The Decline and Fall of Gorbachev and the Soviet State
Lenin’s slogan, “Marxism is Almighty Because It Is True,” was displayed practically everywhere in the former Soviet Union. My first encounter with Karl Marx came in the first grade of elementary school in the city of Kazan on the banks of the great Volga River. His picture was printed on the first page of the first textbook I opened. “Dedushka Marx” (Grandfather Marx), said the teacher pointing to the picture. I was thrilled, for both of my grandfathers died in Stalin’s purges in the 1930s. I ran home to my grandma to tell her she was wrong. “I have a grandpa,” I said, and with his huge beard and smiling eyes, “he looks like Father Frost” (the Soviet/atheist version of Santa Claus or Saint Nicholas, the patron saint of Russia).
Growing up in the Soviet Union, such early confusions are soon cleared up, for studies in Marxism were an unavoidable experience for everyone irrespective of age, class, social position, or nationality. Even the convicts in prison, including those on death row, studied the “Shining Heights” of the “great liberating teacher.” The works of Marx, Engels, and Lenin were published in the USSR in 173 languages with a total output of 480 million copies. Many of them were exported. I once met an Indian translator hired by the Political Publishing House to translate 50 volumes of the Collected Works of Marx and Engels into Malayalam. He complained the project was stalled because the Soviet propaganda officers could not find another Malayalam translator to cross check his work.
In the Soviet Union, Marxism was not thought to be just an economic theory. It pretended to be the universal explanation of nature, life, and society.1 It was also a deadly weapon to be wielded against personal enemies. As in the case of Nikolai Vavilov who was starved to death for violating Marxism because he adhered to the science of genetics, “a false science invented by the Catholic monk, Mendel.” In the name of Marxism, the death toll reached 100 million; the rivers of blood flowed from Russia to Kampuchea, from China to Czechoslovakia.
Hatred was the chief motivator of the socialist revolutionaries and their followers. Lenin regarded politics as a branch of pest control; the aim of his operations was the extermination of cockroaches and bloodsucking spiders, the myriad persons who stood in the way of his political ambitions. Yet Western hagiographers have glossed over this atrocious ruthlessness of Marxists, as historian Richard Pipes has documented.
One of the common denominators between Leninists and government interventionists in the West is the belief that the problems of monopoly are the problems of ownership: only private monopolies acting out of greed are harmful. These institutions are suppressing scientific and technical progress, polluting the environment, and engaging in other conspiracies against public well-being. Government monopolies, however, were believed to be ethical and upright; they substituted the “greed” of the profit motive with a “societal interest.” Yet group bureaucrats who manage and operate the public sector are no less self-interested than those who manage and operate private business. One important difference exists, though: unlike private entrepreneurs, they are not financially responsible for their actions and they operate without institutional constraints of cost control that private property and competition induces. The enlightened minds of planners and technocrats cannot overcome the problem of economic calculation without market signals.
The failure of socialism in Russia, and the enormous suffering and hardship of people in all socialist countries, is a powerful warning against socialism, statism, and interventionism in the West. “We should all be thankful to the Soviets,” says Paul Craig Roberts, “because they have proved conclusively that socialism doesn’t work. No one can say they didn’t have enough power or enough bureaucracy or enough planners or they didn’t go far enough.”2
In contrast to the West, where Marxist tenets were doctrines of a counterreligion, few in the Soviet Union truly believed in the official ideology: not the state managers, not the professors, not the journalists.3 It was not necessary that they do so, for Marxism was a means of political rent seeking and of coercive control, not a body of ideas held to by honest men.
The Soviet Union is now gone, as are the huge statues of Marx and Lenin that littered the East, and the good reputation of their systems of thought. This collection of articles is the Requiem for Marx and the social and economic systems created in his name. As with any funeral service, we look back on the life of Marxian ideas. But unlike the ordinary funeral, we are not looking back fondly, for Marxism is as good an example of the maxim that “ideas have consequences” as can be found. It does not speak well of the intellectual class that no body of ideas attracted a greater following in this century.4
It is beyond the capacity of economic analysis to calculate the opportunity costs of the socialist experiment in Russia. But the human death toll from Stalin’s collectivization, purges, and Gulags is estimated by Russian historian Roy Medvedev at forty-one million people. A popular Russian aphorism says: “The only lesson of history is that it does not teach us anything.”
“Despite the recent collapse of socialism and communism in Soviet Russia and Eastern Europe, socialism is alive and growing,”5 Gary Becker has said. It presents a mortal danger to economic freedom and the quality of life, and will for generations to come.
The scholars contributing to this volume write in the economic and historical tradition of the Austrian school, founded by Carl Menger with his book Principles of Economics (1875). The tradition emphasizes a deductive method, the role of choice and uncertainty in economic affairs, the power of market prices to coordinate economic activity, and the essentiality of private property for forming the basis of rational calculation. The Austrian school is also the historical bête noire of the Marxian school. Long before any other school came around to understanding the deep flaws in the Marxian approach, the Austrians had devoted an enormous amount of intellectual power to exposing its fallacies and dangers. Carl Menger refuted the labor theory of value, his student Eugen von Böhm-Bawerk demolished Marx’s views of capital, F.A. Hayek showed the incompatibility between socialism and political freedom, and Ludwig von Mises attacked the core of socialist economic theory.6
It was Mises’s criticism that has proven to be the most prescient. In his 1920 essay “Economic Calculation in the Socialist Commonwealth,” he argued that the socialist economy couldn’t properly be called an “economy” at all, since the system provides no means for rationally allocating resources. It abolishes private property in capital goods, thereby eliminating the markets that produce prices with which to calculate profit and loss. The absence of rational economic calculation, and the institutional structures that undergird it, prevents any realistic assessment of the proper uses and opportunity costs and resource allocation options. “As soon as one gives up the conception of a freely established monetary price for goods of a higher order,” Mises wrote, “rational production becomes completely impossible.” The central planners of an industrial economy will find themselves in a perpetual state of confusion and ignorance, “groping in the dark.”
“One may anticipate the nature of the future socialist society,” he said seventy years before the rest of the world was to become convinced. “There will be hundreds and thousands of factories in operation. Very few of these will be producing wares ready for use; in the majority of cases what will be manufactured will be unfinished goods and production goods… Every good will go through a whole series of stages before it is ready for use. In the ceaseless toil and moil of this process, however, the administration will be without any means of testing their bearings.”
From my life and study in Moscow, I can attest to the truth of this prediction. In an economy, nearly every consumption good requires several stages of production. The more natural resources used and the more complex the technology involved, the more stages of production are required. Yet lacking an ability to see a production process through to ends that consumers desire, Soviet socialism produced only military hardware, useless goods, goods to make other goods, while consumers were deprived of bare essentials.7
In the late 1980s, when glasnost at last permitted Soviet economists to speak out, they confirmed the death sentence that Mises had pronounced. As Martin Malia put it, “through the voices of Nikolay Shmelev, Gavriil Popov, Vasiliy Selyunin, Grigory Khanin, Larisa Piyasheva, Mikhail Berger, and subsequently Grigoriy Yavlinksy and Yegor Gaidar, they offered us a portrait of the Soviet that was in full accord with the evaluations of … Ludwig von Mises, whose book contains hardly a single figure and not a word about GNP.”8 This powerful confirmation, Malia points out, led to “methodological smuta” (“Time of Troubles” in Russian) in Western economics.
A common mistake Western observers made was to think the Soviet Union’s fundamental problem was a lack of democracy. They completely overlooked that the institutional structure of the political system cannot overcome the problem inherent in an economic system with no means of rational calculation. The Soviet Union had a number of leaders who promised political reform, but none was able to put bread on the table. In fact, the primary problem in the Soviet Union was socialism, and it is still far from being dismantled in the nations that once made up that evil empire.
The present “capitalist revolution” in Russia was best described by Russian publicist Viktor Kopin: it is a “quasi-democratic society with a quasi-market of quasi-legality and quasi-morality. The predominant conclusion out of this is that freedom leads to the destruction of spirituality, crime, pauperization of the masses, and the emergence of a class of fat cats.”
The decades-long effort to eliminate markets destroyed the work ethic, the mass misallocation of resources through centralized investment, the demolition of the base for private capital accumulation, distorted means of economic calculation, and technology so obsolete that the capital value of industrial enterprises is zero or negative. Most heavy industries were built during Stalin’s Industrialization Program in the 1930s and have not been updated since. A huge part of Russian industrial stock is as productive as an industrial-history museum.
The crisis in socialist agriculture goes back to the 1920s and ’30s, when millions of the most productive peasant households were branded as “kulaks,” and exiled to Siberia. Most of them could not survive the hardships and purges and perished there. Agriculture still has not recovered from this collectivization and blanket nationalization of property that turned owners into prison laborers. At the beginning of the century, Russia exported wheat, rye, barley, and oats to the world market. Today Russia is the world’s largest importer of grain.
Russia’s consumer prices index registered the inflation rate to be 1,240 percent in 1992, instead of the promised 100 percent. Even as the chairman of the Russian central bank blamed the government for not pumping enough liquidity into the system, Russia’s printing presses have not been able to keep up with demand. Credit markets remain centrally controlled, and serious monetary reform is nowhere in sight.
Larisa Piyasheva — the only visible economist close to the Austrian school in present-day Russia — believes that total privatization alone will not solve all the problems, but without it, there is no hope. She was fired by Yeltsin’s government due to ”budget cuts.”9
If the present looks bleak, the recent history of the Soviet Union remains widely misunderstood. No one figure represents the confusion better than Mikhail Gorbachev. In the West, he was and is considered the great reformer — witness the title of Princeton Professor Stephen Cohen’s New York Times op-ed, “Gorbachev the Great.” If Gorbachev was a reformer, he was hardly the first Soviet politician to use so-called reforms to maintain power. Lenin was a reformer too, and he resorted to extraordinary means to save communism. As a result of Lenin’s efforts to impose real utopian socialism — not the bureaucratized model that existed until recently — the entire population was dying out. Had he continued on that course, he would not have had any subjects to rule. Then he initiated the New Economic Policy, which allowed markets and private property.10
According to historian Alec Nove, Lenin
kept stubbornly on the course of all-round nationalization, centralization, the elimination of money, and above all, the maintenance of [grain requisitioning]. There was no pressure on him from his colleagues to change this policy. Events, rather than the central committee, provided a potent means of persuasion.
Gorbachev too tried to save communism through other means. That was the original point behind glasnost and perestroika (and probably why these petty measures were so heralded in the West). Even the KGB understood the need for reform. As the chief ideologue of the KGB, Philip Bobkov, has said, “The KGB understood very well, back in 1985, that the USSR would not be able to make further progress without perestroika.”
By the people in the Soviet Union Gorbachev was rightly considered to be just another Communist Party hack. His “reforms” were never fundamental, but only expedient measures to preserve the centrality of the Soviet Communist Party and to salvage what was left of the socialist system. Gorbachev was only willing to “reform” when the world was falling apart around him.
He was in a good position to know better. He was from a peasant family in South Russia, where he witnessed first hand the malnutrition, hunger, and even starvation that socialism caused. His grandfather was killed in Stalin’s purges, so he knew the brutality of Communist politics. Yet he chose to make politics his life’s work. For Gorbachev, the exercise of power has always been more important than good sense or morality.
It was a Western fantasy that the man named to be general secretary of the Communist Party would not be a devoted Communist. As in joining a street gang, you must demonstrate that you are absolutely loyal to the club (and all its associated crimes) and that your conscience can be overridden. During Gorbachev’s long political climb, he passed more than one hundred such political and security clearances.
The main difference between Gorbachev and his predecessors was that he was smarter and smoother. He was also the first one with a university education: a masters in law and a masters in agriculture. Given Soviet education, that is probably why the first thing he did was ruin the agricultural distribution system.
While he was in agricultural school in Stavropol, Russia, he was chief of the local Communist Party. His col
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