at ‘a fighting slogan. ..to rally the masecs'* Nevertheless, Lenin had already recognised by 1917 that Russia was in a different position fom the industrialised counties which ‘Marx had had in mind, and the economic programme adopted at the ‘Sixth Congress of the Bolshevik party in July 1917, three months before the October revolution, envisaged that progress towards a socialist economy would be slow and cautious in Russia, In the inital stages, the war would be ended, certain large syndicates ‘would be nationalised, ‘workers’ control” would be established in industry asa whole, and planned control of production and distribue tion’ would be introduced; but most of industry would remain in private hands. “Thus Bolshevik statements about financial policy in 1917 should be seen in the light both of their function of political agitation ‘against the provisional government and of the Bolshevik intention to make gradual progress towards a socialist economy after the seizure ‘of power. Before the war Lenin had uncompromisingly criticised the 1 Awd Bek eat eal gi Sr ai, 9. 00s satiua on the ‘bier of Marr's ews on mney ter sam, bet Sars hin mux Sato capathymdabsieheinee hr adenre yee aera Maret views an meneyin Ki Gxiowvanny, Tits no. Gout BP. 3 2nd. Ai, Prey soem 409) "Sch tax tena te cnt aac dean the aropean scat nee ‘Tha ena nce he ein roar of the Scat Worker Par of Ger ‘any (which Marcon ther pane npc for scheme een hn the Emi of eting set. pce al ning and parcalaly mes a” (Ctgee ‘Fie its Proona, p18) Cena ane 0‘saris financial and budgetary system,* and the Bolsheviks adopted the same attitude to the attempts of the provisional government to get out ofits financial difficulties, holding that without the ending of the war and the taking over of power by the proletariat, the financial problem could not be solved.* The Bolsheviks also made definite ‘though not very detailed statements about the financial measures they would adopt after assuming power. At their Seventh Con- ference in April 1917 a resolution was carried stating that while ‘the jmmediate achievement of socialist reform’ was impossible, certain steps towards it could be taken, including the establishment of state supervision of all banks, unifying them into a single central bank. vith a gradual transition to a juste, progressive {taxation of revenue and properties? In the economic resolution of the Sixth Congres in July the situa- tion of state finance was characterised as ‘close to’a final crash’. ‘The resolution demanded not merely supervision and unification of the banks, but their ‘nationalisation and centralistion’s, and put forward proposals for tackling the immediate situation in these terms In order to struggle against financial disaster, the following measures are esentals immediate cesadhn of the further ie of paper moneys “tn prea ate he wel the anual ae ae oie art ane pulicy tr we (Lenin Suan hod, pp eyo wake po 3-4) acd he srr he bgtary em ae he hae Sol sam pp git, a7 4a He sho docu the cb ote puma by Soca Dear ncniet ht Damn i bes deat, bling ha sly ery erp ‘na dreametancr shu they vote orate he be id eh pe a0 3 ‘ol asp pas vl x8 pp oa) * ie Lor eam: he Bev pre a Pega pat rand deat popes for aig sate evening the ser the wat of ak the cane rected he ‘Seow ait pi in tt (Pars oe 47) and dae rad nt opera property nd the mater hgh fic Pane ma 2-967) Inte Soe a cay uc contr Pe comer the pp ey he ip Lome met ty ant Gece at nyt! bs Sad pn ert {ax onthe weallye Tey a demanded the aston af prices exept tay fey and cle pert the hak a the etl and arp evi preven ‘Sane vy pay aba). See P1740 3835995 33 35 Fao. tr ak tat a NY ere 6 tn 4) eA iii ha ree ei Oar 97 (eine te erin) ein ‘Scion, lhc sl a nds en eptaapc be l W Tpsaay ie auc whch att elet achiral etc, ta Scat kl lige ore mcr, conpecteare. Ganymede ‘tay Asin ebay the larg ol he ag, with ranch very ah Rea wi nine tone ur rs prt (Sk Yl) refisal to pay both internal and foreign state debts (safeguarding, how ‘ever, the interes of the small subseribers); the reform of the whole te system by introducing a property ax, exon the increse in the vale of ‘property and a high indirect tax on haxury goods; reform of the income tas, placing the asesment of income under real supervision in both the conte and the bocaliten! Thus, by the eve of the October revolution the Bolsheviks were pledged to centralisation ofthe banks, the progressive income tax of the Communist Manifesto a series of additional measures for taxing the rich, and the stabilisation of the currency:? But they went no farther than this. They had no explicit plans for the conduct of the Ministry of Finance after the seizure of power, and there was Title discussion of the forms and methods by which the financial oa socialist economy should take place, or ofthe funetion Skog Bare ne socialist economy money would no longer exist remained un- challenged, but it was expected that in the immediate future the ‘currency would be stabilised and the eredit and financial system cqumlted and wed at » weapon naan de poperspowning Mi. yp 296 rt eon, snp 4-8 fr the mais ime by the eee eee ad cees oh (ce pe aes soy the wor rm of compulsory loud ie the pan that an ae ‘Tier inching the ening of thee of ehoqs dale between capi he tei eters crey, with pal offen of oper eoocaling iMtome (Sah vl ee 3) 13CHAPTER 11 FIRST STEPS OCTOBER 1917-OCTOBER 1918 FRow the point of view of the development of the Russian economy sa whole, the fist twelve months after the Octaber revolution fall inct phases, October 1917 to March 1918 was a period of precipitate change, in which the new government eagerly sought to transfer the key ponitione in che economy into its own hands in accordance with its 1917 programme. The machinery of government ‘was seized. Land was nationalised and the redistribution begun by the peasants before October was extended, with government support. ‘The state attempted to regulate industry, and to this end instituted ‘workers’ control. The power of the local sovits, which took inde- pendent measures against the propertied classes, was rapidly extended throughout the country. "The breathing-space provided by the signing of the Brest-Litovsk treaty with Germany in March 1918 was used by Lenin to launch his programme of consolidation. The key tasks, as he saw them, were to establish ‘alleembracing accounting and supervision of production and distribution’, to raise labour productivity, and to organise the “regular daily work of administration’ But while Lenin’s April pamphlet outlined a new phase in Bolshevik economic policy, it was not really followed by a new phase of economic organisation. Its impact had acarcely been fle twhen the first shots ofthe civil war were fired, The summer of 1918 ‘was not the ‘period of slow construction” of a new economic system which Lenin had intended it to be, but the frst stage of the emer- gency developments of war communism. By autumn 1918 a food dictatorship had been set up, all lrgescale industry had been nation alised, and a decree had enacted the general compulsion ofall to work. Financial policy closely followed the main lines of economic policy in the first months after the seizure of power. But except in the case * Sc vals FP 20745 4 of local finance, no major step towards the centralisation and ‘emergency measures characteristic of the civil war period was taken ‘until the end of October 1918, when the Extraordinary Revolu- tionary Tax was introduced, and our account in this chapter i taken tw the end of October 1918 for this reason. This first year of revolu« tion was by and large a period not of building new financial institue ‘tions, bt of attempting to use the existing ones to hold back financial chaos In the first six months after October 1917 a series of measures was adopted to put the commanding financial postions into the hands of the new government {@) ‘The Ministry of Finance was taken over and put in charge of ‘a People's Commissar who was a member of the Council of People's Commissars (SNK). (wl) The State Bank was taken over by the government, and the main private banks were nationalised, after attempts to supervise the existing banking system had met with the opposition of the old ‘management. All banks were gradually fused into the State Bank, later renamed the ‘People’s Bank" ‘The government renounced the national debt, reimbursing only holdings of less than 10,000 roubles (iv) Shares were brought under close government control + SU tt (a. 1), The i cammia et Soror(Srpan,ae wak eam be ne ody te ier wh meet a wi has epee ree Cnt Srp meg pny aes Soon 4355) oso "fr gralentangniemiaen egies may ‘Se dv psn ps ge ‘Bit nce fact tap ih no Pen. ta peo ra Soh tyr ¥ PD, Scale fy df a ein oop 190 ta (oi Deut rd BR af) Aen ili fun in Ayn The Dolpa eS our S90 9 BM Gi Pi le Rios ipo gh ph ge i, lan Nether SS pd Sno fe ia ti 3 eS i 78, 18 SU gh 6017 8 wouter ete aaa au ngip este ae, Borst ety 1s XB Dac ant G4 at imho al ‘lige Byrn opp or Ser omar oo a) SUB 8 8 8) 15(©) Withdrawals of deposits placed in current accounts before 1918 were restricted, and the government took powers to open private safes.t (oi) Trade in gold and platinum was made a state monopoly.? With the aid of this financial machinery, the Soviet government strove to bring state finance into order. It recognised from the outset the need to reduce currency issue and bring the state budget into balance. In January 1918 Lenin drew attention to the large poten- tial deficit, and declared: (Of course in this state of affairs you and I [he was speaking to a meeting ‘of agitatry] will il iF we are not able to drag out this cart of state fom the marsh in which the warist government has submerged it But in these first six month Hie was done to solve the problem of inflation. There were few Bolsheviks who had any Knowledge or txperence of financial matters counich were more divided and eceser yatestetenia ote sect pte need rent consolidated the cal machinery in is hand only gradually in the first weeks after the revolution it was able to obtain even Timid sams ony by threatening force agune: the ofits of the State Mack ted very Tbe ete trary, which bac feed carry out th instractons ofthe government, Was replaced by a new ‘expenditure office,? which issued allocations by a rough system of te eet ee eee ere eee peal Purposes being made by docrec? In addition, Joana ane grants were made to nationalised enterprise via the State Bank and the war fund. To control this emergency system of allocation, a © bry nd Kah oh 6 Ue (4 peer iat «Site Mein NE Mach ot tel ct SET GaN Chto tant Conte doe (ThA we ico {Ecos Setl nor eave am appara alll report cm fnner, but Cabo icons cpa ny ply bere ie ad Ere Sarath peg Se nd ola Pe ma nde gee Ser nail ep ene lie ea deen wages tint practice, td oeganiing he Red hrm ce SU 6/t947 (2-31) os Special Committee for the Reduction of State Expenditure was tstablished under the Supreme Council of National Economy (VSNKh), and was instructed to examine all estimates. before allocations were made.t These institutions did not work very effectively. While allocations continued to be made to inoperative bodies surviving from the old regime, there was in general a chronic shortage of resources even for the mast elementary needs? Allocations had to be made almost entirely by new currency issue. In the fist six months after the revolution the central govern ‘ment confined itself on the revenue side of the budget to an attempt to collect existing taxes at the established rates. To do this it sought the asistance of the newly-formed local saviets, who were instructed, to supervise the imposition of taxes by putting commissars in the local treasury chambers and using the Red Guard and the militia to enfince payment? Dut in fact litle ceveuue was exied isu taxation, and the local soviets tended to retain the small amounts which were collected. ‘Of much greater importance in the fist six months were the taxes and contributions raised by the local soviets for their own use. The centre, unable to meet local requirements by grants, gave the local soviet carte lanche to introduce loeal taxes: This policy relieved the 1 SU ayp/ot7-8 (ci. 1 That it nar spar tat the Commit of Eaton recive I om he wig iit elt ar egy ede we sd Alcatioas they fequted, while there had been ne eduction i the mamBer of persons ngage in opredartve work, employer of det at sper into feotinued 9 teste that slaves (Pokey PTR nye pp 9 001 ad Srp (tb), sence by Soa now, Symon Sn ye TSU pian (4 1) 205/178: ase Leni Sa vol 2p 285. The local sel eu impo tine tothe concatenate ee propery othe ta creer pent ep oe yas ely gence th prod wart the tom tern aay omar he rvisaal goverment, poral charger wee a ated (SU 6p 007 (1 Tooley th 26eaty a Lo gooey 1 (exh Rua oa tn dias RSPSR eg 8 pul ml pia NEE 19) 7) “Digachenk oh. + Totals ated SAK, ‘a he pm te lacie se tae igh at 2 Bess ie a exes br tls wc ce se pes wate ee ‘Snot saporsed Uy adequate pot ote ipo fect reed moc) pe is ee ee eee rear Cm cee ‘Attn (NKVD) hore local svc to cry out eee tation of he proper flames” (SU 47 any (2. 7) ta/eany (ea) Dyan ‘Om ovo eal tn ec em Mil Sette tir (i Regen) a rte oie {tee tan, were spsially decesd by the grverament (SU 13} 97 (ee 1 Galton sk é 7 a‘central authorities of part of their burden, and was aso of consider- ‘able political importance to the government, for it weakened the richer classes in the localities, and encouraged the local supporters of the government to learn to manage local affairs without relying on officials largely hostile to the new regime. It was here and not through central policy that the traditional socialist aim of direct taxation of the propertiod classes was put into effect, through a variety of local taxes and levies:! The ‘contributions’ (onrbutsi) ‘exacted from the richer groups, often quaint and badly-organised,= provided revenue to maintain the bare needs of the new local authorities, which could not at this time have been met by the central government or through the old revenue channels ‘This frst period of ad hve development came to an end when the government tuned its attention wo fundamental economle problems in the spring of e918. What financial policy was appro- priate for the Soviet government in these new circumstances? In ‘May Lenin outlined his financial programme for the consolidate period in a speech which was the financial counterpart of his April pamphlet. The new ingredient as compared with the economic resolution of the Sixth Congress a_year before was the emphasis ‘on the centralisation of the financial system. Lenin's conception was that local taxes would be replaced by a central tax on income and property, which would partly cover the gap between revenue ‘and expenditure and pave the way for a currency reform. While the ‘broadest autonomy of local organisations’ must be preserved, 1 “unified, strictly-determined financial policy” was essential if the economy was to be consolidated. The local financial apparatus must be properly organised if decrees from the centre were not to hhang in the air "Those inde eis om factory owner, rer, owners of hot perc with pent omy, ty tne om shop al ions to ate tox. There mo reba ‘elo te ena tae yal vit ene saree sats tha entibtos $ frovinces smn a65malon rable between Octabe 947 anc Novi 1955, ‘icing 739ml out he town (D'ychen, op to Bk, + Hales alga, aconing to Gator, anyone win dnt tie tthe Kalogh ‘rnd nome bes anecu = Ged ovo robles (For i ad tet ‘eal Cokes pc Ty.” (18), evening won ft May) "Temi ine rea the poy of a emeny ree a Deen 1947 (Sc 1 Sat Caton, pp anor aang, 37-51, emi pic the La epptao became Smo sph Tra 18 How was centralisation to be achieved? At this time local finance was not co-ordinated with or controlled by the centre. Local soviets received little practical help from the centre, and tended to take a hostile attitude to it, and to comer to themselves all sources of revenue.! The NKF tried to solve the problem by edict. It forbade the levying of ad hoc ‘contributions, and tried to use the local financial bodies surviving ftom before the revolution as channels for centralisation, This policy was a failure. The circular forbidding contributions was revoked by the Central Exeeutive Committee of Soviets (VISIK), owing «0 local opposition supported by the NKVD,# and the levying of contributions continued.* Proper con- netions were not established between the old financial institutions and the local soviet financial departments, and there were frequent clashes between them. Tn July 1918 the new constvution attempted to regulate the financial relationship between the centre and the localities. It laid down that local estimates were to be compiled by the local soviets, ‘and approved by the higher soviet body. Central and local taxation wwas t0 be delimited by VISIK and the all-Russian Congress of Soviets, and local taxation was to be used exclusively for local needs. Grants and loans could be made for indispensable expenditure if local resources were insullicient.* In September and October 1918 the new Commissar of Finance, Krestinskii, prepared legislation to put the constitution into effect by integrating the financial depart- ‘ments (iotdely) ofthe local soviets with the central NKF apparatus. The old local financial authorities were abolished, and the soviet * For namplesce Zag. (198), pp 996-325 Paap UTR pa ages, vy; Dyacenkoh p a an- he rce fips a tas oe laseled nate omer aw partslary ete SSK aed gun in Ape (SU ot arpa vn RE oa ore pai ta erage i ea re ae ea iran Se eee rere a ee iene ee EFI Ont in eee rin aie. (ie) [NAF in Auge 1918 and remained i the pon throughout the cvd war, sat dat in {Be cod ‘Otho wndcred tat the cums he hed ches [of cntning the od ‘encil neseoc] ston om’ "Thee prov il bend nthe 1998 comttaton: SU 3917-18 (19s 1), ch 2 bet La 19 afnotdely wore put under the general charge of the NKF, while remaining subordinate to the local soviet Executive Committee (B.C). Detaled legislation set out the organisation and functions (of the jimtdely at various levels (1 Novernber), and the sources from ‘whieh they could obtain revenue (8 December)—a list of permitted local taxes was approved, and local soviets were also given permission to impose a surtax on state income tax for local use! To assist the unification ofthe system, persons sympathetic to the Soviet govern- ‘ment were appointed to responsible financial posts in the localities ‘This legislation marked an important stage in the development of the Soviet financial system. Although it was abandoned for extreme centralisation during the civil war period, it was taken as a basis for local organisation under N.E.P. Although Lenin's financial programme had influenced local Ananee, ithad lle effect on the financial situation as a whole. The ‘central government enacted! a series of further increases in both direct and indireet taxation between March and July 1918,% but these measures were lest radical than thote of the provisional government a year before. At the same time many taxes ceased to be {mposed, and the yield from others declined. Te proved impossible for te government o carry out is intention, of solving the financial crisis by largescale direct taxation. The income tax was a wartime innovation, and easily evaded, and attempts to prepare a new income tax law filed because of the difficulties of establishing a suitable apparatus for collecting the tax, "hic egdaton was prepared pein by commision apt by congre of Shani warren oy 1p ads arty tel gon pe by he poe ‘Sima government in Sep tt. Fer deta, Smt Work aan poets tte yng pte 9) 4 Sami gr (920), “Fos Trades Waugh. ase a ccna oy pith om 7s ise Fos tok yo; Dyan pe ‘nm cnt o's eproaneyandthe majnty were have Boo Bl Sppines, munya Apt and September 18 Tray. (13) PAI she man eres wee delly erence, 3% Inyo imped cn ede turnover the nly ew el ta introced Grigor of Sve aterm np gs Be het (at) 1 Otel, HESRTind yt. 9-0, oe dette SU saad a 008 (iy Rope rt aE Rano 0. PAS Su genni (ust Sr oma nn 6 (ov 1D mm (0 eden NA eso) ring ain to mane} part fiom other reasons.! ‘The cash reserves of the richer groups of the population in the towns could not therefore be taxed away through ‘constitutional” taxes imposed through the central fiseal apparatus, Tn any case, the economic measures of the government (abrogation of the state debt, confiscation of land, shares, ete.) Aeprived these groups of their main sources of income. On whom could a high level of direct taxation be imposed if not on the pro- ppertied classes? Obviously not on the industrial workmen, for politcal reasons; and yet any attempt to increase the direct taxation of the peasantry, who certainly had large cash hoardings at this time, met with great opposition, and could not be carried through without endangering existing peasant support for the regime.? How then could the financial crisis be solved? ‘The government could not hope, even in the ‘breathing-space’, to receive foreign loans, in view both of ex own repudiation of previous loane and of the general hostility of foreign governments? The Bolsheviks were come mitted tothe high indiecet taxation of luxuries, butt scemed unlikely ‘that more than a small amount of revenue could be raised from this source. 1t seemed that the hated indiveet taxation of necessities was the only possible source for further revenue on a large scale in an ‘economy in which taxation of the rich yielded diminishing returns Soviet financial oicials showed increasing signs of recognising this as ‘early as the spring of 1939,4 and towards the end of the year the i ett be alc empleo ha wan et PA By bet ws spr pers pape, nd aovgh nce ar eomnions ete mt 4p wader he cal ‘Ste and inal tx returns were let ope wets a act ding 198 ‘aly tear for vty wee clea SU 57/s7-18 (1. i Ser ime ag (ef) Ripa tea Le Pete Rr de a eraded fa in nd te ean wo adie by SNK in Decber pipes hed be win ac epg ft psa ua ot Vin (bychenby fc.) Att Cngre f Coun of National Economy a Meyrin! pect saccade bal cores wes expres (Ti (900, Apelby Seon) Arata August 0 Leni xprned ett i ice were ‘ee feg tu it mara the pce of gra rate han of nulctred as ‘ould lcd, helps mute in he or Wa the greats prem ‘pean (Sch fl Mav 2). Ths the Bevis has were ued al esd {oper iened texan oa he pean Sato, whotecame NKP not ede pimiical oe pape ign pat tad May i own (aan yl Thue Gabo stated that the demain the programe that ependitare on nian tod be pa by tb capt Cate war by an age anger