Created: 1/30/1956

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Office of Current Intelligence CENTRAL INTELLIGENCE AGENCY



V.- ;rT]





Soviet Staff

Office of Current Intelligence Reference Title: 6


Soviet Views od Capitalism

This studyorking paper.. It attempts to identify major trends in Soviet views on capitalism since World War II. It is circulated to analysts of Soviet affairsontribution to currentof Soviet policy. This particular study is parteries prepared under the general title "Projectesigned to insure the systematic examination of information on the leading members of the Soviet hierarchy, their political associations, and the policies with which they have been Identified.



Marxist Views of Capitalism: The Historical

The Varga Heresy and (Its.

The Varga

The Campaign Against

Implications of the Varga

Views of Capitalism:

The Deformation of Soviet Economic Scholarship/

"The Approaching US Economicogma vs.

Stalin's "Economic Problems of Socialism" -

Soviet Views of

Verge's How Book: Stalinism In Flux (Heresy

"The Approaching OS Economic Crisis": ew Twist?

Rebuilding tho Research Base: The Dilemma of Planned


Participants at7 Discussion of Verge's

Structure of the Economics Institute In

The Heresies of the Varga School:

Postwar Sessions of Soviet Economists on

Personnel Changes In Sector on Capitalist Business

Soviet Publications on Capitalism Before and After


Use of Western






Changes in the capitalist world economy have confronted Socialists everywhere (Reformists, Revisionists, Marxist-Leninists) with certain basic questions: Can capitalism be regulated and stabilized? Can the transition to Socialism be peaceful? Can the capitalist system be organized to prevent war? The different answers to these questions, both before and during the Soviet period, have provoked bitterersies and have played an important part in determiningstrategy and tactics. In the early postwar period the leading Soviet student of capitalism, Eugene Varga, and his professional associates presented the Kremlin with generally affirmative answers to these basic questions, echoing the ideas of the early neo-Marxists, Kautsky and Rllferdlng.

The controversyhich was provoked by the ideas of Varga and bis colleagues probably reflected controversy, or at least uncertainty, within the Soviet leadership over the stability of the capitalist world and the choice of tactics by the regime. nterpretation of the trends in world capitalism would have supported theof the tactics of the wartime coalition, by placing more reliance upon the traditional instruments of diplomacy and exploiting the national interests of the capitalist powers rather than upon the subversive actions of foreign Communist parties and the "cold war" tactics of expansionism and revolution. The Varga controversy illustrated theof deep strains and fissures beneath the monolithic facade of Soviet totalitarianism.

Although events in the form of the united Western reaction to Soviet power and the worsening of East-West relations led to the defeat of Varga and his high-level backers, theraised questions about the economic stability and political unity of the West that have continued to plague the Soviet leadership up to the present time. Varga's defiant challenge to the Kremlin on the validity of Lenin's thesis that the capitalist powers would fight among themselves instead of uniting against the USSR carried such authority that it was




left to Stalin alone aaong the Soviet leaders to answer Varga. Stalin's official reply2 was designed to allay fears about the destructive Implications of modern warfare and doubtsabout the dangerous course of postwar Soviet policy. Tbe bankruptcy of Stalin's orthodox answer was clearlyby Malenkov's statement4 about tbe "destruction of civilization" and by subsequent revisions of SovietIn this field.

9 Stalin almost certainly never seriouslyIn tbe imminenceajor capitalist depression.1 the increasing propaganda emphasis on thethemo (disunity between the governments of the major capitalist powers) and -the signs of awakening Soviet Interest in foreign trade Indicated the beginningew phase in Soviet taotics arising from Soviet recognition of the armed power, economic strength, and political cohesion of thecoalition led by the OS. Although Stalin recognized the realities of capitalist stabilization, be refused to accept Its permanency. Stalin's call to foreign Communist parties to play up "democratic rights" and "national interests" and bis concentration on problems of the world market Indicated the direction of Soviet efforts to destroy the Western coali-


Stalln's campaign to Impose ideological conformity on Soviet intellectuals almost destroyed the researchbase of Soviet analysis of foreign economic trends. Nothing serious was published in the USSR after the Varga controversy, only straight propaganda. In view of the political pressures and ideological compulsionswithin Soviet society under Stalin, it Is highlythat Soviet foreign economic intelligence analyses could have differed in any significant way from the publishedof professional economists. Hence, it is extremelythat Stalin could have gotten an acourate objective appraisal of foreign economic trends even if he had really desired one. The damage to professional activity under Stalin hasroublesome legacy of his successors.

The Current Situation

The center of current Soviet interest in capitalism Is the question of the effects of rearmament on the capitalist economy, especially the US economy. The present Soviet leadership appears still to adhere to the long-held belief that only rearaaaent prevented the outbreak of majorin the United States5 Professional

writings since Stalin's death clearly reflect Sovietof the beneficial economic effects of rearBanent on the US economy, particularly as the primary stimulus to modernization and capital expansion. The writings of the leading Soviet economists indicate high regard for the capabilities of the US economy and provide no basisfor the view that the US will spend itself Into ultimate economic collapse.

Tho post-Stalin leadership has been demanding from its economic specialists on capitalism precise, quantitative answers on the economic Implicationsigh level of capitalist arms production, Instead of the academic that passed for research under Stalin. In theof such scholarly studies, the current view of Soviet specialists on capitalism appears to haveentral problem for Soviet diplomacy: bow toeduction in Western arms production,(leading to anticipated adverse coo-sequences on the capitalist economies) without sacrificing vital Soviet Interests.

There Is very fragile evidence that the present Soviot "collective leadership" may not be unanimous in the beliefS depression leadingorld economic crisis is imminent. Whatever the differences within the Kremlin over the economic stability of the capitalist world, their policy implications under conditions of continued atomic stalemate would appear to lead to the same practical conclusion: the use of political and economic power to strengthen the Soviet state, destroy the Western coalition, and remove Westernin the uncommitted areas of the East-West struggle. The prevention or outbreakajor economic crisis In the West would not only affect the world balance of power but also condition the choice of tactics by the Kremlin. Signs of economic weakness in the West could leadajorin Soviet tactics, as well as to high-level over the tactics to be pursued. Continued unity, stability, and strength in the West mightource of controversy within the Soviet leadership, now and in the future, and possibly even of changes in its composition and policies.

Tho recent predictionoviet economist, who Isto have contacts with influential elements in the hierarchy,epression in the US "In the next few months" represents the most clear-cut Soviet prediction of recent times. It is clearly premised upon an anticipationecline in future US defense outlayselief that the

international market will In the future become the criticalrena determining the development of the anticipated world economic crisis. It is possible that recent Soviet tactics of peddling discontent in the uncommitted areas of the Near and Kiddle Bast may be predicated in part on an assumption of an imminent depression in theUS leadingorld economic crisis. Elements within the Soviet leadership may calculate that in such an event election-year politics, economicand early New Deal precedents might lead the US to reduce its commitments abroad, thus leaving the USSRreer hand.

Every serious professional analysis of the capitalist economy has been made at the expense of ideological orthodoxy, both before, during, and after Stalin's lifetime. Since Stalin's death some Soviet economists, led by Varga, have advanced certain heretical propositions on capitalism, and despite professional criticism these men have not backed down, nor have they been silenced yet officially. The post-Stalin regime appears to be attempting to escape the dilemma posed by the conflict between ideological orthodoxy andactivity by tolerating reasonable heresies in the hona of obtaining accurate estimates of foreign economic trends. Continued economic stability in the West has been, is now, and will continue to beeadache for the regimeecurrent source of heresy among Soviet professionals. Toleration of such heresy, while It will almost certainly lead to marked improvements in professional activity, could over the long run undermine the ethos imposed over Soviet society and even debase the ideological appeal of Communism to disaffected foreign intellectuals. Over the long run, the intellectual crisis of Soviet Marxism may be resolved by the official acceptance of current heresies asorthodoxy.

Developments in the field of Soviet economic research on capitalism in the postwar period demonstrate the adverse effects of ideological conformity and excessive secrecy on Soviet professional activity. If events in this field are viewed, as we believe they should be,icrocosm of tbe larger arena of Soviet professional life, then they suggest that the interplay of modern totalitarian and traditional Byzantine Influences did immeasurable harm to all fields of postwar Soviet scientific activity. The significant,advances of Soviet science in the militarily oriented fields were probably achieved at great expense in terms of





total rosourcoB. The present regime's heavy emphasis on raising over-all productivity andore favorable atmosphere for professional activity in all fields probably indicates that it can no longer sustain such inefficient use of its natural and human resources.





The purpose of the present study is to examine theof continuity and change and the indications ofand conflict in postwar Soviet views of capitalism, and to attempt to determine the implications of those views on Soviet policies. ajor component of the over-all Soviet appraisal of the international situation, the Soviet views of capitalist economic developments undoubtedly play an important role In the decisions that determine Soviet policies at home and abroad. What is the economic strength and stability of the capitalist world? Will the capitalist world be able to avoid depression? Will it attempt to escape depression by resorting to war? Will such wars break out within the capitalist world or will they be directed against the Soviet Union? The answers to these and slmlliar questions about the capitalist world haveajorfor the Soviet leadersajor target for Soviet experts since World War II.

In arriving at their estimates of the internationalthe Soviet leaders, by virtue of the immense importance they attach to the economic aspects of Marxist doctrine, have always paid considerable attention to foreign economic Steadfastly adhering to the basic Marxist tenet that capitalism faces inevitable doom, Soviet spokesmen havepredicted that the capitalist world isajor economic depression, with disastrous consequences for its political unity and power position relative to the Communist world. In the face of such prospects Moscow has obviouslyatchful eye on foreign economicever searching for symptoms indicating the timing, intensity, and duration of the anticipated crisis.

The task of ascertaining the views of the Sovieton capitalist economic developments is confronted by formidable difficulties, not the least of which are theuniformity and propagandistlc character of Soviet How can one be certain that the allegations of Soviet spokesmen necessarily reflect the actual thinking of the leadership? Although no definitive solution to this problem is possible, there are certain tendencies in theof Soviet totalitarianism which do offer some clues for analysis. In the first place, Soviet pronouncements can be analyzed with consistency and clarity, because they are

dominated by centralized, known purposes that have beenby the leadership and thatonstancy absent in nonauthoritarian states. Thus Soviet spokesmen are bound to cling to the orthodox line, until it is modified from above. Moreover, since the Soviet leadership professes allegianceurportedly rational system of ideas, it is obliged to explain every course of action rationally In terms ofideological formulae. Traditionally conservative about its ideological legacy, the Soviet leadership does not tamper with it in the absenceressing motive. Hence, analysis of the modifications, readjustments, and contradictions in these ideological formulae may not onlyeans of measuring the depth and Importance of actual policy trends, but may also, when viewed against the background of those trends, illuminate some of the underlying realitiesSoviet thought and action.

Since there is no direct source material that tells us specifically how the Soviet leaders view the course ofeconomic development or what effect their views have on policy decisions, it is necessary to rely primarily upondrawn from their public pronouncements and from tbe writings of professional Soviet economists. Duringpecial sector of Varga's Institute of World Economy and World Politics of the USSR Academy of Sciences was reportedly responsible for basic economic intelligence research and reporting in the USSR. It was the particular mission of this unit to provide evaluated reports andto the Soviet leadership on trends in the capitalist economies.

Whether the postwar channels are tbe same is not known. In7 the Economics Institute of the USSR Academy of Sciences took over the function of the Institute of World Economy and World Politics, and continued to superviseon foreign economies untilew organization. The Institute of the Economy of modernwas formed in the USSR Academy of Sciences. It Is, of course, possible that because of the continuous criticism to which the Economics Institute was exposed during the postwar period it was no longer entrusted with an intelligence and evaluation function. However, in view of the complexity of the data on capitalist economic developments, as well as the fact that the Economics Institute and its successor contain the foremost collection of economic theoreticians andin the USSR, it seems plausible that the Kremlinto rely upon professional economists for intelligence analysis and reporting. The publications of professional

Soviet economistsrimary source for many of the observations of the present study, and they are believed toeasonable point of departure for hypothesizing on the actual views likely to be held by the Kremlin.

Given the extreme political pressures and ideological compulsions operating within the Soviet totalitarian polity, it seems highly doubtful that Soviet intelligence reports (as distinct from publications of professional economists) could have provided the Kremlin with accurate, objective analyses of foreign economic trends during Stalin's lifetime. In the prewar period Stalin himself is reported to haveabout the propagandistlc character of the economic intelligence reaching him, with the result that the special sector of Varga's Institute reportedly resolved the dilemma by collecting quotations from capitalist publications andthem with the caveat that they representedpropaganda"! It is also instructive that even in their overt activities Soviet economists were unable in Stalin's lifetime to prepare the general textbook on political economy that had been demanded by the politicos since atemories of the blood purges of the thirties and the general deterioration of the domestic political atmosphere under Stalin were almost certainly unlikely to promote any heroic searches for objective truth by Soviet professionals in or out of the government.

It is necessary to distinguish between analyses of foreign economic trends and factual reporting on the physical growth of national power. Thanks to the easy access to information in free societies and the efficiency of its own covertservices, the Kremlin unquestionably enjoyedsuccess in obtaining factual data on trends in foreign Industrial and military production. The rapid growth ofindustrial-military power after Korea was obvious to even the most confirmed Soviet Marxist. However, the problem of determining whether this growth in physical power was "healthy" in an economic sense, whether it would complicate the course of future economic development and lead to crises and collapse, was an analytical task for technicians familiar with theof foreign economic and political life. The present study is concerned with the Soviet analyses of foreign economic trends and not with Soviet factual reporting of .physical data on Western production.

The problem of determining the influence of Marxiston Soviet views of capitalism is, of course, of no little importance. There is,anger in treating Marxist'


doctrine, or rather the official Soviet versions of it, as an inflexible and integrated system of ideas, valid for all historical periods. In fact, various elements of Marxism in the Soviet Union have undergone erosion and change under the Impact of Inexorable circumstance. Therefore, from an intelligence standpoint, it is perhaps more useful to attempt to identify the social realities underlying the changingdoctrinal formulae than to attempt to determine theof Intellectual conviction or ideological zealby tbe Soviet leaders at any particular time.

Although the Kremlin has endeavored to cloak its actionsacade of monolithic unity, the occasional eruptions of disorder in polemics and policy havelimpse of the conflict of forces and movement of ideas operating within the Soviet hierarchy. Even in the absence of precise knowledge of the inner workings of the Soviet leadership, such major landmarks of postwar Soviet history as the Varga heresy andast article, toew, have served to highlight the basic issues and disputes thattbe leadership when it attempted to assay postwar developments in the capitalist world. Given tbe high stakes of Soviet policy, the complexity of the basic problems, and tbe diversity of the contending personal and group Interests, it Is not surprising that conflicting conceptions ofrealities and their implications for Soviet policy continually plague the Soviet leadership.

In addition to examining the content of Soviet thinking on capitalism, the present study is focused on the problem of the position of tbe intellectual In Soviet society. As the Individual upon whom tbe Kremlin relies for technical guidance, the professional is perpetually badgered bydemands of technical accuracy, professional honesty, expediency, and doctrinal orthodoxy. The changes in the postwar Intellectual climate and the resultingof professional activity into political propaganda are both an interesting sidelight of Soviet history and alegaoy of the present Soviet leadership. It is believed that trends in Soviet policy toward intellectuals, those individuals following developments in the non-Soviet world, will provide one of the best indicators of changes in Soviet society and, more important, the permanency of changes in Soviet state policies. Developments In thefieldich, though relatively untopped, source of Intelligence on the USSR.

ertain sense, the present study is intended as an Investment in tbe future, insofar as it is successful In laying

tho base for anticipating future developments. It purports to contain not an exhaustive record of the events relating to Soviet views of capitalism, but rather an analysis of those leading events which are thought to have molded the main lines of development. Attention has been directed very generally to certain selected events and controversies which, though they took place well before the period underare believed to be helpful in appraising theof much of later-day Soviet thinking. It is also hoped that the present study will demonstrate that certain areas of research on Soviet thought can, in terms of time and results, be more efficiently and successfully pursued within thecommunity itself rather than by external research.


collaboration rather than revolution and class conflict. He pointed to the gradual improvement of the workers' lot though such measures as factory legislation, trade union action, and democratization, and maintained that the gradual movement forward of the working class was everything, the final aim of socialism nothing. In defense of the national state and the peaceful transition to socialism, Bernstein insisted that the Interests of the workers tended to become identical with those of the highly developed democratic state. In general, he doubted the Inevitability of socialism and instead argued In favor of its desirability.

Kautsky, whose supporters considered themselves "orthodox Marxists" and formed the largest group in the Second International, was during the period of the prewar International its leading theorist, who in later life was toevere critic of the Soviet regime. Although Kautsky, like bis Russian Menshevik adherents, was addicted to "revolutionary phraseology" and subscribed to the orthodox Marxist concepts of class, crisis, and revolution, he stressed in The Road to) that the proletariat could "well afford to try as long as possible to progress through strictly legal methods alone." Unlike Bernstein, he accepted Marx's laws of the decay of capitalism, but he tended to interpret them in terms of peaceful development, placing emphasis on the inevitability of socialism as the climaxery lengthy process of development in which the contradictions ofwould become increasingly evident. Although regarded by Lenin in the period bofore Worldevolutionary Marxist, Kautsky in practicerogram of gradualism and reform. Abhorring violence, Kautsky believed that the proletariat, by utilizing the Instruments of liberal democracy, could increase its strength within the framework of tbestate and obtain fundamental concessions from tho capitalists.

During Worldautsky developed the concept ofhich was bitterly attacked by Lenin in Imperialism, The Highest Stage of Follow-ing in the footsteps of Rudolf Hilferding, the German neo-Marxlst, Kautsky advanced the thesis that peacefulof world resources by allied capitalists was possible He argued that economic monopolies were compatible with nonmonopollstic, nonviolent, nonexpanslonlst methods in politics, and maintained that imperialism was not the only

or even the final stage of modern capitalism, as Lenin was later to assert, but only one of the forms of the policy of modern capitalism against which the proletariat should struggle.

By suggesting the possibility that the capitalist world could be organized either by agreement between the great monopolies or by the domination of their most powerful representatives, Kautsky raised doubts that were to continue to trouble Marxists everywhere.

first of the reformists to direct aattack against Marx's theory of the inevitableof capitalism for economic reasons was Rudolftheoretical spokesman of the German Independentand author of Finance Bilferdlnghis attention to the growth of monopolies underand arrivedonclusion different fromthat through concentration capitalism mightstability. In international relations, he foresaw

the developmenteneral cartel through which themonopolies could jointly exploit world resources. In his later years Bilferdlngain advocate of theof "organized" or "planned" capitalism. He argued that as the result of financial and industrial concentration, the fluctuations in the business cycle would tend to become milder as time went on, and that instead of inevitable collapse the cycle might take the shape of mere continuous rises and falls in production and profits. Hence, Bilferdlng laid the theoretical basis for the transition of monopoly capitalismlanned economy susceptible to ever-increasing pressure and control by the working class.

these reformist interpretations ofLenin stood as the uncompromising exponent of allaspects of Marxism. He stressed theof the class conflict and advocated theof the proletariat against all the institutionsbourgeois state. In his Imperialism and latereninelentlessagainst the so-called "Kautskian perversions" He denied the possibility of capitalism overcomingof production by monopoly-capitalist planning andnon-expansionist capitalism. In reply to Kautsky'sofenin stated that theof the uneven development of capitalism would render

any interimperialist agreement ephemeralere prelude to new conflicts for the redivision of the world. According to Lenin, the capitalist states were destined to suffer from crises of overproduction which they would seek to overcome by attempting to secure foreign markets. In the resultant competition they would clash in imperialist wars which would weaken the capitalist front and pave the way for the ultimate

victory of tbe proletariat. For Lenin and bis Soviet imperialism was the ultimate final stage ofIn which the decisive struggle for its overthrow was to be fought.

theoretical divergencies betweenreformists over trends in capitalism lay at the rootactual differences In their behavior during andWar I. In Western Europe, where reformism hadbold and had sappod tbe roots of revolutionarysocialist parties were to yield to tbe demands ofand to formulate programs of social democracyframework of tbe capitalist system. In Russia theconcepts of capitalism, which had played suchpart in the shaping of Bolshevik strategy andtooncrete proving ground for To the Soviet leaders confronted with tbe dual task

ofational stato and carryingorldthe very quostion of survival and success depended upon the accuracy of their appraisal of the forces at work within the capitalist world.

examination of the divergentpolitical trends in Soviet and Western Marxism inperiod is beyond the scope of thw present study,be useful to assess the relevance of the earlyto later-day thinking. First, those earlythe critical importance of theory in To Marxists adheringniversal philosophyto explain scientifically the process of socialtheory was the anvil on which the practical problemsand tactics wcro hammered out. Second, even after

the monolith of Stalinist totalitarianism had enveloped Soviet society and had pulverized opposition, theory remained tho vehicle in which controversy was expressed, discipline enforced, and policy rationalized. Because theoreticalwas required to onsure ideological appeal and to sanctify political action, theoretical error was to bo regarded as of the most serious consequence. Lastly, the fundamentalof theory and policy that had been argued over in tbe early controversies wero, despite the oxlstence of national boundaries and iron curtains, to remain the legacy of Soviet Marxism during the Interwar period and afterward. The changes in capitalism which had provoked the early disputes over Marxism were to continue to affect the base of Soviet attitude and policy.




The Varga Heresy

10. It is clear from the major speeches of the Soviet leaders immediately after World War II that they believed the international situation presented both improvedfor expanding Soviet power and increased dangers to the USSR emanating from the capitalist world, primarily the US. On the one hand, the desperately weakenedof Western Europe and large parts of Asia, thein the US economy attending the conversion from war to peace, and the prospectsevastating economicin the capitalistthese provided grounds for optimism. On the other hand, the tremendous increase in the power and Influence of the US in world affairs gave cause for grave concern. In view of these perspectives, the Soviet leaders required an assessment of the forces at work in the capitalist world upon which to base the broad guide lines of postwar policy. In this assessment of the world situation, great importance was unquestionably attached to foreign economic developments, which the Kremlin had traditionally regarded as determinants of political action.

The Kremlin's efforts to come to grips with postwar International realities faced great difficulties arising from the domestic campaign to ensure politicaland restore ideological orthodoxy. Concerned over the general wartime relaxation of political controls and the widespread hopes of the Soviet people for change, the Kremlin hadmall-scale campaign, even before the war had ended, to wipe out the effects of Western influence and toigid strait-Jacket of ideologicalon Soviettaiin's speech of6 had fixed the rationale for such an Ideological house-cleaning by highlighting the continued dangers facing the USSR from the capitalist world. In contrast with thetreatment of the warfighting alliance ofstates againsttalin scrapped the wartime coalition ideology and placed the conflict squarely in the

*For an excellent summary of the early stages ofsee John S. Curtiss and Alex Inkeles.,theRecent

cootext of the struggle of the two systems of capitalism and socialism. Following this speech, the pace of the Ideological campaign was stepped up, and its scope was widened to cover all the professional groups in the USSR.

tbe Soviet economists were amongfeel the full weight of the ideological campaign,initially treated less harshly and morethe other professions in the USSR. It isthe regime, acutely aware of the disruptiveof previous purges, did not wish to demoralizeupon which it relied for analyses of foreign In6 the first issue of Culturethe organ of the department of propaganda andof the central committee, contained an attack onfor their failure to produce any monographseconomic developments. The October lssus ofcriticized the "theoretical backwardness" ofSoviet organization responsible for the study

of capitalism, the Institute of World Economy and World Politics, headed by the foremost Soviet economist, Eugene Varga. With the exception of these routine barbs,the economists studying capitalism were spared sharp Party criticism until

publication of Varga's book. Changes inof Capitalismesult of the Second6 touchedontroversy whichperiod of over two years and which reflected thecurrents of ideology and realitySoviet views of capitalism. Varga had beenby the central committee during the war toan analysis of tbe impact of tbe war on th< oconomy. Varga's book and the controversy itwere focused on the central problem of whetherhad produced changes in the essential structure In many respects, the issues raised inof this controversy echoed those that hadby Marxists and reformists before Worlds In the earlier period, the divergent views of

the changes in capitalism contained important Ideological and political implications. In addition, this earlycontroversy has special significance because itone of those rare, fleeting moments in Soviet history when men spoke their minds freely and expressed their real thoughts about tbe outside world.

book is significant not only becausethe first Soviet assessment of the over-allof the war, but also because Varga occupiedof professional pre-eminence and greatamong Soviet economists. Varga was theexpert on the economy of capitalism and themany theoretical works on the capitalist businessability to bring his statistical analyses Intocorrespondence with the Party line had onceto call him the "theoretical Polonius of thewho was "always ready to prove statisticallyclouds in the sky lookamel's back, but if

you prefer, theyish, and if the Princeit, they bear witness to 'socialism in onen old-time Hungarian Bolshevik who had emigrated to the USSR after the failure of the Bela Eun revolution, Varga had access to the highest Party circles. He was known to have personally advised Stalin on economic matters in the prewar period, and his Institute reportedlyirect channel to the Politburo, informing the leadership on foreign economic developments. In view of this background, Varga's views were bound to carry great weight amongeconomists and high Party officials. In fact, ideas in many ways similar to Varga's had been circulating among the articulate elements of Soviet society for atear before the publication of Varga's book.

generally adhering to the gloomymarxism on the long-run course of developments ineconomy, Varga advanced certainhis book that not only ran counter to officialbut also challenged the very foundationspolicies then being developed by the Sovietmost important and controversial of the ideasVarga may be summarized as follows:

a. Role of the State. The crux of Varga's argument was that the wartime intervention by the capitalist state in the operation of the economy had tended to offset the action of the fundamental laws determining the development of capitalism, and that such intervention would remain more important in the postwar period than before the war. He insisted that the wartime capitalist state represented the interests of the entire bourgeoisiehole, and not only the interests of the large monopolies. (He later admitted in the debate over his book that the capitalist state was also Increasingly sensitive to the interests of the working class and consumers.) Varga argued that the

capitalist state bad beeo forced by the exigencies of the war to intervene increasingly in tbe operation of the economy and to subordinate the private interests of the powerful Monopolies to tbe coamon interest of waging the war.

under Capitalism. Targa maintainedwartime economic intervention by the capitalistreduced tho anarchy prevailing in capitalism inpeace. While carefully pointing out that suchwas not "planning" Id the Soviet sense,to stress its importance during periods Be predicted that the scope of statediminish after the end of the war, but thatof planning would become urgent once moreew economic crisis.

Class Struggle. Varga predicted thatstruggle in postwar capitalism would take thea struggle between the bourgeoisie and thea greater share in tho administration of thoproposition, with its clear overtones ofreformism, Implied that the class struggle wouldwithin the framework of tbe captialist statethe working class would not be progressivelypolitical power, as Soviet propaganda andmaintained. This view, coupled with Varga'sof state intervention and regulation underthat there mighteaceful transitionto socialism.

Status of Colonies and Empires. Afterimperial relations during the war, Vargathat the relationships between the colonialthe colonies had altered to the benefit ofendency of the colonies to become less dependent upon the colonial powers and tostatus of ordinary capitalist countries. PointingIncreased power of the colpnles arisingreditor nations after the war, Vargaa period of concessions by the colonial powers toaspirations for national independence.

Eastern European Satellites. Vargaeconomic Importance or tbe Satellites in theof power. He asserted that the relativethe Satellite economies was too small to affectperspectives for the over-all development of

capitalist In the postwar period. Even worsen Ideological standpoint, Varga characterized the Satellite economiesorm of state capitalism, situated midway between capitalism and socialism.

bis analysis of the wartime changesVarga made several specific forecaststhe future course of the capitalist businesscold water on Soviet expectations of anof capitalism, Varga predicted that itat least ten yearsajor economicin the capitalist world. In his opinion theand the neutral countries would enjoytwo to three years, after which they wouldroutine crisis of overproduction. This crisisbecome severe or widespread, however, until aftereconomies of Western Europe and Asia, aided

by credits from the US, had reached their prewar levels of production. Then and only then, Varga Insisted, would all the fundamental contradictions in the capitalist system become sharpened and leadajor world-wide economic crisis.

Varga's specific prognoses abouteconomic depression were undoubtedly of greatto Soviet policy-makers, they were clearlyby his appraisal of the changes in theof capitalism. If Varga's analyses of thecapitalism were correct, then theytrongdespite the appearance of statistical precision

In his own predictions of the approaching depression, that capitalism mightinal collapse entirely bycertain modifications in Its basic structure. They also raised serious doubts about the success of the cold war policies then being implemented by the Soviet leaders. Thus, it is not surprising that both the professional and Party critics of Varga and his supporters were quick to seize and concentrate on these heretical propositions, rather than spend much time on his specific predictions.

book was subjected to7hree-day formal session of twenty The seriousness with which the Sovietviewed the issues raised by Varga is demonstrated by

*The participants at this session are listed in Appendix

tbe fact that unlike the situation in literature andwhere the Party intervened bluntly and directly in the person of Zhdanov, this meeting was presided over. Ostrovityanov, head of the Economics Institute of the USSR Academy of Sciences. The Partywas apparently interested inrofessional assessment of Varga's findings before indulging in histrionics. In contrast to subsequent sessions dealing with the trends In capitalism, this meeting was distinguished by relatively serious scholarly debate, in-large part uncluttered by personal vilification and invective.

Varga was widely criticized alonglines for all his heretical, reformistseverest critics (the.. Dvorkin. Ostrovityanov)sharply for having separated economics from politicsthe "general crisis of capitalism" and thethe two systems of capitalism and socialism. In

the course of the debate at this session, as well as in the later criticism, Varga was attacked for his position on the deceptively scholastic question of the origins of the "general crisis ofhich according to Varga had originated at the beginning of the twentieth century instead of with Worldnd the Russian Revolution, as set forth in official Soviet doctrine. In the jungle of Stalinist symbolism, the real issueshether the breakdown of capitalism and the shift in political power within the capitalist state could develop automatically or had to result from war and revolution (the former view was ascribed to Varga by his critics, and he never disowned it)hether there could be an Intermediate stage between capitalism and socialism (Varga had characterized the Satellites as state capitalist). In reply to his critics, Varga stated that he wastudy of the political results of the war which would serveompanion piece with his economic treatise.

the general criticism of Varga'sof the changes produced in capitalism by theresults of the debate were inconclusive. With theof his treatment of the Satellites, Varga stood

his ground firmly and advanced some of his theoretical even further. Citing developments ine pointed out that at that very moment certain forms ofunlike the Sovietbeing undertaken in some capitalist countries. Moreover,

bone of Varga's colleagues Id bis Institute (tbe.. Rubinshteln, Sh.B..a. Eventov, and La.s well as tbe highly regarded. Strumllln, while submitting partially to tbe generally critical tenor of the debate, defended Varga against charges that he had ignored tbe realities of the capitalist world. In sum, the professionals who had been commissioned to re-examine Varga's provocative conclusions on the state of contemporary capitalism could come to no basic agreement among themselves.

The Campaign Agaipst Heresy

with unpleasant answers about economicthe capitalist world and incipient heresy within theits professionals, the Kremlin was not slow in reacting

in traditional fashioneady-made ideological Surprisingly, the first sharp Party criticism was not directed at Varga butork of one ofa. Eventov, The War Economy of This book, edited. Trakhtenberg,chol-arly and relatively objective work which was apparently written in the spirit of the wartime coalition and which was generally sympathetic to economic developments in the UK. Training its sights on Eventov's book, the authoritative Party organttacked the following propositions: that the wartime delay in opening the second front waswith inadequate allied production rather than evil anti-Soviet motives; that Britain's colonial Interests had suffered to the advantage of her colonies; that acceptance of the US loan and alliance with tbe US were the onlyopen to the Laborlte government; that British was progressive and realistic; and that "the war, increasing the economic role of the state, expanding itsmoves capitalismigher level." With regard to the last point, Eventov was charged with following Kautsky's thesisnewnew level" of capitalism. indicative of increasing virulence of the Party attack on the Varga school was the criticism of the anti-Varga. Smit, for failing to expose Eventov'serrors in her book review (Sovetskaya Kniga No.arlier in the year.

tempo of the ideological campaign againstschool was stepped up in the second half ofIn administrative sanctions. Incritically reviewed the May discussion of the


economists and attacked varga's colleagues for falling to repudiate him. Later In tbe year Politburo member Zozne-sensky's book, The War Economy of the USSR during World War II, appeared anditter attack against TEe economists sharing Varga's views, though not mentioning him by came. Finally,ctober Pravda announced the merging of Varga's Institute with the oldingle Institute headed by Ostrovityanov.*

these heavy blows the Varga school

kept plugging bis line up to the time of tho merger in his Institute Journal, World Economy and World Politics. In August in an article on Anglo-American relations, similar to one he had contributed to Foreign Affairs, he wrote that despite their corflradictlons the US and were united in the chief alms of their foreign policy, which was directed against the USSR. At one point he also treated the Marshall Plan as advantageous to Britainit would receive sorely needed credits. In October, writing on the thirtieth anniversary of the Revolution, beeformist characterization of tbe prospects for the peaceful transition from capitalism to socialism in Western Europe, describing how even the Europeanfatalistically accepted nationalization, state economic control, and "planning.** In. Mendclson wrote an article in which he, like Varga,hort-term upswing in the postwar business cycle stimulated by consumer spending deferred during the war. His use of tbe concept "deferred demand" was later denounced by his criticsenial of the Marxist "law" of the absolute and relative impoverishment of the workers under capitalism. In view of this situation, it Is understandable why the Party decided to stop publication of Varga's mouthpiece at the end of the year.

he full force of thepropelled by the post-Comlnform line ofstruggle between two systems, was directed atschool and Its heresies. Article, in theParty Journals scathingly attacked the scholarlyVarga and bis former Instituterepresent the best and most productiveof postwar Soviet economic scholarship.* These works,

table (flVltff tne structure of the new Institute is found

in Appendix IT.

brief account of the criticiss8 directed at

the economists representing the Varga school and their

heretical works Is to be found in.


some of which were discovered to contain germs of Bilferdlng's "organized" capitalism andere denounced as un-Marxist, unmllttant, and reformist. No less than five major sessions of the new Economics Institute were convened8 to treat the problems of contemporary capitalism, four of which were devoted largely to denouncing the heresies of the Varga school.* Moreover, widespread personnel changes were made In the sectors of the Economics Institute studying capitalism; in the Sector on Capitalist Business Conditions alone, the important body responsible for collecting and processing all the diverse statistical data on the capitalist countries, thereompleteof*

tbe face of such an assault, the unity ofschool began to crumble. While some of hisremained silent, most of them recanted publicly,the poisoned spirit of Soviet politics, turnedeach other. Varga himself became the object ofattacks, andymbolic display of Party loyalty

he prepared several very hostile and propagandists articles on DS policy for the journal New Times. Vetn the face of threats, accusations, and the unsavoryof widespread professional degradation, Varga retreated onew minor points. In October he admitted that the tone of his book was too temperate and that the separation of economics from politics was erroneous. However, he not only held his ground on his major theoretical heresies, but alsoost telling counterblow at his

able listlDg the formal postwar sessions of Soviet economists dealing with capitalism is presented in Appendix IV.

Vist of the known personnel in this Sector in Varga's old Institute7 and in its successor.

an October meeting of the Economicswhich many ofssociates fully recantedafter having been soundly denounced, Vargachallenge to the Soviet leadership on theof the Leninist thesis of the inevitability oftbe imperialist countries. It was on this very

the growing contradictions between tho imperialist countries would lead finally to war andthat the Soviet leaders based their hopes for ultimate Varga maintained that the overwhelming economic and military superiority of the US in the capitalist camp, as well as the pressing domestic and colonial problems of the Imperialist powers, made war between them extremelyin the present period. In the light of such "powerfularga defiantly callede-examinatlon of the fundamental Leninist theses on the origin and nature of war. The specter ofultra-imperialism" which Varga had publicly raised was to haunt the Soviet leadership throughout the postwar period.

27. 9 the powerful wave of anticosmopolitanism flooded over into the ideological current, and together they were able to sweep away the last remnants ofmonth heresy. Varga recanted for his heretical mistakes in the March issue of Problems of Economics, the journal that had replaced Varga's own house organ. He admitted the error of his reformist propositions on the increased economic role of the state, capitalist planoing, relations between the colonial powers and the colonies, and the peaceful transition from capitalism to socialism. Tet, surprisingly, he was silent about his long-range predictions of economicand his challenge to the Leninist theory of theof war. This silence, perhaps, may have been the reason he and his adherents were again denouncedarch session of the Economics Institute for their "half-way"

Implications of the Varga Heresy

28. The Varga case is significant not only because it illustrated how tbe Party mobilized Soviet intellectualsits programs, but also because it involved issues that were Intimately related to Soviet policy. The outlines of these issues may be discerned in the controversy over Varga's views. According to Varga, the Soviet leaders would bewith the following prospects in the postwar period:

a. Given the likelihoodtabilization ofthe capitalist states would be able to remainand tonited frontong period of time. Consequently, any future war would not be between thepowers, but between them and the DSSR;

b. Id the highly industrialized capitalisttbe class struggle upon which the Kremlin relied for the expansion of its power would be modified and slowed down. In fact, in the major countries of Western Europe it was already being replacedtrugglehare in the participation by the working class and bourgeoisie in the direction of the state, as Varga had predicted;

C. In the colonial countries, the improvement in their economic and political status, the beginning ofand tbe growth of the native bourgeoisie would reduce the prospects for successful revolutionary activity for many years;

d. With continued economic solvency In theworld and the gradual transition toward socialism through tbe various nationalization and welfare programs sponsored by the'workiog class, the changing capitalist world might develop an ideology that could compete with Communism for universal allegiance by offering bothsecurity and political freedom. evelopment might eventually have adverse repercussions within the Soviet system. In sum, implicit in Varga's estimate of the capitalist worldtrong argument in favor of continuation of the tactics of the wartime coalition, at leastevel of militant competition, rather than support for the tactics of the "cold war" that were actually adopted.

29. The peculiar treatment of the Vargathe toleration of wide divergencies between articles on capitalism and the Party line, tbe long delay in silencing tbe Varga school, and the continued failure to discredit Varga completely and to remove him from influentialeven after he had refused tothe existence of high-level uncertainty, and probably even dissension, over the issues raised by Varga and theirfor Soviet policy. Despite the progressive tightening of ideological discipline after the Stalingrad victory and the Increasing stress on the dangers arising from capitalism, some economists of the Varga school continued up to the end7 to write books and articles in the spirit of the wartime coalition. Many of these works, particularly those on postwar economic developments in the UK, were fairly objective analyses, reflecting thinly disguised admiration for the developments then taking place in the capitalist economy. In view of the pattern of Soviet political behavior, the continued expression

of such views late7 and, particularly, Varga'b stubborn refusal* to recant under pressure8 suggest that elements existed within tbe Sovietwhich ware desirous either of continuing on terns of friendship with the Vest, or at least, of temporarily delaying the adoption of the revolutionary "cold-war" tactics that were to culminate in tbe Korean war.

firm evidence is lacking, thereinformation indicating that differences over economic trends and the tactics to be employedfigured in the postwar Jockeying for power inhierarchy. Molotov Is reported to have beenwith Mikoyan over the question of Sovietin tbe Marshall Plan.** Molotov is said tothat ths Marshall Plan would fall becauseepression in the US and oppositionimperial and European nationalallegedly claimed that Molotov underestimated

the economic stability of the US and ignored the changes in ths US economy begun under the New Deal. Mikoyan is rumored to havs believed that capitalism might be capable of perpetuating itselfystemong period of time and that ths USSR could not exist indefinitely and build an adequate economy without trade with ths West. Whether arguments like these actually occurred cannot be confirmed, but they do seem plausible in light of the treatment of the Varga heresy and the circumstances surrounding Soviet bloc rejection of the Marshall Plan,

tbe absence of reliable Information,about tbe policy implications ofmiiy be permissible. If elements didin the Soviet hierarchy who shared Varga'sdesired the continuation of the tactics of tbecoalition, then they probably would haveSoviet interests could be advanced morethrough Soviet governmental policies thanCommunist parties. They would have arguedprospects for successful Communist subversion in

Fischer, an old-time German Communist and an acquaintance of Varga, has stated that given Varga's strong conformist temperament, his behavior would bewithout high-level support.

a more detailed treatment of this subject, see the CAESAR studies.

Western Europe were dim, and that revolutionary Communist action would alienate the rising native bourgeoisie in the colonial and underdeveloped areas. They would have held that Soviet policy should be directed at the national Interests of the great powers, at playing one nation against another. They would have maintained that the specter of revolution, coupled with "cold-war" state policies, would frighten the bourgeoisie to unite and defend itself against the common danger. In sum, the policies implied by Varga's estimate of the capitalist world were,arge extent, similar to those finally accepted by Stalin in bis last years and pursued with such unprecedented vigor by his successors.

32. The fate of the Varga heresy and the subsequent course of Soviet policy suggest that expectation of an early and devastating capitalist economic crisis may have figured largely in the decisions reached by Moscow in the early postwar period. It would be mistaken,to exaggerate the importance of this particular factor, since tbe formulation of Soviet policy, like .that of any national power, undoubtedly reflected the inWr layomplexity of domestic and foreign If the Kremlin had actually arrivedirm decisionapitalist crisis was imminent, it is highly unlikely that Varga would have been permitted to express his contrary views for soime. In the final analysis It was the pressure of events, in the form of the Western reaction to Soviet power and the worsening of East-West relations, that decided the fate of Varga's ideas and set the course of Soviet policy.


Tbe Dotormatlon of Soviet Economic Scholarship/Intelligence

the student of intellectual history, theVarga's Intellectual demise and Stalin's death wasprofuse with myths, but devoid of ideas. Withdisavowal and condemnation of Varga's views,of the course of capitalist economicheavily biased and distorted by the rigidideological conformity Imposed by the Sovieta consequence, what was formerly serious scholarlytbe capitalist economy became transformed intoconforming to tbe predetermined pattern of The thesis of an approaching economic depressionUS and its developmentorld economic crisisproportionstaple of academicit is highly doubtful that tho Soviet leadershipever seriously believed in the Imminence of adepression, this thesis was obviously designed

for domestic and foreign propagandareassure the Soviet people that their economic status was better than that of Americans and to warn the allies of the US that too close economic dependence on tbe US with Its impending economic crisis would have disastrous effects for them.

the patently propagandists linethe Soviet leaders and their academic propagandistseconomic developments probably had littleon Soviet policies In this porlod, thethis propaganda, and particularly tbe problemsimplementation, are worthy of attention for In the first place, the variations in theline cast some light on tbe changing Soviet estimate

* ist of the published works of Varga's Institute67 And those of tbe Economics Institute3 is found in Appendix VI. lance at the titles alone should clearly illustrate the deformation of Soviet scholarship. The appendix alsoample list of typical thomos for dissertations on capitalism prepared by the Institute


of International realities and od tbe subsequent tendencies .toward change In Soviet tactics. Equally important, the problems arising from tbe reorganization of Varga's Institute the difficulties experienced by professional economists in filtering their findings through Ideological lenses, and tbe general deterioration in professional activity were such that it is highly questionable whether the Soviet leaders could have gotten an accurate appraisal of foreign economic developin this period, even if they bad desired one. Thusconstant Party demands fornd "theoretically daring" studies on capitalism, most Soviet economists, fearing th* consequences of error, were content to reduce their work to rehashing doctrinal themes, repeating high-level pronouncements, or issuing propagandists articles and lectures. The few who dared to report economic truth about the outside world invited professional disaster.

eorganization and tbe constantideological conformity left the research base ofof capitalismontinued state ofStalin's lifetime. Throughout this periodof the Economics Institute, Ostrovityanov, andV. P. Dyachenko and F. V. Samokhvalov, werebitterly that few scholarly works onwere being published, the majority of worksor propagandistic in function." orks on capitalism were published by theand1 only one work was released. As late

1 it was reported that the vital Sector on Capitalist Business Conditions did notingle work "because qualified personnel could not be found for the analysis of the accumulated material." Apparently theear earlierell of "bourgeois objectivism" in thehad not aided the procurement of competent personnel'. Thus It is not surprising that in2 and3 there were rumblings of change in the Institute and callsdecisive reorganization."

with such difficulties, many Sovietspent their time writing scholastic essays onand attempted to avoid tbe Important questionscapitalist development, apparently in thethe Party literary hacks would treat theseParty reacted to these diversionary maneuvers byIn Culture andhat theof Mcosomics, successor to Varga's .journal, had

devoted only one superficial review9 to theof the "latest economic crisis" of capitalism. It is

worth noting that V. Leonidov, author of the criticized article, (Prob. of Econ. compared tho US recession offf with the9 crash, but had carefully refrained fromate for the heralded big depression. onsequence of this criticism, the editorial board of the Journal, which had remained intact sinceuffered in1 the first of its many reorganizations.

the best illustration of tbefor serious study was tbe fate thatook ubject farcurrent events, Mendelson hadighlyand voluminous Marxisth Centuryand Although this work bad beenlargely before the war under tbe aegis of Varga'sit had been so carefully worked over by the staffEconomics Institute that its final draft had beenby Ostrovityanov Nevertheless,eptember) discovered "serious errors" in tbesharply criticized its author, as well as its editor,

P. K. Figurov, and reviewer, F. I. Mikhalevsky. mendelson, in an apparent attempt to describe more or less objectively certain features of capitalist development, had erred in portraying the progressive, rather than the negative, side of capitalism. In the witch bunt that ensued, Figurov was found to have repeated errors similar to Varga's on the nature of the capitalist state in two pamphlets written8nd be was removed from his Institute post as head of the Sector on Imperialism. Despite three years of Ideological disciplining, some Soviet economists still did not fully understand that they were meant to befor the regime and nothing else.

a larger sense, the events of this periodnot only the pitfalls facing Soviet economistsbut also the serious crisis facing Marxistitself in the USSR. The repeated tendencyor heresy by Soviet professionals derived notpolitical courage or intellectual perversity but

from the failure of the changing elements of international reality to conformredetermined mythological pattern. Thus the Inherent Incompatibility "to analyse thoroughly and seriously the processes which occur in the contemporary capitalist economies and to show brilliantly the greatest



advantages of tbe Socialist system of econoay" (Pravda,ecemberas, and still is, tbe source of the repeated heresies in official Soviet Marxian.*

"The Approaching US Economic Crisis": Dogma vs Reality

the thesis of an approaching economicthe US continued to be expounded by Soviet leaders andin Soviet economic writings throughout theit received its biggest boost during the Spokesmen in the Party press asserted thatjust begun in tbe US would shortly embrace thoworld. Malenkov, making his debut as anoratorompletely Ignored the gradualin the US business cycle late in tbe year, and laidstress on economic deterioration in the US6 and Molotov7 However,implied that the US was worse off than it had been onof the great depression, Malenkov did not commit himself

on the anticipated date of the arrivalully developed depression in the US. The almost complete absence of such references In the October Revolution speeches of Bulganin0 and Beria1 indicates that the leadership had turned its attention to more realistic considerations, the war in Korea.

Korean war and the consequent WesternSoviet expectations, (justified or not) of adepression, and produced readjustments in theline of an approaching economic crisis. Shortlyoutbreak of the war, Stalin's old thesis of the effects

of war on the capitalist economy was resurrected and adopted as the official line:

"What does placing tbe economyountry on afooting mean? It means givingne-sided, military direction; developing to the utmost the production

* For more recent examples: 1ugust)eading Soviet economist on Japan, Ya. Pevzner, for favorably treating the US-sponsored postwar agrarianin Japan in his book, The Monopoly Capital of Japan During the Second WorldAfter, ed. by a.n2ession of economists, one A. M. Alekseyevollective work of the Institute, The Situation and Struggle of the Working Class of Western) for not exposing tho bourgeois theory that taxes tend to equalize the Incomes of all classes in bourgeois society.

of goods necessary for war and not for consumption by therestricting to the utmost tbe production and,the sale of articles of general consumption by the population, and confronting the country with an economic crisis."

Just as Soviet spokesmen had argued that the artificial stimulation of the Marshall Plan and the high level of early postwar military production bad temporarily postponed theOS crisis immediately after the war, they continued predicting0 that Western rearmament would onlydelay tbe onsetew, more disastrous capitalist depression.

41. The task of Soviet academic propaganda0 was to prove this dictum laid down by Stalin and to adhere strictly to the Party demand of making every work on capital-Ism an indictment. Such articles as A. Bechin's1 (Prob. ofechanistically spelled out the consequences-of militarization: destruction of the process of capitalreduction of nonmllitary production and personalenrichment of monopolies; Inflation and reducedpower; Increased national debt and Insolvency;of production and ultimate isolation of the monopolist warmongers; and, finally, revolutionary action under working class leadership. Serious scholars like X. A. Trakhtenberg, the leading Soviet expert on capitalist financeellow heretic with Varga, wrote2 (Prob. of Econ. that the history of the capitalist business cycle demonstrated that each successive crisis became longer and more destructive while the periods betweon crises became progressively shorter, thus suggesting that the approaching crisis would be the most destructive in history.* Other economists, including Varga, wrote similar propagandists rot. However, even In their efforts to distort the facts and prove that the Western masses were suffering unbearably under tbe burders of rearmament, these academic propagandists gave Inadvertent testimony to the growing power of the Western coalition, as evidenced by the substantial decline in the doctored Soviet figures on US fromillion9 toillion in

*" He repeated this observationession of Sovietin3 convened to discuss Stalin's last article.

or these "unemployment" estimates, see the article* by Varga Innd Ostrovityanov in Prob. of Econ.

The most precise prediction of the timing of the collapse of capitalism and the complete victory of Communism was that by G. V. Kozlov2 (Prob. of Econ. No.second half ofh century!

Soviet predictions of the Impendingcapitalism became Increasingly distorted and stridentthe "hate-America" and "germ warfare" campaigns1

there were signs in both Soviet propaganda and policyifferent Soviet estimate of the world situationeapproaslal of Soviet strategy. 1 ended, Sovietbegan to lay heavy stress on disunity witbln tbe Western coalition. While such exploitation ofime-honored Communist tactic, Moscow now began to extend the list of weaknesses it bad been stressing tothose between the US and other Western governments. Heretofore, it had largely hewed to tbe Comlnform line that the Western European governments, however reluctantly, bad been accepting US dictates. Indeed, Molotov, In his Pravdaommemoratingh birth-day,had pointed to the two camps, one headed by the USSR, the other by the US and Great Britain. Also, in contrast to Berla's October Revolution speechospelov In the following year dropped the thesisore sharply definedbetwoen the two camps and Instead stressed the growing contradictions In the West and tbe inevitable economic crisis. While Soviet propaganda on capitalism in this period failed to reflect the facts of International life, Soviet policy was apparently beginning tbe agonizing readjustment to the realities of capitalist economic stability, military power, and political unity.

with the increased stress on thetbene, another developmentrowingof capitalist economic strength was tbe re-amergenceon East-West trade. During the six monthsopening of the Moscow Economic Conference in Aprilpropagandatrident crescendo hailingadvantages of normalizing world trade relations. this propaganda had the obvious aim of wreckingtrade controls program and little actuallyIt during Stalin's lifetime, the bountifulproposals of Nesterov, the president of the Sovietof Commerce, to Western Europe and theof Southeast Asia and the Middle East did foreshadow

the direction in which high-level Soviet thought was heading. Even before Stalin's death Soviet trade representatives at tbe ECE meeting in Geneva were talking In practical torms,


la marked contrast to tbelr propagandists performances inmeetings. Following the pattern set by Lenin In the autumn0 and repeated by Stalin before tbe XlVth Party Congresshe beginning of serious trade overtures to the capitalist countriesecognition of tbe temporary stabilization of capitalism and an equilibrium in the world balance of power. Soviet policy appeared to beto Lenin's dictum

"We must be clever enough, by relying on the peculiarities of the capitalist world and exploiting the greed of capitalists for raw materials, tofrom It such advantages as will strengthen our economicstrange this mayamong the capitalists."

Stalin's "Economic Problems of Socialism"*

2 camelose, the Soviet view of the capitalist world economy was set down authoritatively in Stalin's article Economic Problems of Socialism In the USSR. This work was unique only In the sense that the high priest of Communism had formally woven into one cohesive fabric all the main threads of orthodox thought that had been shaping during the entire postwar period. Tho Ideas developed bybreaking away of the "People's Democracies" from the capitalist system, tho disintegration of the single world market, the deepening of the crisis of the world capitalist system, and the inevitability of wars between capitalistall been formulated and discussed In tbeover Varga's book and afterwards. Thus Stalin's article, carrying all the force and authority of an utterance ex cathedra for Communists throughout the world, formalized So-viot views that had boon crystallizing for some time on the contemporary world situation and the tasks of Soviet policy.

The major premise of Stalin's analysis of the world situation was that the tide of Communist territorial expansion was ebbing temporarilyesult of the partialand consolidation of capitalism. By pointing to the present limited goals of the Communist "peace" movement in non-Communist countries, Stalin's article, inlear recognition that the opportunities for tbe

*Since Stalin's article has been examined in detail in many publications. It will be treated here in only the most goneral terms,


Immediate overthrow of capitalism by subversive action ofParties or by armed aggression had narrowed At the same time, the emphasis on the Internal and"contradictions" in tbe capitalist world system clearly placed the development and aggravation of the capitalistcrisis and the struggle among capitalist states in the indeterminate future. The tone of the article was essentially one of "ultimate" events and of situations in the contemporary world that would not continue "forovor and ever."

although Stalin rocognized theof capitalist economic stabilization, politicalmilitary strength, he denied tholr permanency. His call

to foreign Communist parties to pick up the banners of "bourgeois democratic rights" and "national independence and nationalwas designed to exploit separate national interests against the common interests of the armed coalition led by tbe US. At the same time, It set the tuneeturn to the tactics of diplomacy by the USSR. Moreover, Stalin'son the problems of the capitalist world marketa belief that Soviet bloc economic policy could, through the imaginative and selective application of Its growingpower, affect the course of economic and politicalin the committed and uncommitted areas in the East-West struggle. Perhaps Stalin even Imagined that ho could achieve through Communist economic fiat that which Marxist "laws" of social development had failed to achieve, theeconomic collapse of capitalism.

reaffirming the validity of Lenin's thesis ofof wars between tbe imperialist states andthat the contradictions between tbe capitalist statesthan the contradictions between them and theStalin provided an official answer to theby Varga four yearstalin's resort toof Marxist orthodoxy was Intended to still the fears

This was in marked contrast with the revolutionary goals

which had regularly been announced in tbe Comlnform lournal,asting Peace,eople's Democracy,

See in particular the article by Maurice Thorez in the issue


ignificantly, Vargo praised Stalin's work and recanted, for his ideological erroression of the Economicsin


that had been raised in the minds of rational men over theof modern technological progress and the doubts that had developed about the dangerous course of Soviet policy in the postwar period. The inadequacy of Stalin's answers about international realities reflected the bankruptcy of Marxist orthodoxy and formed the troublesome legacy of his successors.


Varga's New Book: Sta1lnism In Flux (Heresy Re-Vlslted)

main stream of current Soviet thought onworld economy has continued to follow theduring Stalin's last years. Soviet spokesmanto point to the approaching economic crisis inand to the disastrous consequences of the arms race onand peoples of the capitalist world. With butthey have failed toirm date for the onset

of the new crisis, and have by default projected such forecasts into the Indeterminate future^ Kaganovich's recentRevolution prediction of the total victory of Communism inhhey have continued to depict the economic plight of the "exploited" workers and peasants of theand colonial countries in the darkest colors, making such temporary adjustments as are required by the ephemeralof Soviet policy or, more recently, the "spirit of Geneva." Nevertheless, despite the force and direction of the main stream, there have developed, in the backwaters and eddys of Soviet thought since Stalin's death, certain movements of ideas that almost certainly reflect more accurately therealities of current Soviet thinking on capitalism.

latest book, The Fundamental Problems ofand Politics of Imperialism [after the Second,ood example of both theof Soviet thought on capitalism and its This book, which was prepared largely duringbut which appeared after Stalin's death, derivesfrom the fact that it was widely acclaimed inas the "first outstanding comprehensive work on theeconomics and politics of imperialism." As the onlywork on capitalism spanning both the Stalinistperiods, Varga's book is instructive because

it pointedly reflects the myths of the former period andthe problems of the latter. In Varga's book, certain important questions of capitalist economic development which in Stalin's time were brushed off propagandistically have for the first time been treated as serious subjects for inquiry.

* The post-Stalin modifications in Soviet thinking on theof wars" thesis will not be considered In this section, because they have received adequate treatment elsewhere.


Varga's most recent work,idiculousof capitalist economic development, represents hisprofessional submission to the Party criticism of his early postwar treatise. Following the dictates of orthodoxy, the bulk of Varga's book reflected not only all the directives and themes of postwar official Soviet thought on capitalism culminating in Stalin's article, but also some distortedof his own. For example, he so excessively exaggerated the Marxist concept of "colonial exploitation"reating western and southern France as "internal colonies" of northern France, and the agricultural and mining states of the US as "colonies" of varioushat he even shocked the professional sensibilities of certain Soviet economistsUniv. Herald No.. Moreover, following the then held Party line on India, he treated the Congress Partyin the darkest colors, attacking it as representing the reactionary native bourgeoisie and the feudal landowners. Byfter the line on India had changed, his critics were to find this view "somewhat simplified" (Prob. of Scon. No.nd Kommunlst, Ho.. In sum, the bulk of Varga's bookribute' to Stalinism and represents the apogee of Soviet academic propaganda on capitalism.

Nevertheless, while Varga haskilled mouthpiece for his Kremlin masters, he has alsoood economist withetter understanding ofeconomic processes than any other Soviet Intellectual. He demonstrated this in tho conclusions to his book, which were undoubtedly written after Stalin's death, by raising an issue that has since become the subject of lively debate and the central problem of current Soviet economic thought on- The question of the effects of rearmament on theeconomy. This question has been at the root of all thescholastic debates among Soviet economists over the chronological delineations of the postwar business cycle and its various phases. What these men have been activelyto determine in their theoretical controversies over the dating of cycles is the relative importance of military and nonmilitary factors in the cyclical rises and falls.

Varga challenged the oversimplified Stalinistthat capitalist rearmament leads directly and immediatelyeduction of nonmilitary production and personala description applying more accurately to the situation

in the Soviet economy where full employment of resources is planned. Varga declared that military production underparticularly in the US, supplements, rather than competes with, the other industrial sectors, and that it leads to a

temporary expansion of total Industrial productionesult of bringing into employment productive forces tbat bad notbeen utilized. While contemporary Soviet economic thought has accepted the thesis that rearmament leads to aupswing In the business cycle, deforming Its development, It has denied Varga's view that military production supplements industrial production.* Acceptance of the latter concopt would imply notundamental revision of orthodox Marxist thought on the structurs of the capitalist economy butegation of the theory of the destructive consequences ofon the capitalist economic system.

effect, what Varga had done was to introducea heretical equation into the Marxist mythologicalsuggesting this time, in the worlds of his critics,internal forces of capitalism and its laws haveto operate and that the development of capitalism now

Is determined by artificial military-inflationary factors" (Kommun1st Ho. 3,. Surprisingly, despite bis obvious heresy, Varga has not been officially criticized, and openfirst real one in manycontinued to rage in the Soviet economic community right up to the present time.

critics have charged that ho is not alonesuch views, and, while no one has openly embracodprinciple, there have beon tacit admissions offormer associate, I. A. Trakhtenberg, writingssue of Kommun1stime when the OS economyan unprecedented economic boom, stated that while"laws" of capitalist development were Immutable,be incorrect to Ignore tbe significance offactors, which can stimulate revival,risis, change the courserisis, andform, sequence, and prospectsrisis." Ho thsnto say, quite correctly, that only in the finalrearmament leadeduction of living standards in the short run "the inflationary method ofmonetary resources through the budget temporarilypurchasing power. esult tbe general purchasing

* Along with many others, A. Bechln, author of tho muchprediction in5 of an expected US crisis of overproduction "in the noxt fewas donlod that military production supplements over-all industrial production, but, significantly, be was not referring to the US economy in this instance. (Prob. of Eccn. No.


power increases, which stimulates the growth ofhis completely undermines the official Soviet Marxist rot about the "law of the absolute and relative Impoverishment of the working class under capitalism."

55. The current theoretical debate about the effects of rearmament on capitalism is significant ractical standpoint because it clearly demonstrates that professional Soviet economists, like their less pretentious Westernareuandary over the precise economic implicationsigh level of arms production. Moreover, in contrast to what passed for economic research under Stalin, when scholars handled difficult problems by dustingew quotations from the Marxist classics, Soviet economists now are beginning to look closely and seriously at this problem and others like it. This debate also illustrates the crisis within Soviet Marxism, in the sense that Soviet professionals must repeatedly and deliberately circumvent the bankrupt doctrinal tenets in order to explain the complex phenomena of modern industrial society. Still more importantolitical standpoint, the central focus of Soviet economic thought on what their propagandists call the "militarization of the Western economy" appears to reflect the Kremlin's long-held conviction that the long-awaited capitalist world depression has been postponed only by the high level of Western arms production. The current Soviet view of capitalism has thusentral problem for Soviet diplomacy: how toeduction in Western arms production without sacrificing vital Soviet interests?

"The- Approaching US Economic Crisis:" ew Twist?

56. The end of the war in Korea and the prospecteduction in the Western arms build-up appeared to enliven real Soviet Interest in the capitalist world economy and restore conviction in the long-inactive hopes for the approachew, severe US economic crisis. During the final stages of the long-drawn-out armistice negotiations, Soviet spokesmen began to react optimistically to the first signs of fluctuation in the US business cycle in the second quarter closely on the heels of his Pravda article ofay, which had noted the signs of trouble in the US economy, Varga's book carried the following conclusion:

"The economic situation of the capitalist world2 practically demonstrates what has always been clear to Marxists: production for war cannot solve theof theproblems of sale. Theeconomy clearly stands on the eveew economic crisis."


Onctober and again onarga wrote articles in Pravda in which he first observed that the OS was heading "straightrisis of overproduction" and later declared that the anticipated crisis had already begun.

Although other Soviet spokesmen picked up his cue and expanded it much further, Varga carefully avoidedthe precise role the then developing US "cyclical crisis" would play In the "ever-deepening 'general crisis of The inclination to recognize the complexities ofeconomic processes, to ascertain and examineall the facts, whether favorable to Marxist doctrine or not, and to submit to original analysis, seems characteristic of Varga, in contrast to the distorted dogmatic interpretations of his contemporaries. For example, the economist A. Kats wrote an article In Mayow American economists wereunemployment statistics in order to cover up theconditions. He "estimated" US employmentillion, , includingillion fullyillion partially unemployed,illion in the armed forces.' f Econ.No.

If it is true, as seems likely, that as of the end3 the post-Stalin leadership shared Varga's cautious optimism, then they were probably convinced that the West was facing substantial economicut were uncertain concerning their extent, duration, and future Implications.

It appears almost certain that Soviet policy during the Berlin Conference was not predicated upon an expectation of imminent collapse of the Western economies. An indication of this caution was witnessed in the4 Supreme Soviet election speeches of the Soviet leaders. Their references to the then current capitalist economic difficulties weremild and brief, framed within the standard propagandaof the struggle between capitalism and socialism and the

*" This"view was also reflected in the conversations Gunnar Hyrdal, Executive Secretary of the ECE, had in4 with numerous Soviet economists. According to the widely circulated accounts of Myrdal's trip to the USSR, many Soviet economists continued to believeS depression was inevitable. They also were reportedly very eager to talk about world conditions and to learn about the outside world, first-hand knowledge of which had been almost impossible to obtain under Stalin.

demonstrated superiority of the latter. This was In marked contrast to the lengthy citations characteristic of0 election speeches and the speeches ath Party Congress.

hint of the direction toward which seriouson relations with the capitalist world weresounded In Malenkov's election speech and reflected Inof Soviet foreign economic policy. Malenkov's brief,parenthetical, remark about making tbe trademark "MadeDSSR" stand for quality on the world market and theannounced earlier for Increasing grain surpluses forexports, as well as for other purposes, suggest thatleaders may have intended to develop commercialwith the Westairly long-term basis. InStalin's sterile early postwar policy of economicwatchful waiting for the Impending capitalist crisis, of his successors is to employ trade asource

of needed goodsolitical weapon, whether or not the long-anticipated capitalist depression develops.

Although Varga predicted, in an English-language broadcast to American audiences inhat "acalamity like the great crash of the early thirties was approaching with Increasinghe flight of Sovietfancy soon settled down to reality as tbe OS cycle ceased to move downward and began its steady upward climb late In the year. Fromp to the present time Soviet spokesmen, with one exception, carefully avoidedate for the impending OS crash, and instead turnedto the themes of exploitation, misery, and bloodshed under capitalism. When the economist S. Vygodsky denied in5 that the "factor of militarization was alreadyand that military-inflationary business conditions were not vigorous enough to delay the movement of thet seemed that Soviet thought on the capitalist world economy had soberly resigned Itself to the fact of foreign economic prosperity.

However, intrange note was soundedrofessional Journal by the economist, A.elative newcomer among Soviet specialists on capitalism.*

* Bechin did not participate in any of the Important postwar economic conferences in the USSR dealing with the worldeconomy. See Appendix IVable listing those conferences.


In an article in Problems of Economics, characterized by high professional competence, reTaTively little propaganda, and reliance on official OS sources, Bechln predictedworld economic crisis" similar to tbe great depression of"would soon begin." He added, "It is quite possible that its beginning will be markedresh curtailment of production in the dp, which can be expected in the next few months." This represents the most clear-cut prediction of any Soviet economist in recent times.

Bechin argued that those factors that had staved off crises In the OS5 andexports, ornd replacement and expansion of fixednow being increasingly offset by othor countervailingunemployment, thoof the masses of smallncreased federal, state and private debt, and growing Inflation. Moreover, thesein the US economy were being exacerbated by growing competition from Western Europe and Japan, the nationalof which had already reached and surpassed their prewar levels of output, as well as by the general narrowing of the capitalist world market following World War II. Whilehis predictions in fairly sharp terms, forecasting that the next world capitalist business cycle would probably be more severe than that ofs, Bechin ended his articleragmatic note by calling for further seriousof the subject.

Bechln's treatment of tho role of "militarization" In the approaching depression, and particularly Its effect on the economies of different capitalist countries, isboth for what it included and what It omitted. On the one hand, like other Soviet economists, he denied in general the theoretical point raised by Varga that military productionnique form of production supplementing total industrial production. He adopted the standard Soviet line thathile temporarily stimulating growth in military and related production, leads toof the masses"rowing disparity between total production and consumer demand. However, it is clear that

he was referring to countries "which have no surplus of productionestern Europe and Japan but not the OS. He treated "militarization" as tbe primary source of postwar US Industrial moderizatlon and capital expansion. Hence, Becbin remained theoretically orthodox, with theof bis treatment of the US economy, but In effect he plugged the same practical course as Varga, Trakhtenberg, and others. On.the other hand, although he argued that there was

little prospect for expanding OS exports and capitalbe significantly failed to mention the future outlook for military production. Hence, it is reasonable to infer from Bechin's healthy regard for the stimulating economic effects of OS military production that he predicated hisof an approaching economic crisis In the United States upon an assumption that defense expenditures would soon

Moreover, the heavy stress placed by Bechin on the importance of foreign trade to the economies of Western Europe and Japanelief that the capitalist world market will in the future become the critical arena conditioning the development of the long-anticipated world economic crisis. In echoing Stalin's theme on theof the single world market, Bechin focused attentionield in which Soviet policy has manifested active Interest since Stalin's death. Stalin's successors may be more convinced than the old despot that economic policy can be used to reduce the areas of Western influence and even to exacerbate the internal difficulties in the capitalist economies.

There are some grounds for believing that Bechin's views and predictions may reflect the thinking of influential elements in the Soviet hierarchy, even though they have not been picked up by Soviet propaganda media nor echoed by Soviet spokesmen. Two of his previous articles in Problems of 3 andn domestic economic policy have acted as bellwethers of shifts in Soviet policies and propaganda^ In the first article, which preceded by four months Malenkov's announcementf the "newe intimated that Marxist theory clearly permitted the bringing together of the rates of industrial growth ofheavy industry) and Group II (consumer industry) in the USSR. In the second article,ull six months before Shepilov's spectacular Pravdagainst the advocates of priority for consumer goods, Bechin criticized, on theoretical. Ideological, and political grounds, those economists who were arguing that the growth rate of Group II should exceed that ofuring the entire period of

transition to Cauualn. urther Indication of Bechin's high status among influential Party circles may be inferred from the fact that he was chosen by Pravda's editors, onoeader's questions on the socialist economy.

view of the possibility that Bechin*sthe views of influential elements In the Sovietsome speculation, and It is clearly only this,possible policy implications may be warranted. of thereat world depression triggered byIn US defense outlays may be one of the chiefthe unrestrained confidence now being displayed by theleaders. They may calculate that the outbreak of such

an economic crisis in the USresidential election year, when policy is normally subordinated to politics, would find the US leadership Incapable of coping with the situation decisively. They may also reckon that the outbreak ofrisis might lead to the strengthening, and even the possible victory, of isolationist, aitranationallstic forces, and that the US, following the pattern set during the early Mew Deal years, might be forced to cut back its foreign economic and political commitments.* Thus the possible existence of such calculations by the present Soviet leaders, as well as thegained at Geneva that the West would not use force to settle outstanding International disputes, may in part explain the recent actions of the Soviet leaders in peddling discontent In the uncommitted areas of the Near and Middle East.

some such calculations are really present inthinking of tbe present Soviet leaders and actuallybasis for their behavior since tbe summit conference,failure of the anticipated depression to develop andsetbacks suffered by Soviet diplomacy might into differences among the leaders over tbe situationWest and its implications for Soviet policies, as wellpossible changes In tho current leadership itselfemergence of more compromising, less intransigent

66. It is possible that such high-level differences over the economic stability of the West and the variousopen to the USSR already exist and may be reflected in

* tn the4 discussion of his book, VargaImportance of the economic basis of isolationisttbe US which, in bis opinion, "in certain politicalcan be useful to the Soviets." (Moscow Univ. Herald


Mikoyan's candid remark about tbe changes In capitalism since Marx at the recent Indonesian National Day reception inonugust.* Possibly such specialists as Mlkoyan and Saburov, who have been to the United States and who probablyore realistic viov of tbe world economic situation, believe that any adventurlstic policies predicated on the imminent collapse of capitalism might lead to dangerous,consequences, particularly In the explosivo Middle East. They may regard such policies as threats to thestability and national security of tbe Soviet state.

apparent acceptance by the present Sovietof tbe military implications of the atomic stalemate to the forefront the political and economic aspects

of international power. Whatever the different views now held by tho Soviet leadership about the stability of tho capitalist world economy, their policy implications seem to lead to the same practical conclusion under present world conditions: tbe application of national political and economic power to strengthen the Soviet state, destroy the armed Westernand remove Western Influence from the uncommitted areas of the East-West struggle. The prevention or outbreakajor economic depression in the West would not only affect the balance of world power but also determine the choice of tactics to be employed by the Kremlin In the pursuit of its objectives. Signs of economic weakness in the West, real or Imagined, could conceivably lead to major miscalculations in Soviet policy, as well as to high-level differences over alternatives open to the Kremlin.

Rebuilding the Researchhe Dilemma of Planned Change

Stalin's death the forcos for change inwhich during his lifetime were working deep beneathand superstructure of Soviet society haveIntermittently, moved closer to the surface. these forces, Impelled by the aspirations of thepeople for intellectual truth and social Justice,beyond the limits Imposed by the regime, only toback into line. At other times, the regime,purely practical reasons of repairing the damage tomorale and professional activity Incurred underof exploiting the "creativity of theasthe course of change and has even vacillatedits proper limits. ertain sense, period of Russian history may be viewed as anIn which the regime has been forced by circumstance

* This candid statement lends credence to the reports7 that Mlkoyan, among others, favored Soviet participation in the Marshall Plan, on tbe grounds that capitalism couldthrough indefinitely and the USSR could see the foreign credits.

toew modus operandi In the relationships between state and society, one which" gives greater play to group and interests without affecting tbe essentials of stato power. The outcome of this experiment will probably depend not only on the degree of success enjoyed by the regime in achieving its goals, but also on developments outside the range ofpower.

A series of developments in the field of Sovieton capitalism havo reflected the spontaneous outbursts of change and the regime's efforts to control and direct them into channels serving Its interests. The discussion over Varga's latest book in4oodof the forces currently at work in the USSR. Thepervading this discussion, unlike that prevailing under Stalin, was serious, scholarly, and calm, even though Varga hadpecter of heresyital point and it bad received support by several speakers. Moreover, the unusual behavior of one I. G. Blyumln pointedly emphasized theclimate of opinion. rofessor of Economics at Moscow State University, had risen to prominence In theInstitute for his notorious hatchet-work on thepolitical economists, Keynes, Schumpeter,nd their inadvertent counterparts in the USSR, the Varga school of the early postwar period. Vet at this session be openlywas criticized for sothe position of Ya. A. Kronrod (Prob. of Econ. Ho. thatfactors were noause of postwar OS prosperity than the "militarization" of the OS economy. When even Blyumln turned bis mind to serious problems, he too came up with heretical answers. How the worm had turned!

The recovery of Soviet scholarship from the trauma of Stalinism is nowhere better reflected than in the work of the highly respected academician, I. A. Trakhtenberg. In

e gave evidence of his complete capitulation to orthodoxy by stressing the standard themes: the greater destructlve-ness of successive economic crises; the "impoverishment of the masses" as tbe immediate, direct result ofand "militarization" as the sole source of capitalist growth, etc. (Prob. of Econ.. owever, he criticized those economists who stated that capitalism was alwaystate of crisis, that It no longer had prospects for future growth. (Kommunist No. 9,. His treatmont of the recent past was also more"ob.lectlvo, pointing out that

only the US economy hadcrisis"ee S. Visbnev in Kommunist4 for contrast.) In general, while keeping well within Ideological bounds, Trakhtenberg heavily emphasized the significant effects of concrete and changing conditions on the capitalist business cycle, thus leaving the door open for future heresy.

new approach to the tasks facing Sovieton capitalism is illustrated by the criticism oflatest book, The Monetary-Credit System ofAfter the Second World^Moscow,by theA. Alekseev . coa.harged with having treated tbe question of the effects

of inflation on workers' real wageseclarative fashion without presenting any evidence. Moreover, he was criticized for having failed to argue empirically his position on the important question of the role of military production in the capitalist economy. ccording to his critic, "ended his analysis where in fact be should haven other words, he and other Soviet economists are now being called upon substitute analysis foroteworthy change in Soviet policy toward professionals.

in the wake of these changing views,leaders of the economic community, as wellParty leaders, have attempted to direct their coursetheir pace, lest they should come into openhigh policy. In academic discussions, scholarlythe recent speech by the newthe Economics. Dyachenko, (Prob. of Eco.

enewal of deep, serious interest in the capitalist world economy has been widely encouraged. Dyachenko candidly admitted the obvious fact that in Stalin's daystudy of capitalism was characterized by ideological slogans, epithets, and rituals, but no scholarly research. Soviet economists have been warned that the progressive achievements of capitalism should not be Ignored (especially when the regime is attempting to borrow advanced foreign They have been charged with the need to produce serious studies on such subjects as the market problem,the postwar business cycle,nd they have even been scolded for ignoring the "variations in the conditions of the workers and peasants" in the different capitalist

* Also in contrast to previous accounts (see the oncetextbook Politicalechin stated that the economic "crisis'"9 had occurred only in the US and not in any other areas.


The regime has attempted to Institutionalize these manifestations of intellectual ferment on capitalism byup onew body within the USSR Academy of Sciences, the Institute of the Economy of Modern Thus far no details have been released about theand structure of this organization, and no works have appeared under its aegis. However, If this body shouldto emulate tbe work of its predecessor, Varga's old Institute, and if Soviet students of tho economy oftake heed of tbe recent pointed criticism of their past achievements, the results should at least prove interesting, and perhaps even dangerous to the protectors of Ideological orthodoxy.

In anticipation of such possible outbursts of heresy, the Partyarning In the September issue of Kommunlst (No. . The important editorial dealing with Molotov's recent ideological error also contained a eretical work by tbe economist A. Eats which allegedly emphasized the decay of capitalism leading to Its automatic collapse. This work by Kate, "The Disintegration ofas the object of severeecade ago, was thoroughly discredited byand was never released for publication. If the Party was really interested in rooting out heresy, why did itead work from the distant past and Ignore thoimportant heresy raised by Varga? The Party is apparently attempting to avoid the effects on morale and workigid enforcement of conformity. Instead, the present leadership apparently desires, perhapsreater extent than in any previous period of Soviet history, accurate appraisals of foreign economic developments, provided they remain within reasonable ideological bounds.

The activity since Stalin's death in tbe field of Soviet analysis of developments in the capitalist world economyicrocosm of the forces at work in the larger arena of Soviet society. Although the majority have continued to follow the dictates of orthodoxy, some Soviet specialists, particularly those of high standing, have bypassed the limits of ideology and skirted along heretical ground in theirto report accurately and honestly the realities of

the capitalist economy. Those heretics have obviously been encouraged by the repeated Insistence of the post-Stalinfor the unvarnished facts about the outside world, In contrast to Stalin's repeated emphasis on rehashingIdeological myths. Moreover, despite criticism by their colleagues, these men have not backed down, nor have they been silenced yet officially.


are the future prospects for tbeSoviet views of capitalism? The current situation,the regime tolerates occasional heresy in the hopeaccurate reports of foreign economic trends,course, continue indefinitely. However, tbesuch professional subterfuge could, in time,ethos of Soviet society among- articulate elements inand even debase the Ideological appeal ofdisaffected Intellectuals abroad. The regimeigid Insistence on orthodoxy, with all itsadverse consequences on morale and olicy could have dangerous consequences

on its foreign Intelligence activities. The last and most difficult course open to ths regime would be to acceptthe changes that have takeD place in capitalism, changes which makeepetition of tbe Greatof.

the long run, events outside the spherepower will probably have as much to do with theSoviet views of capitalism as events inside the USSR.

In the past, as the present study has tried to point out, the realities of International life in the form of theeconomic stability and progress of the West haveproduced heresy and confusion in the minds ofSoviet citizens. The continued economic prosperity, political unity, and military strength of the West willcertainly lead to the recurrence of heresy among Soviet intellectuals, and perhaps even division within ths ranks of the Soviet leadership. Over the long run, they may even erode the Ideological basis of the Bast-West struggle and help transform the current heresies into established orthodoxy.



H. A. Arzhanov

V. Atlas

N. Dvorkin

fa. Eventov *

K. FlguroT

I. Ourvich

I. Rats

A. Khrconov

B. Uf* "


A, MaslennlkoT*

NOTE: ranslation of the complete transcript of the three-day proceedings is published In Soviet Views on the Post-War World Economy

* Known members of Varga's Institute of World Economy and World Politics.

Members of Varga's Institute who had aided him in the preparation of his book, along with other members! S. M. Vlshnev,L. Boksbltsky, A. Yu.ots or, L. A. Lsontiev, and R. M. Magid.

*** Members of the editorial collegium of Varga's Institute journal. World Economy and World Politics, along with L. N. Ivonov, R. S. Levina, S. M. Viehnev, and I. M. Lenin.




Acting Director, Deputy Director, Deputy Director,


Capitalist Bneinesa

Orientalational-Colonial Problems


European Capitalist

eneral Crisis of

History of

Group for Study of Situation of the Working Class andovement

in Capitalistbyersons

Capital Circulation in the National Economy of the USSR.

The Distribution of Productive Forces.

The Economic Regions of the USSR,

Economic Statistics.

The Economy of USSR Agriculture.

The Economy of USSR Industry and Transport.

The History of the National Economy of the USSR.

The Political Economy of Socialism.

Post-Graduate's Division Editing and Publishing Division Information Division

PartyA. Anchishldn Secy,

Post-Graduates' Party Group Scientific Library

Institute was organized vithln the USSR Academy of Sciences and was subordinated to The State Planning Commission, then headed by Politburo member N. A. Vozneeensky.


THE HERESIES OF THE VARGA SCHOOL: . Chroiwrtogr of Heretical Worka on Capitalism! 7

Rote: Works containing clearly heretical formulations are labelledhose which were merely ^objective or lacking militancy are labelled

1. AxUiisa

E. Varga, "The Decisive Role of the State In the Uar Economy of Capitalistorld Economy and World Politics*5 E-

L. Ya. Eventov, " the US Economy During thelflnnvfl Economy5 Q,

I. A. Trakhtenberg, "The Transition of Capitalist Countries From War Economy to Peacelanned Economyepeated in the Supplement tond KiF*6 B>

I. M. Lemin, *Ths International Situation.6 fi.

S. Viahner, "Induatry of the Capitalist Countries After thelanned Economy No.6 fi.

R. Levina, "The Food Situation in the Capitalist Countries After thelanned Economy Kay/June

Varga, "Peculiarities of .the Internal and Foreign Policy of Capitalist Countries in the Epoch of tine General Crisis of..6 g.

R. Levina, "The Postwar Food Crisis and Its..6 Q.

L. Ya. Eventov, "Nationalization of Industry In..7 fl,

Varga, "Anglo-American Rivalry andoreign Affairs7 H.

i "Struggle And Coorgratlon Between the US And England."

W.E..7 H.

Hereafter referred to..

, "Socialism And Capitalism After..

7 fl.

L. Mendeleon, "Crises and Cycles In tbe Epoch Of The General Crisis of..7 fl.

2. Bjjflkl

L, 7a. Erentor, The Mar Eoopor of England, ed. by I. A. Trakhtenbergl.

E. S. Varga, Changes In the Economy of Capitallsnesult Of tfre Second World Warl.

A. Shplrt, Changes In the Econoarr of Rav Materials and Fuels try the Saeond World War t.fcfhaf IQXAl Q_

l. I. Frei, <auegti9pa<of theTrpde roUcY.oT Foreign) fl.^

I. A. Trakhtenberg, The Financial Results,of the) fl.

m. L. Bokshltsky. Technical Economlo Changes In PS Induetrv During The Second World War, ed. byrakhtenberg.

I. M. Lealn, Porelgr Policy of Great Britain From Versailles Ao LacatDfll.

V. Lan,. From .the Flret to the Second World War-

S. Vlshnev, Industry.of .the Capitalist Countries In the Second World War, ed. by L. Ya. Eventovl.

I. A. Trakhtenberg,he War Economy of the Capital let Countries /in the Transition to Peacetime KconoiW. and fl. Including the following Articles:

. Trakhtenberg, "Basic Characteristics of the Transition of Capitalist Countries Pros War Economy to Peace Economy" H.

S. Vlshnev, "The Labor Force" fl.

M. Bokshltsky, "The Auto Industry" fl.

L. Roitburg, "ferrous Metallurgy" Q.

A. Santalov, "The Oil Industry" fl.

L. Eventov, "The Productive Apparat fl.


Sh. Uf, "State Industry'

E. Gorfinkel, "International Trade"

fa. Vintser, "Export of Capital"^

V. Bossonov, "Non-Ferrous Metallurgy"

M. Rubinshtein, "Chemical Industry"

A. Shpirt, "The Coal Industry"

R. N. Lyubimov,inancial Systems of Foreign)

P. Maslov, Methodsrniomlr-) 0.

K.I. Lukashav, The Imperialist Struggle For Rav Materials And Sources Of Ray

B. The Official Counf^rattaoV; 8

Varga school's controversial Ideas about capitalism hadat least since the beginning5 and continued to (As indicated in the discussion above, Varga alonetheoretical heresies) In general, the controversial views ofschool were of two varieties, some clearly heretical, others merelyaccounts of capitalist development. Many of tbe exponents of theviews (including Vargaerhaps because of personaltheir careers in the eventhift in official attitudes, continuedmilitant,polemical articles hostile to the West. Nevertheless,of the Varga school were not challenged for their errors ofcornelssion for nearly two and one-half years, and sone of them,Trakhtenberg,wentime even further than Varga onpoints.

the open Party intervention early8 (l. Laptev in Pjavda.

he criticism of the Varga school was relatively mild and scholarly.


This ia Illustrated most clearly by the treatment. Bokshltsky'a doctoral dissertation on technological changes in OS industry by the Learned Council of the Economics Institute on The formal opponents of the dissertation, G. Kriahishanovsky, M. Rubinshtein, and S. Vygodsky, considerederious scientific work, and the Council recommended that Bokshltsky be awarded his doctorate. By? after the monograph had been published it was attacked for Its unmllitant "technical-economic approach" and for intimating the possibility of "class peace" between OS labor and management. (I. K. Dvorkin in Planned Economy"

The first professional review of Varga's book was devoid of doctrinal hyatpria or personal invective, even though the critic, A. I. Shneyerson, disagreed with Varga's formulations on the economic role of the bourgeois state, the position of the colonies, and the status of Soviet Satellites in Eastern Europe. (Planned Econony. This is particularly surprising since Shneyerson was Varga's severest critie at the May discussion of his book, (incidentally, it is of some interest to note that Shneyerson faired wellarty economist in the postwar period, as evidenced by his high position4 as Professor of Economics in the important academy of Social Sciences under the Party Central Committee.)

I. N. Dvorkin's review Inf Eventov's book on Britain's wartime economy was the first sharp attack of the Varga school. Among other things, he charged that Eventov was following Kautsky's line that capitalism could enternew phase" of development instead of ending in imperialism, war and ultimate collapse. On7 Bolshevik, the authoritative Party organ, carried an article by I. Gladkov criticallythe inconclusive May discussion of Verge's book by the professionals.


ry ia?

Gladkov repeated aU the major points of criticism and added that some of the participants,,instead of criticising Varga's errors, proposed merely to talk over with him the need forumber of his concepts.

Prnvtja article on8 andspeech at the annual meeting of the Economic Institute on theinitiated the full-scale offensive against the Varga school. attacked the hooks by Varga, Bokshitsky, Vishnev, Eventov, andwell as the two articles that had been written by Varga after the Kay In the period following this polemicale books andmembers of the Varga school (see the chronology ineavy barrage of criticism. The "reformist" errors of the Vargacatalogued by Ostrovityanov in8 as follows:

"These errors lie In ignoring and distorting the Leninist-Stalinist theory of Imperialism and of the general crisis of capitalism; in glossing over the class contradictions of contemporary capitalism; in ignoring the struggle of the two systems, in non-Marxist assertions concerning the decisive role of the bourgeois state in capitalist countries; in thearrow technical-economic approach to the treatment of the economy of foreign countries; in an apolitical attitude; in bourgeois objectivism; in an uncritical attitude toward bourgeois data; and in admiration of bourgeois science and technique."

Ostrovityanov capped his criticism with an ominous warning to Varga personally for still refusing to recant: "Prom the history of our Party you should know to what sad consequences stubborn insistence on one's errorsere indeedlear echo of the blood purges of thesi

official counterattack ifter8 developedas follows:

(Bolshevik: I. Dvorkln criticized Vlshnev's book for echoing Verge's views on the broad representative character of the bourgeois state during the war. Vlshnev was attacked in March fFrob. of Eco, Ho.y L. Kendelaon for his unmilitant, objective approach to capitalism.

(Bolshevik: L. Gatovsky attacked the authors of the collective work edited by I. A. Trsxhtenberg, The War Economy Of The fla.rf*alfafc Countries And The Transition To Peace Economy, for being "prisoners of bourgeois methodology." He especially took the editor to task for his views that bourgeois state regulations had changed the capitalist system of private enterprise and that the state represented general national interests instead of monopoly interests only. At the end of the month, the authors

of the book were criticizedession of the Economics Institute and they slavishly recanted for their "errors."

March and8 the Economics Institute held asessions at which Soviet statisticians were criticized for theirof bourgeois statistics, particularly on living standards in In this discussion the works of Bokshltsky, Vlshnev and Vargaheavy fire for treating the capitalist economies in "rosy tones."

(See Prob. of Eco. Ho..

(Bolshevik: N. Rubinshtein attacked LemlA's book on Great Britain's foreign policy for "bourgeois objectivism" and for its uncritical treatment.

(Bolshevik: M. Marinin criticized V. Lan's book on US. foreign policy as the vorkbourgeois apologist." Lan was charged with treating the "transformation" of the bourgeois stateool of monopoly capital into some kind of .flupraclass agency. He was attacked



for considering the possibility of compromises between Wall Street and the working class.

June,A. Shneyersoneport on capitalismEconomica Institute in which heeneral criticism of

Economy t Shneyerson attackedthat Varga had written in the6 issue of his journal. Varga for stating that the "general crisis of capitalism"early Inh Century before the October Revolution and thatWar II the conflict between the wartime allies in their strugglehad been "suspended,"

of Eeo. No.: A. Kochetkovbooks of L. I. Frel and K. I. Lukashev for their objectivism. Theattacked for uncritical references to "planning" under capitalismdepicting basic changes in the situation of tho colonies, the latter

for raising the possibility of Anglo-American oo-operation in exploiting overseas oil reserves.

Economyt M. Myznlkov delivered acritique of Varga's heresies, charging that in essence Varga hada new variant of Hilferdlng's thesis of "organized" or He insisted that Vargareformist" view of the state as

an organ for reconciling class antagonism and attaoked Varga's "opportunist" view of the peaceful transition from capitalisn to socialism. He also criticized L. Mendelson for arguing at the7 discussion that Varga's position on the bourgeois state was only "too one-sided."

(Bolshevik: I. KusVnov attacked Mendelson's article of7 for expounding the theory of "deferredhich implied that the vorkera In the capitalist oountriea wereduring the war, instead of impoverished in accordance with Soviet Marxist theory. Mendelaon was also attacked for repeating Varga's predietion of an upsurge of US. production in the early postvar period.








A.Drabkina Zhlvova Sokolov

I. Sosensky (Canada) S. Slobodskoy (Italy)evsner (Japan)

DtBitroverbst V. Karraertsovich D. Monin Ya. Segal

(Eas. Eur.)

(Baa.Germany)No. Eur.)

P. Glushkov, Chief

E. I. Ivanova

B. N. Kiselev

YaYa Kotkovsky

Z. A. Martinson

I. Moreno

N. N. Orllna

A. N. Puchkov

E. A. Chebtareva

P. M. Shapiro

V. I. Shunilin

S. N. Bakulin

N. A. Kulagln

The countries in parentheses are believed to be the

areas of professional specialization. Information on the personnel in the Sectors not available, although it was reported1 that the staff ofersons did not produce any "scientific work" in that year "because qualified personnel were not available for analysis of the accumulated material."




E> S. Varga. Changes in the Economy of Capitalismesult of The

L. fa. Bventov, The War Economy of England, edited by I. S.

I. A. Trakhtenberg, The Financial Results of the War

S. Vlshnev, The War Economy of FascistW>)

A. Shplrt, Changes in the Economy of Raw Materials and Fuels In the

Kh. Eidusa, Japan from the First to the Second WorldA History)

S. Slobodsky, Italian Fascism and Its)istory)

V. Maslennlkov,U6)

I. M. Lemin, The Foreign Policy of Great Britain from Versailles to Locarnoi7)

V. Lan, The United States from the First to the Second Worldli7)

M. Eokshitsky, Technical-Economic Changes in U. S. Industry During the Second world War, edited by I. A.h7)

S. Vishnov, Industry of the Capitalist Countries in the "eccnd World War, edited by L. la.U7)

I. A. Trakhtenberg, editor, The War Economy of the Capitalist Countries in the

Transition to Peace Economyi7)

KNOWN PUBLICATIONS OF THE ECONOMICS INSTITUTE3 E. Bregel', Taxes, Loans and Inflation in the Service of Imperialism Questions on the General Crisis of Capitalism (Collective Work)

he-Cri:8i8 of tnQ Ircporlalist Colonial System After World War II (Collective Work)

The Imperialist Struggle for Africa and the People's Liberation Movement (Colloct'ive Work)

Militarization of the U. S. Economy and the Worsening of the Workers' Situation (Collective WorkJ

I.ritique of Contemporary English Bourgeois Political Economy

E.arga, The Fundamental Problems of the Economics and Politics of Imporialiar. (after the Second World War)

V. S. Volodin,of Monopoly Capital

Danilevich, The Situation and Struggle of the Working Class of the Latin

American Countries'

The Ideology and Policy of tho Rl^ht Laboritos in the Service of


N. I. Hr.ogoletova, The Economic Expansion of American Monopolies

O. A. Oborina, The Situation and Struggle of the Italian Working Class AfterWorld

N. N. Smit, The Situation of the Working class in thengland, and France After World War III

V. V. Sushchenko, Expansion of American Imperialism In Canada After World War II.



(See Problens of Economics No.or complete list)

"The Development and Struggle of Two Csaps--The Democratic, Anti-Imperialist Headed By The USSR and the Imperialist, Anti-Democratic Headed By the USA."

"The Leading Role of the USSR In the Peoples' Struggle Against Imperialist Reactionurable, Just Peace."

"Economic Crisis in the Period of Monopoly Capitalism (USA, England, France, Germany, and others)."

"Parasitism and the Decay of Capitalism on the Eve, During, and After the Second World WarSA, England, France, and

"The Degradation of Agriculture in the Colonies and Semi-Colonies."

"The Absolute and Relative Impoverishment of the Proletariat of the Capitalist Countries in the Period of the General Crisis of Capitalist."


Soviet ocododIc research on the world capitalist economy both during and after Stalin's lifetime has been characterized by extensive coverage. Intensive use, careful selectivity, anddistortion of Western sources. From the standpoint of source coverage alone, Soviet research on foreign economiesegree of familiarity and sophistication that our own Intelligence community would do veil to emulate. However, In terma of over-all objectivity* the results leave much to be desired. Soviet economists rarely, if ever, falsify Western statistics; Instead they distort themasterfully Machiavellian manner. The latter Isthe rule whenever they deal with Western statisticsield of Inquiry that could be rightfully described as the "Achilles Heel" of Soviet research on foreign economies. The most frquently quoted Western source on living conditions Is the Labor Fact Book, published by the Communist-FrontThe Labor Research Association of the United States.

A fairly representative Illustration of Soviet coverage of Western sources may be found In the first chapter of Varga's book. The Fundamental Problccs of the Economics and Politics of Imperialism (After tho Second World War)c sources are listed below In their order of appearance, with the



vorko by CommunlBta or fellow-travellers listed parenthetically!

Monthly Bulletin of Statistic*of the United Nations

Statistical Yearbook of the United Nations

Annua Ire Statlatlque de la France

Statistical Abstract of the United States

Federal Reserve Bulletin

Economic Reports of the President

Monthly Labor Review

(The worker Magazine)

Economist, Records and Statistics

Monthly Bulletin of Statistics

The Hew York Times '

Economic Survoy of Asia and the Far East (UN)

Survey of Current Business

US Hews and World Report

Neue Zarcher Zeltung


(The Black Market Yearbook) (Frederick Lundberg, America's Sixty Families) (la Russian loW) Statistical Yearbook of tho United States Tables to the Economic Survey of Europe (UN) Le Mondeudget

Konleur Offlclel du Commerce et de 1'Industrie The Times

(Harry Pollltt, looking. Ahead,




VI. lenln.

mperiallaa, The Highest Stage)of Capitalism, English Edition

The State and Revolution. English Edition,


Maurice Dobb, Political Economy and Capitalism. Merle Painsod, International Socialism and the World War

(Cambridge, iWg).


World Economy and World Politics (in Russian)

This was the monthly organga'a old Institute of World Economy

and World Politics.

Problems of Economics (in Russian)his is the nonthly journal of tho Economics Institute of the USSR Academy of Sciences.

Panned Economy (in Russian) This is the bimonthly organ of Goeplan, The State Planning Committee.

Bolshevik tinin)crmunist (in Russian) This fortnightly Is the authoritative organ of the Central Committee of the Soviet Communist Party.

Current Digest of the Soviet This weekly was re-lied upon for full and partial translations of articles in Pravda, Igvestiya, and other Soviet publications from& up" to (Tie present time. Its quarterly Indexes were invaluable,

Soviet Views on the Postwar World Economy, translated by LeoWho).

Secondary Sources

Frederick C. Barghoorn, "The Varga Controversy and Itshe Aaerlcan Slavic and East European Review,, is useful for Its detailed analysis of6 book. The author overlooks the work of other principals in the Varga school, however, and his treatment concentrates primarily on the imposition of the ideological straitjacket on the Soviet intelligentsia in the postwar period.

Frederick C. Barghoorn, The Soviet Image of the United Statess pood descriptively but weak analytically.

Rudolf Schlesinger, "The Discussions on E. Varga's Book on Capitalist Waroviot Stodlea,omplements Barghoorn's article by dealing with tho Intellectual issues raised by the Varga controversy. Although reference Is made to some heretical works of the period, the coverage is far from complete. Like Barghoorn, the author avoids political Interpretation.

Soviet Affairs, en organ of the Office of Intelligence Research, Department of Stata. The articles In this monthly publication which deal with the Varga controversy are models of Intelligentof Sovietaccurate, scholarly, and readable. Unfortunately, far lass attention and sophisticated analysis has been devoted to the period after Varga's intellectual demise,developments in the post-Stalin period, than in the earlier period.


Original document.

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