Preobrazhensky’s Theory of Socialist Development

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Preobrazhensky’s Theory of Socialist Development



·      Introduction

·      The Soviet Context in the 1920s

·      Economic Equilibrium in the USSR

·      Marx and Engels’ Theory of Socialism

·      Preobrazhensky’s Definition of Political Economy

·      The Method of Theoretical Analysis

·      Planned Socialist Production

·      Capitalism, Socialism and Accumulation

·      The Law of Primitive Socialist Accumulation

·      Studying a Transitional State

·      PSA in Conflict with the Law of Value

·      Methods of PSA in the NEP

·      The limits of the Law of Value

·      The End of the NEP




In the 1920s Preobrazhensky’s theory of ‘Primitive Socialist Accumulation’ (PSA) was at the centre of the ‘Soviet industrialization debate’. It proposed that the socialist sector of the economy exploit the private economy to catch-up with advanced capitalism. The theory was subject to ferocious criticism, distortion and misrepresentation, and the debate was eventually resolved by violent means: through the repression of inner-party opposition in 1927, and forced collectivization of the peasantry after 1929.[1] These measures along with universal nationalization and the introduction of the Five Year Plan in 1928, established the ‘classical socialist system’ that Kornai (1992) comprehensively describes. This chapter summarizes Preobrazhensky’s theory of PSA and looks at its relevance during the New Economic Policy (NEP) and at the forces that led to the abandonment of the NEP. The next chapter will apply a derivative of his PSA framework to study contemporary China.


The debates on Marxist theory of development in the USSR of the 1920s were rich and varied. Many theorists, Preobrazhensky included, changed their opinions several times during this period. This ideological fluidity was connected to the imperatives of warfare, economic crises, social policy, political struggle, social and personal pressures, as well as the hopes and dreams of the intellectual protagonists. So, it is not possible to speak of ‘Preobrazhensky view’, instead I focus on his theory and method developed most fully in The New Economics. (Preobrazhensky 1965)

Karl Marx described how early capitalist accumulation accelerated on the basis of forced and unequal exchange with pre-capitalist economic formations, a process Marx called ‘primitive accumulation’. Preobrazhensky’s theory of PSA was a modification of Marx’s analysis of the genesis of capitalism. He drew an analogy in which the accumulation funds for socialism would come from unequal exchange with pre-socialist economic formations. Economic backwardness defined soviet developmental dynamics and produced the contradictory co-existence of capitalist and socialist laws of motion, which were the object of theoretical analysis and the subject of conflicts over practical policy. Contradictions between these economic laws appeared as conflicts between industry and agriculture, and the proletariat and peasantry.[2] These dynamics were manifest through dislocations in economic development and clashes between the interests of social classes. Preobrazhensky supported rapid capital accumulation by state-owned[3] heavy industry, which would come mainly at the expense of the peasantry.[4] He hoped rising peasant incomes; rural investment and material support from successful international revolutions could ameliorate this exploitation. (Filtzer 1979)


In the mid-1920s, as the Soviet economy approached its pre-revolutionary capacity; Preobrazhensky emphasized the need for large-scale capital investment, sacrificing present day consumption for future benefits. (Erlich 1950:66-8) He thought that the gap between world market prices and those of indigenous state industrial prices should be structured to gradually improve the industrial purchasing power of the peasantry and simultaneously maximize the flow of resources towards investment. Once such capital-intensive investment bore fruit the living standards of peasants and workers could consistently improve.  (Erlich 1950:74)


For Preobrazhensky a socialist planned economy must limit and control the influence of the law of value. However, he understood that forecasting in a centralized economy created scope for grave errors to radically impact the economy - as compared to capitalism - where private interests adjust markets and counter-balance planning. Therefore economic guidance and forecasting requires a scientific theoretical method to help predict the consequences of planning in advance. (Preobrazhensky 1965:6)


The Soviet Context in the 1920s


Before 1917 the majority of Russian Marxists held the view that a bourgeois-democratic revolution would precede a socialist revolution.[5] An exception was Leon Trotsky whose theory of ‘permanent revolution’ posited that the bourgeois revolution would become a socialist revolution. In his view the development of the productive forces produced a contradictory correlation of class forces. A powerful and militant working class faced a weak indigenous bourgeoisie tied to the Tsarist state and foreign capital. He thought the working class would overthrow the Tsarist state, and the bourgeois and socialist tasks of the revolution would be combined and become part of an international socialist revolution. (Trotsky 2007)


The Revolutionary Foundation 1917-18


In the first months after the revolution, radical changes were decreed and supported – e.g. peasant land seizure, workers’ control of industry, nationalization of essential enterprises and the promotion of international revolution. This combination of revolutionary democracy and internationalism sought to strengthen internal cohesion and weaken external threats. But soon economic dislocation justified replacing autonomous workers’ organizations with hierarchical authority. Lenin’s hope for pressured collaboration with private capital was undermined by the ferocity of class conflict - as capitalists and old bureaucratic forces aligned themselves with the counter-revolution and were expropriated. (Howard and King 1989:290-2)


War Communism 1918-21


War Communism led to general nationalization, forced requisitioning and rationed resource allocation, the suppression of markets and trade, and the repression of democracy and political opposition. Bukharin theorized this practice – concluding that strict self-discipline and centralization is essential to militarily victory and proletarian rule. Global economic decline would be followed by revolution, but this would be accompanied by further economic regression and civil war. The overthrow of capitalism would replace economics with the conscious pursuit of proletarian interests - administrative controls would replace wartime confiscation and regulate the relations between town and country. However, sharp class conflicts alienated the peasantry and weakened state and party power. Bukharin’s theory remained influential within the party and leadership even after military victory. (Howard and King 1989:292-4)


New Economic Policy 1921-29


In 1918 Lenin used the term state capitalism’ to characterize an economic system in which capitalist enterprises of various types worked under the control of the proletarian state. The core ‘commanding heights of the economy’ were composed of state enterprises and trusts, which he described as being ‘of the consistently socialist type’. Small enterprises were privatized, foreign investment was encouraged, and diplomatic relations were improved. Lenin exhorted communists to learn to trade, and supported emulation of capitalist methods by state enterprises to improve productivity. This included one-man management, profit calculation and large wage differentials. He also warned that bureaucratic forces were steering the state, but hoped that party purity would be able to sustain the revolution and, if industry developed alongside peasant cooperation, the NEP could herald economic progress.


Bukharin advocated industrial advance at a ‘snail’s pace’ based on encouraging peasant demand for consumer goods produced by state industry. He believed that an enduring worker-peasant alliance should avoid excessive demands being placed on agriculture. For Bukharin, the leading role of the workers meant class relations were based on a harmonious unity and socialism could be realized within national boundaries. Agricultural growth would increase peasant consumption, stimulate light industry, and increase demand for heavy industry.


Trotsky’s view was that socialism in one country was a reactionary doctrine. International capitalism was not stable, and revolutions were likely in the near future both in Western Europe and in certain less developed countries. He thought that if his policy of ‘permanent revolution’ were correctly followed, the opportunities that arose would lead to revolutionary victories internationally. The economic interests of European powers would foster trade relations with the USSR, this could be used to integrate with the world market - import goods in short supply - and utilize national comparative advantages to acquire resources for state industry. To overcome the impact of the world law of value the efficiency of Soviet industry would have to reach that of world capitalism. Trotsky saw political reform as the primary means of changing policy e.g., to permit criticism and rank and file control over the party and bureaucracy.


Stalin argued that splits between imperialist powers would prevent successful military intervention to overthrow the revolution. Soviet diplomacy and the Comintern could be used to neuter future threats. In the mean time, socialism could be built in the Soviet Union without revolutions in other countries. For Stalin, the internal balance of forces would not lead to a life or death crisis, and thus Trotsky had ‘underestimated’ the peasant.


Preobrazhensky considered the rate of growth of the state vis-à-vis the non-state sector to be decisive. Increasing the strength of the proletariat and weakening the wealthy peasants and traders could secure the alliance between the workers and the mass of peasants. Rapid industrial growth could increase the consumption of peasants and workers. However, large fixed investment was needed to outstrip pre-revolutionary production and secure growth into the future. His sequencing projections were based on capacity extension to facilitate the manufacture of industrial consumer goods and alleviate goods famines. His proposals were based on technical grounds rather than a fetish for heavy industry. He advocated systematic planning to forecast and anticipate disproportions and crises, whereas Bukharin emphasized market autonomy. (Howard and King 1989:294-309)


The Left Opposition


Trotsky formed the Left Opposition in 1923. It opposed bureaucratization of the party, encouraged democratic rejuvenation through workers’ democracy, and promoted planning of the economy. Preobrazhensky campaigned for the adoption of planning in the state sector of the economy. He argued that workers unrest in urban areas revealed the need for the party to restrict the growth of capitalist tendencies generated by the NEP and meet workers’ needs.[6] The Left Opposition had predicted that concessions to petty bourgeois moods would constitute a liberal springboard for a reactionary authoritarian movement - drawing parallels with the period in the French revolution known as Thermidor. However, the expulsion of Leon Trotsky and the United Opposition[7] in 1927, led instead, to an increasingly ferocious campaign against rich peasants. In 1929, an accelerated industrialization drive by the party and state, effectively identified the entire peasantry as a hostile bourgeois class - as the hoped for wedge between the poor, middle and rich peasants failed to materialize. (Carr 1971:419-429)


The events of 1929-33 verified Trotsky’s predictions of an impending crisis, but the consequences were sharply at odds with his forecast. Instead of a counter-revolution by pro-capitalist forces, Stalin instituted a radical overthrow of the NEP leading to the creation of a command based economy more akin to War Communism than to capitalism. Bukharin claimed that super-industrialization became influential within the state bureaucracy after 1926 and blamed the ideas of the left-opposition for Stalin’s ‘second revolution’, which created a bureaucratic police state. (Howard and King 1989:304-309)


Class Demographics


Within the party it was considered essential that the weight of the proletariat within society should increase. This necessitated migration from the countryside to the town. The Soviet census of 1926 revealed that out of a 147 million population, 26.3 million were urban dwellers and 120.7 million rural; 37% were under 15 yrs of age and 40% were literate. Studies in 1927 classified 32.5 million as proletarians, (27.6 million urban, 5.8 million rural.) Individual artisans or other self-employed non-agricultural workers numbered 6.8 million. There were 3.5 million people classified as the non-agricultural bourgeoisie, e.g. employers or traders. Income from agriculture in 1926-7 was calculated to be less than 50 percent of national income and the share of the socialized sector was increasing. Paid workers’ income rose relative to other groups, this expressed the numerical growth of the class itself, not individual wages. Price controls and progressive taxation squeezed the bourgeoisie and weakened their relative economic position.


The concept of class differentiation within the peasantry was inherent in the Bolshevik approach to the revolution. They divided the peasants between a small, hostile capitalist group, and the mass of peasants who were seen as allies of the proletariat, in whose name the party ruled. The NEP encouraged enrichment and so deemphasized rural class divisions. (Carr 1971:419-425)


Economic Equilibrium in the USSR


Preobrazhensky wrote The New Economics (Preobrazhensky 1965) in the mid-1920s. It was to be part of a larger work designed to facilitate concrete study of the Soviet economic system: a theoretical framework that could be filled with the real data. The premise for Preobrazhensky’s model of primitive socialist economic reproduction was non-equivalent exchange - this assumes that different systems of ownership compete to regulate the economy during the transition to socialism - the law of value and the law of PSA.


Marx’s model of pure capitalism studied reproduction of the means of production (department 1) and means of consumption (department 11). Preobrazhensky’s model of reproduction under PSA includes petty production and capitalist production as sources of accumulation, and as means to acquire sufficient elasticity to maintain equilibrium. (Preobrazhensky 1980)


Preobrazhensky identified the following contradictory foundations of development and equilibrium in the Soviet economy.


·      Accumulation by the state based on non-equivalent exchange takes place whilst advancing the productivity of labour and raising wages

·      Rapid integration into the world market occurs in a hostile environment

·      Accumulation from expanding industrial raw materials production takes place at the expense of peasant producers

·      Accumulation from exports of peasant produced consumption goods, occurs whilst industrial prices fall slowly

·      Stimulation of peasant production for the market occurs whilst protecting weaker sectors of the peasantry

·      Production rationalization and price reduction takes place whilst controlling unemployment.


He felt that the scale, severity and acuteness of these contradictions revealed the need for international assistance. (Preobrazhensky 1980:230)


During the NEP, the capitalist sector was generally non-industrial and non-productive - exploiting opportunities provided by non-equivalent exchange. Private traders opportunistically exploited shortages or poor distribution. The main sphere of competition with state industry was light industry, where low capital costs and extreme exploitation, predominated in the private sector.


Wealthy peasants known as ‘kulaks’ represented agrarian capitalism. The kulaks were hostile to the social system, which they blamed for restrictions on opportunities for enrichment. They engaged in strategies to accumulate at the expense of others. Their limited opportunities drove them to seek access to free markets by means of political opposition to the state.


“Here, the problem of economic equilibrium rests squarely on the problem of social equilibrium, that is, the relation of class forces for and against the Soviet system. Two systems of equilibrium are struggling for supremacy: on the one hand, equilibrium on a capitalist basis- which means participation in the world economy regulated by the law of value- by abolishing the Soviet system and suppressing the proletariat, and on the other hand, equilibrium on the basis of temporary nonequivalent exchange serving as the source of socialist reconstruction and inevitably signifying the suppression of capitalist tendencies of development, particularly in agriculture.” (Preobrazhensky 1980:179)


Marx and Engels’ Theory of Socialism


Preobrazhensky's theoretical framework for the transition to socialism is based on his reading of the writings of Marx and Engels. (Preobrazhensky 1974) They avoided utopian visions of socialism and made forecasts based on an analysis of capitalism. Marx presented capitalism in pure form and as a complete system, contrasting it with its antecedents and its predicted communist successor, to identify the unique characteristics and conditions in which the finished system of capitalism operated.


Marx and Engels’ speculation about socialism and communism contained the following elements. A dictatorship of the proletariat would be established by a workers’ revolution, followed by an unspecific period of transition. In this era, classes, and as a consequence the state, would continue to exist. It was possible to elaborate transitional measures for the system of production and distribution from capitalism to socialism, but not to the higher phase of communism. (Preobrazhensky 1974:65-7) For Engels, the constant transformation of the productive system (the target of revolution) made description of the transitional era difficult. He explained that a socialist society requires technically educated administrators, but warned of their possible hostility to the revolution. (Preobrazhensky 1974:70-71)


Some demands of the Communist Manifesto transcended the bourgeois democratic revolution, e.g., centralization of credit under a state banking monopoly; extending state ownership in communications, transport and industry; the planned development of agriculture to gradually eliminate the urban-rural divide; and free public education. Marx and Engels also demanded expropriation and nationalization of feudal estates, together with mines, pits etc. The estates would be cultivated on a large scale applying modern science in the interests of the whole of society. Preobrazhensky described these policies as a gradualist vision of transition, a mild version of the subsequent ‘New Economic Policy’ in the Soviet Union. However, the sharp class conflict in the Russian revolution provoked a wider extension of nationalization than was originally envisaged.


“A deep sobriety from Marx and Engels in this point is adequately verified through our experience, in so far as it concerns the inappropriateness of nationalization in one blow, that immediately takes place the day after the seizure of power.” (Preobrazhensky 1974:69 my translation)


Marx and Engels believed that socialist production would have to be founded on a new technical level. They pondered how electricity might overcome urban-rural contradictions and thought that the inability to adequately utilize electricity exposed the fetters of capitalism, which socialization of production could overcome. The effective application of the means of production and transportation developed by capitalism could multiply the productive potential of the workers, increase the consumption of the masses, and herald a technical and scientific revolution in agriculture. They contrasted commodity production with planned socialist production envisaging that the accounting of a socialized economy would replace spontaneous regulation through the law of value. (Preobrazhensky 1974:72-5)


In a socialized economy, that part of the surplus allocated for subsistence would be apportioned dependent on historical, technical and organizational factors. Marx wrote:


“We will assume, but merely for the sake of a parallel with the production of commodities, that the share of each individual producer in the means of subsistence is determined by his labour time. Labour time would, in that case, play a double part. Its apportionment in accordance with a definite social plan maintains the proper proportion between the different kinds of work to be done and the various wants of the community. On the other hand, it also serves as a measure of the portion of the common labour borne by each individual, and of his share in the part of the total product destined for individual consumption. The social relations of the individual producers, with regard both to their labour and to its products, are in this case perfectly simple and intelligible, and that with regard not only to production but also to distribution.” (Marx 1954:82-3)


Marx held that greater scale and concentration simplifies administrative control, bookkeeping becomes more important and would become generalized under a collectivist production. (Marx 1956:137-8) He saw the credit system as a powerful lever in the transition to socialism, provided it was connected to a revolutionary transformation of the productive system. However, when the means of production cease being transformed into capital or ownership of land, credit would lose its function. Under capitalism, efficient resource utilization depends on the cultural level of the workers and enforced discipline - piecework facilitates this process. As the new society develops, supervisory, unproductive and unnecessary administrative activities would be reduced. He saw the main hindrances within capitalism in its anarchic and crisis-ridden nature; the trade distribution system; and contradictions between capitalist and societal interests. He isolated transient capitalist productive forms from those that would be transformed in the era of socialist transition. However, surplus work and surplus product would continue to exist ‘forever’ to provide for insurance costs and investment for society. (Preobrazhensky 1974:76-8)


Although Marx and Engels prophesied a transitional era in the evolution of socialist production they discussed its system of distribution more than its organization of production. Just as capitalist ownership of the means of production and land automatically reproduces its corresponding distribution of consumer goods, so, they concluded, collective ownership would produce a different regularity of outcomes. Marx and Engels opposed egalitarian socialism, as the quantity of production would define the distributive potential. (Preobrazhensky 1974:80-82)


Socialist distribution would transform surplus value into surplus-product and wage-labour into average workers’ rations. In a society based on common ownership of the means of production, individual labour would exist as “a component part of the total labour”. [8]


The communist society bears “the birth-marks of the old society” the “individual producer receives back from society- after the deductions have been made – exactly what he gives to it. What he has given to it in his individual quantum of labour”.[9]


By this is meant his share of the total hours contributed by society for which he receives a certificate (after common fund deductions) and with which he may “draw from the social stock of means of consumption as much as the same amount of labour costs.” [10] Each gets back what they give. This is still a form of ‘bourgeois right’ as the capitalist exchange principle remains, but everyone is a worker, and no-one owns the means of production. The distribution principle is bourgeois, as equal amounts of labour are exchanged, and inequality of human skills and consumption needs etc. continue.


“These defects are inevitable in the first phase of communist society as it is when it has just emerged after prolonged birth-pangs from capitalist society. Right can never be higher than the economic structure of society and its cultural development which this determines.(Marx and Engels 1989:85-7)


Marx differentiates between the ‘first’ and the ‘highest phase’ of communism. In the first phase, class division of society is not yet liquidated but the capitalists are overthrown, the state continues to exist and the system of distribution bears the features of its capitalist predecessor.  (Preobrazhensky 1974:85-6)


Marx and Engels saw the division between mental and physical labour as a product of class divisions and insufficient productive development. They sought an end to rigid employment channels, a reduction in working time, and a system of education that opened science and art to the masses. Emancipation from the division of labour would facilitate the emancipation of women; and productive work would become a source of physical and spiritual liberation. (Preobrazhensky 1974:86-88)


The division between town and country - exacerbated by development of the cities - had degraded the countryside and its people; torn the people apart; limited the intellectual development of the rural population, and bound the urban workers to dull repetitive work.


A “planned socialist world-economy must start with the assumption that industry is concentrated in the early capitalist countries and this is an unalterable fact. For the world-economy the same question appears quite differently. Here it is not a question of the distribution of large-scale industry over the country in the highly industrialized countries, but of the distribution of high industrial concentration over the whole world.” (Preobrazhensky 1974:93 my translation)


Marx felt that capitalism robbed both the land and the worker. Profit seeking and price fluctuations caused contradictions in agriculture, as each advance in the fertility of the land, reduced the duration of that fertility. He considered the system incapable of rationalizing or planning agriculture on the basis of science, technology and data.


 “The moral of history, also to be deduced from other observations concerning agriculture, is that the capitalist system works against a rational agriculture, or that a rational agriculture is incompatible with the capitalist system (although the latter promotes technical improvements in agriculture), and needs either the hand of the small farmer living by his own labour or the control of associated producers.” (Marx citation from Capital Volume 3, Preobrazhensky 1974:94)


Preobrazhensky pointed to Lenin’s argument that monopoly capitalism distorted and limited the law of value. Lenin hoped the bourgeoisie could be compelled to work for the proletarian state. This required an alliance between the proletariat and the peasantry to stop the peasants from supporting the bourgeoisie. (Preobrazhensky 1974:133-138)


Preobrazhensky’s Definition of Political Economy


Preobrazhensky defined political economy as the science of the laws of development, equilibrium and decay of the commodity, and commodity-capitalist mode of production. Its fundamental categories are commodities, the law of value, wages, surplus value, profit, price and rent. The commodity expresses the type of general production relations where markets bind together independent commodity producers. Economic laws produce “a constancy of results following from the reproduction of a certain type of production relations.” (Preobrazhensky 1965:57) Political economy studies these relations between people in the process of capitalist production and


“the types of regularity inherent only in this form, the types which reveal themselves on the basis of the operation of the law of value.” (Preobrazhensky 1965:48-9)


The law of value is the “law of spontaneous equilibrium of commodity capitalist society. In a society without commanding centres of planned regulation, thanks to the operation of this law, directly or indirectly, everything is achieved which is needed for the comparatively normal functioning of a whole productive system of the commodity-capitalist type: the distribution of productive forces - that is, people and means of production – among the different branches of the economy; the distribution of the product of society’s annual production between workers and capitalists; the distribution of surplus value for expanded reproduction between different branches or countries, and its distribution among other exploiting classes; technical progress; the victory of advanced forms over backward ones and the subordination of the latter to the former” (Preobrazhensky 1965:147-8)


The operation of the law of value means that ‘aims, plans, aspirations, and expectations of the agents of production’ (Preobrazhensky 1965:49) cannot foretell the actual results. The absence of a planned distribution of the productive forces means that the law of value manifests itself blindly as if it were a law of nature.  


“Wages and surplus value are the essence of the relations of production and distribution between workers and capitalists. The category of profit, as another form of surplus value, is a relation of distribution between capitalists, which passes thanks to the mechanism of the equalization of the rate of profit and the entire mechanisms of capitalist society into a relation of distribution of labour and means of production.” (Preobrazhensky 1965:148-9)


Prices express labour productivity and distribution. They also act to redistribute productive resources between economic branches and shape the flow of values within society. Rent is defined as a redistributive relation between tenants and owners that transfers part of the surplus value to the latter. The transformation of the categories of political economy during the NEP will be considered in the section on ‘The limits of the Law of Value’.


The Method of Theoretical Analysis


Preobrazhensky considered capitalism to be an unorganized spontaneously equilibrating system in which human relations are materialized. Its laws appear as accidental events and can only be grasped by critical and abstract analysis of fundamental and pure systemic features, which reveal its specific regularities. Marx developed his theory of abstract capitalism, within which real capitalism ‘lives and moves’ to provide the means to understand its laws of motion. (Preobrazhensky 1965:43-8)


Marxist theory is rooted in the thesis of base and superstructure, wherein the study of economy is the foundation and starting point. Marx studied capitalist economic laws by separating the economic base from the societal superstructure and examining this abstraction. His identification of the peculiarities of this ‘pure capitalism’ produced the need for an ‘abstract-analytical method’ to capture this. Preobrazhensky uses this method of abstraction as his tool of analysis, placing economics at the centre of studying human relations. This requires its abstraction from within these relations. He formed his model of PSA to work out the regularities of economic activity, understand conflicting social processes and develop policy aimed at extending the influence of planning.    


“I devote myself to the modest task of first abstracting from the actual economic policy of the State, which is the resultant of the struggle between two systems of economy, and the corresponding classes, so as to investigate in its pure form the movement towards the optimum of primitive socialist accumulation, to discover the operation of the conflicting tendencies, as far as possible in their pure state, and then to try to understand why the resultant in real life proceeds along one particular line and not another.” (Preobrazhensky 1965:62)


Monopoly Capitalism


Preobrazhensky describes Marx’s model of capitalism as ‘theoretically photographed’ in ‘pure form in its native spontaneity’. (Preobrazhensky 1965:150) But this pure form never existed in reality; the influence of large enterprises and banks and the rise of monopolies amended the law of value by restricting spontaneous competition. Monopolies could push prices above their value or drive out competition by dumping. Their collective power altered economic dynamics and the laws of political economy. A number of capitalist countries introduced state planning, including price controls, the regulation of surplus value, and the redistribution of productive resources. This indicated an objective tendency for socialized production to replace capitalism, and laid the basis for socialist production provided the working class came to power. Preobrazhensky cited German ‘state capitalism’ in the First World War as an example where commodity production was planned in key sectors, free competition was curtailed, ‘and the working of the law of value in many respects was almost completely replaced by the planning principle of state capitalism.’ (Preobrazhensky 1965:153)


Planned Socialist Production


Preobrazhensky believed that the categories of political economy would be transformed under planned socialist production. The commodity will be replaced by the product; value by labour-time; the market by bookkeeping of a planned economy; surplus value by surplus product; and social technology - as a science of socially organized production - will replace political economy. He juxtaposed the economic characteristics of capitalism and socialism in the following table. (Preobrazhensky 1965:162)




Commodity Production

Socialist Planned Production


Socialist Accounting

Value and Price

Labour Costs of Production




The laws of a planned economy will be governed by regularity and necessity. A science of social technology involving the conscious application, mastery, and use of these laws, will change the way they appear. This will amend socio-economic regularity, conditionality and causality, and entail conscious organization of production on a planned basis, bringing mastery of nature through mastery of social organization. Social organization itself will be voluntary and control objective external forces, enabling history to be increasingly shaped by will, and necessity to be replaced by freedom. (Preobrazhensky 1965:52)


Under capitalism, changes in market demand lead to under-production, over-production, and distortions in prices and resources utilization. In a planned economy the calculation of growth in demand and associated production would be made in advance. Meeting demand may necessitate redistributing labour and accumulating emergency reserves.

Regularity remains, but it “asserts itself not through the market, it gives notice of its arrival not post-factum, but in advance - ante factum - in the consciousness of the regulating economic organs of society.

It is not the prices on the market after production but the columns of figures of socialist book-keeping before production that sound the alarm and enter the consciousness of the planning centres: they inform the guiding economic centres of the growth of new demands, and thereby of an economic necessity to which they must adjust themselves. This anticipation of regularity constitutes precisely the first characteristic feature of the new, socialist production”. (Preobrazhensky 1965:54)


The new science would forecast economic necessity and propose how labour and production should be organized to satisfy wants and needs. The study of future impacts would supplant the estimation of consequences; requiring complex regulatory organs of social foresight and planned guidance. (Preobrazhensky 1965:55)  


Capitalism, Socialism and Accumulation


Preobrazhensky distinguished between methods by which capitalism surpassed feudalism and those a socialist economy could use to develop socialist capital. Capitalism accumulated and established a commodity economy within feudalism before bourgeois revolutions. Capitalist manufacture displayed superiority over craft production with a few advanced enterprises. Its economic conquest occurred spontaneously and the export of capital stimulated capitalist economic development in petty-bourgeois economies. Capitalism also accumulated by means of primitive accumulation, the unequal exchange of goods, the seizure of resources from pre-capitalist economic formations and nations, e.g., through the slave trade, exchanging cheap manufactured goods for gold, seizing common lands, etc. In contrast, socialist production can only begin after the seizure of power, and it can only conquer other countries by revolutions. (Preobrazhensky 1965:79-80)


“The nationalization of large-scale industry is also the first act of socialist accumulation, that is, the act which concentrates in the hands of the state the minimum resources needed for the organization of socialist leadership of industry.” (Preobrazhensky 1965:80-81)


For Preobrazhensky socialist accumulation refers to surplus product produced for the self-expansion of the means of production of the socialist economy. This requires highly developed technique, organization and productivity of labour, corresponding with high capital intensity. To facilitate scientific planning and provide the basis for a unified advance of the whole interdependent state complex, socialism requires an accumulation of capital, equal, at least, to that of advanced capitalism. It requires adequate stocks and reserves to respond to circumstances like poor harvests, changes in market conditions, seasonal variations in demand etc.


The Law of Primitive Socialist Accumulation


Preobrazhensky saw PSA as distinct from capitalist and socialist accumulation. PSA refers to the state economy accumulating resources from the non-state economy. He saw this as the basic and central law governing, the motion and processes in the Soviet economy in the 1920s. It determined the distribution of the means of production and labour power, and the quantity of surplus product made available for the expansion of socialist production through its conflict with the law of value. (Preobrazhensky 1965:84-5)


Where planning operates, regularity of causation is consciously organized. It fights for its existence and consolidation in a hostile environment and takes the form of expanded socialist reproduction shaped by state actions. This entails increasing the proportion of the economy in state hands, integrating more of the workforce around these means of production, raising the productivity of labour, and struggling to expand reproduction of the system and maximizing PSA.


This process is seen as “the whole aggregate of tendencies, both conscious and semi-conscious” and is also “the economic necessity, the compelling law of existence and development of the whole system, the constant pressure of which on the consciousness of the producers’ collective of the State economy leads them again and again to repeat actions directed towards the attainment of optimum accumulation in a given situation.”  (Preobrazhensky 1965:58)


Defining the optimum rate is a complex task; inadequate foresight and excessive acceleration can produce negative consequences e.g., a goods famine, private sector accumulation, or dangers stemming from a weak industrial base. The characteristics of a specific period can be concretely studied. The study of economic regularity in the struggle between planning and commodity economy pleads for a method of generalization.


Studying a Transitional State


The fact that Soviet state policy in the NEP was composed of responses to difficulties and anticipatory actions added complexity to studying the system. Some freely chosen policies were the result of resistance from the private economy.


“The conscious decisions of the regulatory organs of the State are dictated equally by the optimum of primitive socialist accumulation and by the need to curtail this optimum as a result of resistance of private economy and the classes which represent it. To separate the optimum in its pure form from the actual policy, which is forced to retreat from this optimum, is a very difficult task. To fulfill this task we need a concrete analysis of the entire economic and political situation at each moment of time, or at least in a definite period of economic development.” (Preobrazhensky 1965:62-3)


Preobrazhensky suggested that as the material studied was located in this transitional phase, so a suitable theoretical method ‘is itself transitional between political economy and social technology.’ The regularities of what he called a mixed ‘commodity-socialist economy’ were the object of study i.e. how collective production is shaped when linked to the private sector; and how the private sector behaves, in itself, and in relation to the state economy, when it is restrained and channeled by planning. As the commanding heights of the economy were in state hands, this created new processes in the state and private sector. Preobrazhensky sought to distinguish, in pure form, the tendencies of the two conflicting principles and their methods of utilizing materials and labour. (Preobrazhensky 1965:63)


He analyzed the decay and disappearance of capitalist production relations and investigated which elements of Marx’s political economy remained valid and which were amended in the new system. Studying a system driven simultaneously by contradictory laws, like the USSR in the 1920s, was complicated by the impurity of both forms. Planning during PSA conflicts with the law of value: the state guides the economy, the government, and international policy, in opposition to world capitalism and the domestic private sector. This relation of forces shapes the character and dynamics of the law of PSA. The problem with studying the law lies in identifying its pure form and explaining its limits within this mixed environment.


PSA in Conflict with the Law of Value


Preobrazhensky defined PSA as the conscious and semi-spontaneous tendencies towards the collectivist organization of labour driven by necessity. The organization of the productive forces, defensive power, and the determination of material proportions to optimize expanded socialist reproduction are shaped in conflict with the law of value and pressures from the non-socialist economy. Wage levels, price policy, trade policies and rules, tariffs, credits, import planning, government budgets etc., and the quantity of surplus extracted from the private sector are all subordinate to the law of PSA. (Preobrazhensky 1965:146)


The law of PSA extends into the private sphere as an alien force, but the law of value also penetrates the state economy. (Preobrazhensky 1965:137-8)


This produces,

”the coexistence of two systems of economy which are different and by their very natures antagonistic, with different regulatory mechanisms, this economy, must inevitably be the arena not only of struggle but also of a certain equilibrium, and so, in practice, of a certain coexistence of two different economic laws.” (Preobrazhensky 1965:138)


The two forms of equilibrium differ in that:


  1. The non-equivalent exchange of PSA, conflicts with the law of value until capitalist technique is surpassed. The collective economy is in constant and unstable struggle against national and international capitalism and the world law of value.
  2. Planning must proportionately balance expanded reproduction to prevent the law of value from breaking into and disrupting the process.


The import of means of production, for production and consumption, can alleviate internal disproportions and industrial backwardness. Imports can be paid for by exports, purchased by the state from the peasantry. Close links to the world economy based on specific national characteristics, can help equip the means of production and finance raw material supplies. Planned imports of means of production become ‘an automatic regulator of the entire process of expanded reproduction’. (Preobrazhensky 1980:197-203)

PSA and the law of value produce a unity in their outcomes, but their clash of forces reflects an underlying and fundamental antagonism between social systems and classes fighting for supremacy and for methods of regulation that correspond to their pure form.


Preobrazhensky thought that if the law of value became the sole regulator, the state economy would disintegrate. This would entail reorganizing the economy to facilitate the spontaneous reproduction of commodity-capitalist relations. In this scenario he predicted the abolition of the foreign trade monopoly, a reduction in the rate of industrialization, the closure of unprofitable enterprises, and the redistribution of productive forces between light and heavy industry, and town and country. (Preobrazhensky 1965:64)


If the state sector strengthens – in defiance of the law of value – this indicates that another law, suppresses, modifies and amends the law of value. Knowledge of the existence of two conflicting laws facilitates the study of their relative weight and an understanding of the characteristics of this constellation. (Preobrazhensky 1965:138-9)


If the state sector pursued an optimal development scenario supported by international socialist change, then, planning would dominate, guide and organize the economy. The proportions of the economy invested in the means of production, its distribution, and the use of labour, would differ substantially, both from reality, and to the capitalist alternative. Thus, the battle for the existence and development of the socialist sector reflects the impulse of its regulator to reproduce itself on an expanded scale and shape the world in its image. (Preobrazhensky 1965:64-5)


Expanded reproduction of the state economy means increasing production as a whole. This enhances the relative weight of the state sector and rearranges economic forces guided by needs of proportionality. PSA encompasses these processes, and ensures the transfer of resources from the private economy to the public. It determines the anticipated redistribution of resources of the future based on the level of organization of the state economy. It organizes investment in capital and construction in anticipation of future proportions, and attempts to plan under the pressure of necessity, dictated to it as an external law. Its unique strength lies in its ability to gather and combine the productive forces of the state to implement plans corresponding to forecasts. This limits and excludes the law of value, which continues to dominate the unorganized economy. PSA dictates a proportional distribution of resources within the state sector, requiring preparatory accumulation. However, policy failures may lead to crises that strengthen the capitalist sector both economically and politically. (Preobrazhensky 1965:66-8)


Under capitalism the driving force of production is profit and the regulator is the law of value. Consumer needs are met by this mechanism and workers buy consumer goods out of their wages. The state economy must meet the social demands of its era, reflected in consumer demand on the one side, and an expanding rate of accumulation, requiring the restriction of consumption, on the other.


 “expanded reproduction in the socialist sector means automatic, quantitatively-increasing reproduction of socialist production-relations, together with the corresponding proportions every year in the distribution of productive forces.” (Preobrazhensky 1965:72-3)


The conversion of the state economy into a single trust composed of giant interlinked corporations, and improvements in technique and productivity, change the form of value and its relation to labour-expenditure. These factors help to elevate the technical level of state industry.


“If one considers only administrative costs, private capital is ‘more profitable’ for the whole economy, and the productivity of labour in private trade is higher.” (Preobrazhensky 1965:74)


Preobrazhensky argued that as the law of value is linked to private ownership of the means of production, unless public ownership of the commanding heights was merely a formal appearance, proportionality in the Soviet economy was established by planned regulation, with the law of value making corrections to this. Non-capitalist regulation produces its own objective economic needs and proportionality in a struggle against the law of value and its regulation on the basis of labour expenditure.


“It will always be the resultant of a struggle – though the direction in which the law of value and the law of socialist accumulation act may sometimes coincide in particular cases in real life.” (Preobrazhensky 1965:75)


Preobrazhensky tried to work out how the new economic system would oust, subordinate, and eventually eliminate old economic forms, which imposed their laws of resistance. A study of this process was complicated by the weakness of the new form of economy. The socio-economic influence of petty production and the peasantry meant that an economic struggle would ensue between capitalist and socialist accumulation from this large intermediate ‘nutrient base’. (Preobrazhensky 1965:77-8)


The peculiarity of Soviet economy in the NEP was the contradiction that large-scale industry was nationalized, so, the law of value was undermined by state monopoly. However, petty peasant production exerted huge pressure to develop on the basis of the law of value.

These conflicts between market spontaneity and the state economy, “explain the predominant type of all the upheavals and depressions which we have suffered, are suffering and will go on suffering in our economy; together, of course, with those complications that are bound to arise from the connection between our economy and the world market.” (Preobrazhensky 1965:162)


Ties to the world market and the proportions of the economy in state and private hands determined the rate of accumulation. Preobrazhensky claimed that over-accumulation of fixed capital was impossible at the time of the NEP as decades of development lay ahead and private sector domestic demand would also rise.


 “Rather than talk about a crisis of overaccumulation in the state economy, a sector that does not have as its goal the production of surplus value, we can speak of a colossal underaccumulation, which is reflected in the peasant economy as well, in that it slows down its development. We may also speak of insufficient accumulation in the sphere of peasant production of industrial raw materials.” (Preobrazhensky 1980:196)


Methods of PSA in the NEP


Preobrazhensky’s policy proposals during the NEP applied his theory of PSA to concrete reality. He advocated rapid accumulation of state capital so socialist economics could establish its dominance and reveal its advantages. He provided examples of policy measures advantageous to the state economy as a whole. These included, tax on private profits from capitalist and petty bourgeois production and trade. He distinguished between the apparent profitability of an individual state bank compared to the total societal benefit of credit policies. This contextualized how and why banks should determine their lending policies. Loans to the private sector could become a tool to channel, influence and structure investments to meet state objectives. (Preobrazhensky 1965:96-8) Legal and illegal lending to the private sector tended to focus on trade, as state supervision and restrictions, made mobile capital more attractive than industrial capital.


The capitalist credit system had been progressive relative to the unorganized markets of simple commodity production. State lending and credit in the NEP helped to structure the peasant economy. The credit system reflected the relation of forces between sectors of the economy. However, in the state sector, money acted as a means of accounting and calculation rather than a key instrument for achieving spontaneous equilibrium in production. A system of planning, accounting and control, stemmed organically from socialization of the commanding heights of the economy and generated different results than capitalist banking. (Preobrazhensky 1965:209-217)


For Preobrazhensky, foreign loans 'constitute a synthesis of capitalist and socialist accumulation' they could accelerate socialist accumulation and technology transfer, and create employment. The basis on which to judge such loans was practical advantage to the system as a whole. (Preobrazhensky 1965:134-5) If basic branches of the state economy needed to grant concessions to secure investment, foreign capital would penetrate and weaken the system, so too, if the working conditions in such capitalist enterprises were superior to those in state enterprises. However, he wrote: “When the socialist form is consolidated economically and technically, concessions will no longer be a danger to us.” (Preobrazhensky 1965:136)


As land was nationalized rent played a fundamentally different role to that under capitalism. Rent paid by state enterprises simply redistributed resources. The state appropriated rent from foreign concessions, mixed concessions, private farms, and wealthy ‘kulak’ peasants, who exploited wage-labour on public lands. These rents constituted a transfer to the socialist accumulation fund. Rent-tax on non-exploiting peasants and on the personal labour of kulaks, alienated surplus product from non-capitalist agriculture, but excluded the poorest peasants. (Preobrazhensky 1965:202-8)


Preobrazhensky proposed that trade policies between the economic sectors be organized on the basis of the expedient requirements of PSA, such as reducing costs, edging out intermediaries and taxing private profits. (Preobrazhensky 1965:99-103)


If private capital were ousted from trading state products this “…would undoubtedly intensify the process of transition of private capital into private industry, a process, generally speaking, which is economically advantageous and harmless provided there is a rapid growth in the state economy.” (Preobrazhensky 1965:103)

Preobrazhensky saw the state monopoly of foreign trade, or ‘socialist protectionism’ as a cornerstone of primitive socialist accumulation. It protected against the world law of value and helped regulate the whole economy. As exports of agricultural commodities grew and trade increased, the foreign trade monopoly secured PSA from the surplus profits of these exports. Loss-making foreign sales by the state could fund equipment purchases of benefit to the whole economy. (Preobrazhensky 1965:104-8) The world law of value influences the distribution of labour, e.g., where costs and benefits determine if resources should be reallocated. But state planning may also exploit opportunities provided by the world division of labour. (Preobrazhensky 1965:164-6)


If the state makes losses in its exchange with the private sector this would undermine large-scale state production and result in the sale of fixed capital and/or proletarian labour power at bargain prices. If neither ownership system exploits the other, the conclusion would be that there is no fundamental clash of economic interests and equilibrium can be maintained indefinitely. But Preobrazhensky saw capitalism as a system that always seeks to erode the socialist form, which, in turn, expands at the expense of the private economy.


Preobrazhensky advocated that price policy of monopoly state entities exploit the private economy. But warned that where private competitors participated in the same markets, state price policies could end up assisting private accumulation. And, as state price policies can adversely affect peasants and workers, he proposed measures to help counteract this, e.g. by means of credit and wages policy. (Preobrazhensky 1965:108-112)


Accumulation based on expanded reproduction of the state economy exploits the working class, i.e. its pays less than the value they produce. In War Communism production to meet emergency needs cost more than it produced, but losses had to be weighed against the alternative of zero production.  (Preobrazhensky 1965:116-7)


Preobrazhensky wrote “…socialist production has to pass through a fairly long period of accumulation of material resources, during which the individual enterprise of the state economy will inevitably be not superior but inferior to, economically not stronger but weaker than, a contemporary capitalist enterprise in an advanced capitalist country.” (Preobrazhensky 1965:120)


Under PSA reconstruction required rapid accumulation, technical development, and the rational geographical distribution of industry. The more developed the initial economic base, the more surplus product the workers provide - so resources from pre-socialist production would be less important. (Preobrazhensky 1965:120-1)


The struggle of the state against private economy focuses on the accumulation of material resources and the redistribution of labour power. The victory of capitalism over petty bourgeois and natural economy is the product of competition, technique and efficiency. The competitive superiority of socialist production does not pertain in relation to world capitalism. Free competition would disintegrate and destroy a socialist economy unless it had almost universal superiority in productive technique and efficiency, as the products of state industry will be more expensive and of inferior quality to that of advanced foreign capitalist enterprises.  (Preobrazhensky 1965:124-7)


“Inside the country private industry is weaker only because it is not allowed equal conditions for struggle. The state has held from the start the largest and technically most advanced enterprises. Furthermore, and this is most important, private industry is in every other respect placed in a less advantageous position than state industry.”  (Preobrazhensky 1965:128)


Its enterprises may look like private enterprises, but the unified totality produces its own necessities and demands. Its methods of gathering forces and finding and exploiting advantages derive from the cooperative potential of ‘great economic masses’. Preobrazhensky forecast that the field of free competition with private enterprise would gradually contract, although competition could be used to discipline and rationalize state enterprises. Socialism would conquer by suppressing competition with pre-socialist economic forms and by unifying state power with state economy. (Preobrazhensky 1965:129-32)


State Relations to Petty Production and Cooperation


Preobrazhensky wrote: “Capitalism by creating a single organism based on exchange provides the basis for a transfer to direct relations between state and petty production.” (Preobrazhensky 1965:131-2)


Capitalism conquered society with people disciplined in its forms of stimuli, but socialist habits and culture had to be created within the new system. In 1923 Lenin wrote that cooperation under the economic and political dominance of the working class could realize many of the dreams of utopian cooperative advocates of the past. He simultaneously spoke of the need for a prolonged revolution in the cultural and educational level of the peasants, and for the remodeling of society to peacefully transform peasant production into cooperative forms. He saw this as dependent on material development and education, predicting it would take a minimum of one or two decades, or ‘an entire historical epoch’, to attain the cultural preconditions for this.[11]


Preobrazhensky believed that cooperatives linked to large-scale state production could influence the character of petty production and exchange, but private agriculture tends to expand faster than state or collective forms.


“If the development of socialist relations in our economy, which have their basis in industry, were to stop or to be very much slowed down, and capitalist relations began to grow faster, then regardless of their social structure, the cooperatives would either break up at once, or else the majority of them would desert their positions as rearguard of the state economy, in order to go over to the side of capitalism.” (Preobrazhensky 1965:220)


“The balance can be changed not by some socialist miracles on the territory of petty peasant production, taken by itself, but only by a more profound influence of large-scale urban industry on peasant farming.” (Preobrazhensky 1965:222)


Technology and industrial products from the state could be used to encourage socialization of agricultural production, but the tempo of industrial development at the socialist core of the economy would be decisive in determining the outcome.





The limits of the Law of Value


During the NEP, commodity production, making goods for exchange on the market, dominated private, state-private, and to a considerable extent, state-state relations. This could be positive, if increasing urban-rural commodity exchange corresponded with rapid state industrialization and improved organizational capabilities. Monopoly capitalism gained dominance over capitalism based on commodity production. In Lenin’s view this created the foundation for socialism, which would increase the degree of monopolization, undermine ‘free competition’ and create,

“state monopoly in all large-scale and medium industry, transport, the credit system, and wholesale (and in part retail) trade, a state monopoly which surrounds itself with a powerful cooperative network.” (Preobrazhensky 1965:141)


Exchange with the private economy influenced the proportional development of state industry, fostering interdependence and common interest in expansion. Fluctuations in private markets influenced the state economy and planning and price policy could only ameliorate this. (Preobrazhensky 1965:142-5) The influence of the law of value was minimal where state monopolies produced to meet state plans and where the state was the sole producer and buyer. Here price was a formal category to facilitate expanded reproduction. The law of value exerted influence via wages, but market influence on the commodity was minimal. (Preobrazhensky 1965:163-4)


Where the state was the monopoly producer and the private sector the main consumer, price policy had to be adjusted to prevent consumer strikes. PSA could extend its scope, where private consumer demand was high. Such prices were a means of calculating and planning the organization of state resources. Where the state didn’t have a monopoly as the producer or consumer of means of production, its degree of influence was determined by its productive capabilities. Where competitors produced more cheaply than the state[12] (at a given level of quality), the state could be ousted and its labour force reallocated.


Where private production and sale, of means of production for the state predominates, the influence of the law of value would be significant.[13] Preobrazhensky suggested that state procurement organs could dictate prices but world market price would set an upper limit. (Preobrazhensky 1965:167-71)


The struggle to establish the dominance of planning is a struggle to accumulate resources and shape production relations in the interests of the state. Preobrazhensky argued that credits could enhance state leverage as the predominant purchaser and influence peasant decisions. As industry advanced it could subordinate peasant production of industrial raw materials to socialist planning. (Preobrazhensky 1965:172-4)


Where private sector production, sale and consumption of consumer goods were influential- prices of raw materials fluctuated considerably. The consumer had alternatives to purchasing from the state. Sectors with low capital costs and rapid turnover were easier to enter. State manufacture faced stiff competition in spheres where technical superiority and advantages of higher labour productivity weren’t easily attained.


State domination of the economy could resolve industrial goods famines by planned expansion or by imports. Inadequate responses will cause prices to rise, but restrictions on the law of value mean that such price responses don’t redistribute productive resources to satisfy additional demand or attract investment. (Preobrazhensky 1965:175-8) Thus, when the law of value is partially effective, and the law of planning fails to create its own proportional relations of development, a crisis may undermine state planning and enrich private capital.


Preobrazhensky saw heavy industry as “the most socialist link in the system of our socialist economy, the link where the furthest progress has been made in the process of replacing market relations by a system of planned orders and firm prices within the unified organism of the state economy. Here the process of transforming prices into planned redistribution of resources within the socialist sector, and of the commodity into the product, has gone furthest.’ (Preobrazhensky 1965:178)


During harvest failures, imports can ameliorate shortages. However, declining prices would signal the need to purchase grain and expand exports. The exchange of consumer goods amongst peasants and artisans was the least regulated sphere of the economy. Peasants purchased most of the grain, food and seed produced, but poor peasants often paid by working for wealthier peasants. So the law of value reigned supreme in market exchanges between peasants. (Preobrazhensky 1965:180-182)


Surplus Value and Surplus Product


Preobrazhensky believed that surplus product takes the form of surplus value when the product created by the labour of exploited classes becomes a commodity. The product is only made in order to extract surplus value from the producer. The existence of free labour constitutes the final prerequisite for a transition to capitalist production. (Preobrazhensky 1965:186) The realm of surplus value expanded as commodity production became capitalist production. In the USSR, Preobrazhensky observed the opposite process, a decline of surplus value, as socialist forms grew. The commodity was being transformed into the product, starting in state production of the means of production. Capital intensification extends the influence of production of the means of production, improving the quality, and reducing the price of consumer goods.


Preobrazhensky concluded that,


‘the development of the productive forces must inevitably mean an increase in the relative weight of the production of the means of production, and this increase quite automatically intensifies the tendency for commodity production to disappear in the state economy and in this way undermines the category of surplus value.’ (Preobrazhensky 1965:187)


State industry produced monopolistically for the market and the state. In the latter, market relations were more apparent than real, as competition was undermined or even abolished. With advances in rural productive forces, Preobrazhensky envisaged increasing peasant production for the market. But as state productive forces increase, and state planning and organization improve, so state commodity-production would decline, corresponding to a decline in the category of surplus value. (Preobrazhensky 1965:187)


Soviet Inequality


Preobrazhensky saw the divisions within the Soviet working class as rooted in their heterogeneity of skills, abilities etc., and described this as a legacy of capitalism. He believed that productive, cultural and technical advances would reduce divisions and enhance workers’ democracy in leadership and administration.  As the technical and cultural education of the masses increased, the quantity of skilled workers would outstrip the managerial and organizational posts available, leading to a blurring in the division of labour.  Soviet inequality was not rooted in ownership of the means of production – he viewed the upper stratum as productive workers - servants of the state. (Preobrazhensky 1965:187-190)


Labour-Power as a Commodity


Preobrazhensky described a transitional condition where:


·      The private economy employed more people than the state[14]

·      The reproduction of labour power also reproduced the commodity economy

·      Consumer purchases came mostly from the private economy

·      The state economy regulated the total labour fund by means of PSA but gradations in wage scales were regulated by supply and demand.

·      The wages fund related to the demands of planned accumulation not to fluctuations in the labour market; thus wages rose simultaneously with a labour surplus. There was a divorce between the wages fund and the law of value.


Preobrazhensky explained that capitalist forms, particularly in small and medium sized enterprises, exploited the workers, staff and the owners. Thus their hours and intensity of work defied socialist legislation. In trade, self-exploitation by owners played a significant role. So it was hard to envisage how socialist means could compete on unit costs of circulation. In this respect, protection of labour was a disadvantage vis-à-vis capitalist trading. (Preobrazhensky 1965:133)


Primitive capitalist accumulation ruthlessly exploits labour, but is later constrained by the relation of forces. However, socialism restricts the exploitation of labour. The state economy produces for the consumption of the producers through the market exchange of commodities. The regulation of wages during PSA is not governed by supply and demand fluctuating around value, or by labour struggle-, which is replaced by workers’ self-restraint.  Enthusiasm may temporarily boost production, but labour laws, regulations, social security and protection are more advanced than in comparative capitalist countries. (Preobrazhensky 1965:122-3)


Under the NEP the distribution of the wages fund remained bourgeois and was adapted to legacy forms and bourgeois incentives. Piecework was commonplace, but technical development began to restrict its operation. It was envisaged that individual and collective wages would merge and include provision by social institutions, crèches, clubs etc. Preobrazhensky used the term surplus product to characterize the fund acquired by state industry after satisfying workers’ consumer needs. This refers to the state economy, where new production relations were ‘coming into being’. The reality combined elements of surplus value, surplus product and collective expanded reproduction. (Preobrazhensky 1965:190-5)


PSA integrates the planned and spontaneous processes towards rapid expansion of the state sector. The law restricts wages in order to accumulate state investment funds. Therefore it slows down the tempo at which wages are changed into consumer rations.


“The tendency to overcome the category of wages, that is, the tendency to intensify the socialist quality of production-relations, comes into contradiction with the tendency to quantitative extension of the territory of the state economy and its production-relations in their present form, that is, production-relations at an extremely low stage of development in their socialist character.” (Preobrazhensky 1965:195-6)


Profit in the State Economy


Preobrazhensky emphasized the role that the equalization of the rate of profit plays in distributing productive forces under capitalism. Capitalist firms face a number of unknown factors in relation to orders, sales, prices, markets, and profits. Equilibrium is established by changes in the rate of profit that attract or repel investment. The proportions invested in constant and variable capital differ in various entities and sectors. Enterprises with a variable organic composition of capital are all subject to equalization in the rate of profit.


Soviet state enterprises planned production in relation to planned demand, with greater fluctuations occurring where connections extended to non-state sectors. Input prices were either known -as state entities supplied them as part of a plan - or influenced and contained. Wages were collectively agreed and could be planned for. Planned decision-making in the state economy altered the nature of profit, and thus the influence of the rate of profit.


Production based on standardized calculations undermines the regulatory role of prices and profits in the distribution of the productive forces, which are governed by general planning instead. The rate of socialist accumulation is regulated by planned inputs and sales. Profit ceases to be the source of accumulation or regulation (based on the law of value), determining the distribution of the productive forces. (Preobrazhensky 1965:196-9)


Under capitalism surplus destined for new investment flows into shares, which act as a spontaneous means of creating and distributing capital. Although the Soviet economy also issued shares, the content differed from the form. State enterprises or institutions bought shares in each other. The state banking system was the primary means of distributing capital alongside the state budget. (Preobrazhensky 1965:199-200)


PSA in the NEP also developed spontaneously, in the sense that annual accumulation was not determined in advance using conscious and planned prices. Prices were developed by adding together the costs, rather than by working out the accumulation required and sharing this burden between various spheres of production.


Under capitalism competition regulates the economy. The equalization of profit shapes the distribution of labour despite differences in the organic composition of capital and the quantity of surplus value that the invested capital produces. The law of prices of production facilitates reproduction under capitalism. Capitalist accumulation funds combine the total surplus acquired by capital from labour. This is distributed amongst capitalist enterprises according to the law of profit equalization.


Profits of the Soviet enterprises weren’t divided into capitalist consumption and accumulations funds - there were only accumulation funds. However, a proportion was transferred to central state finances. The funds needed were worked out in advance as part of a production plan, and budgets and prices were adjusted to try to meet these plans. The accumulation fund derived from price policy and encompassed the entire state economy. Its component parts provided these funds from profits, which were more unequally distributed than under capitalism. Price policy and profits were designed to secure state accumulation. (Preobrazhensky 1965:200-2)


The End of the NEP


Proletariat and the Party


The construction of the new state and society changed the functional role of the revolutionary party. Its proletarian credentials diminished as it assumed governing roles, with associated material privileges. Only a minority of party members had experienced pre-revolutionary struggle. Migration and urbanization changed the composition of the proletariat; and disappointment with the results of the revolution in everyday life, generated passivity. A small minority of enthusiastic proletarians threw themselves behind the constructive work of industrialization, but few workers responded to appeals by the Left Opposition to engage in a new struggle for revolutionary ideals, or to stand up for the opposition when they faced expulsion and exile. (Carr 1971:430-34)


The Rise of the Bureaucracy and the Plan-Market Conflict


In the mid-1920s the debate about the rate of growth and proportionality between sectors was initially one in which the Left Opposition advocated increased industrialization broadly along the lines of Preobrazhensky’s New Economics, and the party majority remained tied to the idea of gradual industrialization based on market laws. This was justified on the basis of the sanctity of the worker-peasant alliance. The arguments of the party majority shifted following the expulsion of Trotsky and his allies in 1927. This had two main impulses. The first was the perceived defence needs of the state and the second, the dynamic of pressure stemming from the expansion needs of heavy industry. As production reached pre-war levels, large-scale investment requirements, which could only bring delayed returns, clustered together the total needs of such investment. Concentration on production of the means of production, rather than production of the means of consumption was eventually justified on grounds, not significantly different to those that Preobrazhensky had used.


Talk of forced industrialization and of finding the shortest path, to catch up with and overtake the advanced capitalist countries, became commonplace in the press, publications and at meetings etc. The political defeat of the Left Opposition in 1927 facilitated this, as the administrative and bureaucratic strata of the heavy industrial lobby gained more influence, authority and power.

Concerns about the impact on the peasant-worker alliance, of the lag in consumer production, found some echo, in particular with Bukharin. Although market equilibrium theories were widely accepted within the party in 1927, strains between planning and market concepts of development were tested to the maximum. On the one side, pressures were brought to bear on the recalcitrant peasants, and on the other, great efforts were applied to ensure that consumer goods production rose, to limit the impact of this. In January 1928 consumer goods production was 26 percent above that of a year earlier.[15]


Bukharin presented the conflict with planning as one of imaginary visions and plans - which he called ‘bricks of the future’- against market realities and their expedient needs.  Debate on the tempo of development dominated party discussions in 1928. The momentum developed through increased investment in heavy industry heightened the confidence and authority of its apparatus and associated officialdom. A bridge between these arguments was temporarily found in common hopes for productivity and efficiency gains, but by the end of 1929; Bukharin’s arguments were labeled as representing the kulak and the petty bourgeoisie. The concept of planned management, along with the ideal of rapidly catching up with, and overtaking advanced capitalism, became official policy. (Carr and Davies 1969:271-332)


Tensions over Agriculture


From 1925-1927 party and state policy had reluctantly favoured individual ‘capitalist’ peasant forms of agriculture. The United Opposition advocated policies supportive of voluntary cooperation, intended to unify the interests of poor and middle-income peasants with state industry. Pressure to concentrate resources on heavy industry intensified, requiring long-term investment. This meant that consumer goods production, which otherwise might have enticed the wealthier peasants to sell their grain, was deprioritized exacerbating a goods famine. The mechanization and technical advances in agricultural production improved output regardless of ownership form and appeared to offer an alternative to political conflicts over class interests within the peasantry. However, the larger the farms, the greater the benefits, therefore control over large farms was fundamental. The peasant response to the consumer goods famine was to hoard grain as their store of wealth, and so the wealthier farms had greater power of resistance. The state could only rely on state farms to provide and sell grain on official terms. Thus the conflict with rich peasants was revived. However, the state appeared as an alien force seeking to wrest control from the villages, where its anti-kulak policies were generally regarded as anti-peasant.


In early 1929, Stalin concluded that urban grain requirements could only be secured by forceful measures against wealthier peasants, a widely held view within the party. Fear that the kulaks would reorganize the economy towards capitalism gained adherents. It was hoped that class struggle in the countryside would unify the middle and poor peasants against the kulak, but party organization in rural areas was weak and kulak agitation against outside interference tended to unify the peasantry against the party. Workers’ brigades were dispatched to support and encourage collectivism in the countryside as Stalin’s new policy to liquidate the ‘kulaks as a class’ was adopted in the summer of 1929. A drastic and radical shift to rapid and forced collectivization became policy at the end of 1929. This was the result of persistent grain collection crises, the exhaustion of measures against the kulaks, and a drastic rise in black market food prices, which threatened urban food supplies and jeopardized industrial expansion plans. A flickering faith in the potential to combine collectivization with mechanization, helped to summon up hope out of desperate circumstances for the final catastrophic dénouement. (Carr and Davies 1969:237-270)


The Victory of Planning


The eventual ascendance of planning was not simply the result of an ideological clash or a battle between social classes. Planning emerged from within the commanding centres of administrative power. Initially, forces in favour of planning were segregated, spontaneously emerging from below, but by the mid 1920s diverse agencies expanded the nature and depth of their activities. Planning impulses arose from within institutions governing finance, industry and government at various levels of hierarchal and geographical authority. They automatically groped towards planning and their decision-making powers expanded as infrastructure, enterprises and institutions at the centres of power grew in scope and influence. (Carr 1958:490-518) (Carr and Davies 1969:787-897) For example the expansion plans of the vehicle industry, particularly, tractor production, escalated in scale and significance in the late 1920s. Eventually, the centrality of these sectors to state objectives resulted in discussions and decisions about daily operational and organizational details of factory and industrial policy being taken in meetings of the leading bodies of the party and state. (Carr Chapter 16)


The victory of planning over markets was in one sense a vindication of Preobrazhensky’s theoretical contention that a clash of fundamentally counterposed forces characterized the NEP. However, the use of extreme violence and the rapidity of execution was a clear and unequivocal deviation from his approach. This produced the expropriation of the means of production of practically all non-state economic entities in a single blow. This meant that the exploitation of the private economy was prematurely closed off, before its potential was exhausted, and before collective forms were able to outstrip them in productivity.


Research Questions


Preobrazhensky’s theory of Primitive Socialist Accumulation studied the laws of motion of a society in transition to socialism. Although it was formulated in the specific conditions in the USSR it was concerned with socialist transformation in general. In order to use his theory as a tool of analysis to study contemporary China, two questions will act as guidelines. What are the similarities and differences between Preobrazhensky’s model and contemporary Chinese reality? Can the theory be amended to account for these differences and still remain recognizable and consistent?




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[1] Preobrazhensky was expelled from the party, readmitted after capitulating to Stalin, but changed his mind and was expelled again, he was eventually executed in 1937.

[2] A purely geographical frame is inadequate as it fails to account for Preobrazhensky’s approach to differentiation within the peasantry.

[3] Preobrazhensky equated state ownership in the USSR with socialist property.

[4] Preobrazhensky’s concept of exploitation deals with the extraction of surplus product from the peasantry and the private economy by means of unequal exchange, i.e., an exchange of products containing different quantities of labour time.

[5] Although, Marx correspondence with Vera Zasulich in 1881 supported the idea that ancient communal property forms in Russian agriculture, known as the Mir, might be combined with a revolutionary transformation of society to bypass capitalist industrialization and mechanize on the basis of collectivism.

[7] The United Opposition was created in July 1926 by Trotsky, Zinoviev and Kamenev and other well known Bolshevik leaders to change party policy and fight bureaucratism.

[8] Marx, K. and F. Engels (1989). Collected works Vol. 24 Marx and Engels. Moscow, Progress Publ. [u.a.]. Critique of the Gotha Programme Chapter 1

[9] ibid.

[10] ibid.

[11] See Lenin On Cooperation Jan 4 & 6, 1923

[12] Preobrazhensky cites private repair shops

[13] Here Preobrazhensky uses the example of industrial crops, like sugar beet, hemp, oil seeds etc. as well as raw materials from animals.

[14] In 1927 only 12.6 percent of the labour force were employed by the state. (Preobrazhensky 1980: 229)

[15] Carr 1969 p.308