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Russian-expansion and state export of capital

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Russian-expansion and state export of capital

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Content RUSSIAN EXPANSION AND STATE EXPORT OF CAPITAL A Thesis Presented to the Faculty of the Department of Economics University of Southern California In Partial Fulfillment of the Requirements for the Degree Master of Arts by Jackson Mayers August, 1950 UMI Number: EP44708 All rights reserved INFORMATION TO ALL USERS The quality of this reproduction is dependent upon the quality of the copy submitted. In the unlikely event that the author did not send a complete manuscript and there are missing pages, these will be noted. Also, if material had to be removed, a note will indicate the deletion. Dissertation Publishing UMI EP44708 Published by ProQuest LLC (2014). Copyright in the Dissertation held by the Author. Microform Edition © ProQuest LLC. All rights reserved. This work is protected against unauthorized copying under Title 17, United States Code ProQuest LLC. 789 East Eisenhower Parkway P.O. Box 1346 Ann Arbor, Ml 481 0 6- 1346 T c . 'in M V6 S' This thesis, written by JACKS01 MAYERS under the guidance of h’ LB.... Faculty Committee, and approved by all its members, has been presented to and accepted by the Council on Graduate Study and Research in partial fu lfill ment of the requirements fo r the degree of ..MASIEER.-.QE-ARTS- ____ In Economics__ D ate August.. 1 3 5 . 0 . _____ Faculty Committee Chairman TABLE OP CONTENTS CHAPTER PAGE I. SUMMARY OF THE THESIS .......... 1 Statement of the problem................... 1 Organization of chapters. ........ 2 Previous studies. '....................... 3 Methods and sources ..................... 4 Denial of economic expansion............... 5 Reasons for self-sufficiency............. 6 Russia's own explanation................. 8 Origin of expansion....................... 10 How to raise capital. ................. 11 Capital export resumes................... 15 Meaning of pacts with Hitler............... 17 Stalin's offer....................... 18 Business relations with Germany ..... 20 The post-war expansion. .......... 24 Seizures and looting. . ............... 25 Capital export techniques ............... 27 Imperialism and revolution. ........ 29 II. THE INTERNAL 'ECONOMY. ................. 32 The production system . ................. 32 Law of value ................... 34 Planning............ 35 War economy . ......................... 37 ill > » CHAPTER PAGE Property relations and classes .......... . 38 Management and classes ................... 38 State capitalism......................... 40 A single capitalist....................... 4l Collective farms ............................ 43 Property rights................ .......... 44 Labor relations. ..................... 46 Piecework wages........................... 48 Forced labor and unemployment. . ......... 51 Money and banking........................... 52 Ruble shifts................ ............ 53 « Price-fixing .............................. 55 Rationing.................................. 56 Banking.................................... 58 Capital accumulation . 60 Turnover t a x............................. 6l Bonds and loans........................... 64 Social change............................... 67 III. STATE CAPITALISM UNDER CZARISM AND REVOLUTION. 69 Mercantilism and state monopoly............. 70 Land expansion........................... 74 The state bank ................... 78 Communal and state land................... 77 Industrial growth and capital import .... 78 lv CHAPTER PAGE Capital import............ 79 Shift in trade....................... 80 Export of capital......................... 8l Wartime controls.......................... . 83 The first revolution....................... 84 Lenin proposes state capitalism.......... 85 Renunciation of imperialism* ....... 87 Lenin’s prophecy of downfall ............... 89 IV. STATE MONOPOLY OF FOREIGN TRADE TO 1924. . . . 91 Revolution in economy...................... 92 Proletarian revolution................... 93 Nationalization of foreign trade .......... 94 Alternative controls ..... 96 War communism................................ 97 Polish war ................ 99 Trade agreements, 1920 .......... 100 New Economic Policy. . .............. . . 102 Concessions.......... 103 Joint-stock and mixed companies.......... 104 Tariff not enough. . ...... 105 Trade aims ..................... 106 Rapalio...................................... 107 Primitive ’ ’socialist” accumulation........ 109 Sources of capital ..................... 110 V CHAPTER PAGE Import of capital....................... 112 V. RE-ENTRY INTO WORLD ECONOMY................. Ilk Two steps backward in the Far East. .... 114 Sinkiang, Azerbaid jan, Khiva and Bukhara. 115 Outer Mongolia........................... 116 Chinese Eastern Railway ................. 118 Spheres of influence. ............. 121 What NEP left ................... 122 Commodity production. .... ........... 123 Surplus value........................... 12^ Investor class........................... 128 Strikes................ 131 Collectivization and accumulation .... 132 Pact of 1926.............................. * 134 Import of technology....................... 135 German trade.......... 137 Concessions.............................. 138 Technical a i d .......... 138 VI. DEPRESSION AND SELF-SUFFICIENCY............. ikO Dumping.................................... 1^0 World market rules....................... lk2 Depression within Russia................. 1^ Turn to self-sufficiency................... 146 Import of capital ..... ............. 1^8 vi CHAPTER PAGE Why foreign trade ............. ..... 149 Most favored nation..................... 150 Par Eastern moves to the right............. 151 Tannu Tuva to 1931 ..................... 153 Outer Mongolia. ....................... 153 Hitler in power....................... 155 The eastern school...................... 156 Russian bonds on the stock exchange . . . 157 Drive outward............................. 158 Trade treaty with the United States . . . 159 Swedish credit........................... 160 League of Nations....................... 160 people1 s fronts................ 162 VII. CAPITAL EXPORT RESUMES....................... 164 Caucasus oil to Mussolini................. 16H- Years of great change ..... .......... 167 The return of capitalist norms.......... 168 Was socialism achieved. ............... 170 Exports exceed imports..................... 172 Russia’s own fleet....................... 175 Rise of capital exports................... 1?6 Decline of agricultural exports ........ 177 Industrial exports predominate.......... 178 Trade volume. ......................... 179 vii CHAPTER pAGE Capital provider to the east............. l8l Organization of trade................... 182 Imports from the east................... I83 Exports to the east..................... 184 Transition to colonies................. 186 Business relations with everyone ........ 188 VIII. EXPANSION OP 1939........................... 190 Nonintervention in Spain ........ 192 A place in the sun....................... 193 Trade pact of 1938 ....................... 195 Exclusion from Europe. ........ 196 The start of secret talks................. 198 Stalin * s offer................ 199 Czechoslovakia falls ................... 203 Germany moves against Poland ........... 204 Indirect aggression. . .......... 206 Secret negotiations....................... 207 Litvinov's ouster... ................... 209 Political hases. .............. 211 Unity of politics and economics. ..... 213 IX. THE BASIC EXPANSIONIST DEMANDS OP 1939 . . . 216 Molotov's first speech ............. 216 Germany outraaneuvers the west. . . . . . . 218 The Strang mission ................... 221 viii CHAPTER PAGE Political bases ........................... 222 Berlin treaty . ......................... 223 Three stages and seven points.......... 224 The political thought.............. 228 Allied military mission................. 229 Telegram from Moscow..................... 230 Hitler's six point offer................... 231 Russia's draft of a pact................... 233 Commercial treaty, August 1 9 . ............. 235 Trade figures........................... 236 Personal contract with Stalin............. 239 X. PACTS OF AUGUST 23-24, 1939 ................. 243 A fascist in the Kremlin................ 243 Fifteen-year nonaggression pact.......... 244 Secret protocol ......................... 245 Molotov explains history................... 24? Rate of exchange. ........ 24y Molotov’s speech of August 31 • « • • • • 248 Effect of the August pacts................ 251 Breathing space ................... 252 Russia driven by the west............... 254 Drang nach westen.......................... 255 The change in lines of march........ .. . 256 Poland is drawn and halved................. 258 CHAPTER PAGE Propaganda and reality .......... 259 End of socialism in one country....... 262 Moscow, capital of eastern Europe. ..... 265 No residual Poland ................. 265 XI. BURST BEYOND THE BORDERS.................. 268 Pacts of September ................. 268 More secret protocols. . .......... .. . 269 Revolution or counter-revolution..... 270 Peace on Hitler’s terms.................. 273 Economic notes ................... 274 The "Order of Lenin" to Ribbentrop..... 275 The Baltic is a Russian lake........... 276 Tip of Lithuania .. . .. . . . . . . . . 277 No social and economic changes ........... 279 , Finland waits....................... 280 Population shifts...................... 28l Dual trade talks ............... ..... 28l Stalin negotiates........................ 283 Economic warfare ......................... 284 Ugly offspring of Versailles......... 285 Russian naval aid...................... 286 Repatriation........................... . • 287 Hitler foresees Pan-Slavism........... 287 Blunder in Finland...................... 288 X CHAPTER PAGE Wars are not always declared............. 288 The League expels Russia................. 289 Finnish peace terms....................... 291 Desires In the Balkans ........... 293 XII. SILENT STRUGGLE FOR EASTERN EUROPE........ .. 29 Economic negotiations..................... 295 Trade agreement, February 11, 19^0 ..... 296 While Germany fights the west. ........... 298 Reaping what Germany sows................. 299 The rift widens............................ 301 Balkan squeeze play....................... 303 Fall of France .......... 30^ New policy.............. 306 Petsamo nickel mines ..................... 309 Closing the Balkan gateway................. 310 Bessarabia and Bukovina. ........ 311 Britain makes an offer ..... ......... 313 Act III in the Baltic..................... 31^ Russia relieves Britain..................... 316 Japan’s move......................... 317 XIII. DRANG NACH 0STEN AND WESTEN. . ............. 319 Case east.................................... 319 Aufbau O s t ................................ 320 Baltic nationalization ................ * 321 xi CHAPTER PAGE % Lagging deliveries ..................... . 322 Tripartite Axis pact....................... 32-M- ' The Axis proposals....................... 325 A letter to Stalin....................... 326 History is made at a. conference. ...... 327 Would Russia join Germany?............... 328 The German draft......................... 330 Stalin’s reply ............................ 332 Operation Bar bar ossa, ..... .. ... .. 335 Jousting in the Balkans................... 335 Economic pact, January 10, 1941.......... 336 Property and frontier claims ............. 338 Germany in the Balkans................... 339 Trade pact................................ 340 On the eve of war........................... 341 Mussolini saves Moscow . ............... 342 Russian deliveries................ 343 Japanese accord........................... 344 Barbarossa-Oldenburg..................... 344 Mr. Stalin becomes premier............... 345 Stocks through alliances ................. 346 XIV. WARTIME EXPANSION, 1941-45 .................... 349 Lend-Lease............ 349 Reverse Lend-Lease ....................... 351 xii CHAPTER PAGE Stalin's w a r ............................... 353 Imperialist war. . . 354 Dissolution of the Comintern.......... . . 355 Counter-revolution......................... 356 Revolution in Germany? ........... 358 Army of occupation................... 359 Territorial expansion............ 362 northern windows ......................... 364 Central buffer states..................... 367 Middle East gateway....................... 369 Par East....................... 371 Total gains ....................... 373 XV. ADVANCED ACCUMULATION OP CAPITAL............. 375 No sovietization............ 376 Existing social structure. . ........... 379 Land division. ............................ 38l Against collectivization ................. 382 Land nationalization..................... 385 German assets..................... 386 Assets in Austria. ........ ....... 387 War booty, living off the land............. 389 Legal basis of war booty ........ 391 Primitive (or advanced!) accumulation. . . 392 Reparations ................... 39^ Claims on Germany....................... * 395 xiii CHAPTER PAGE Russia opposes nationalization ........ . 396 Reparations account................... 397 Total reparations bill............ 399 Use of forced labor. ............... 401 XVI. HEW CAPITAL EXPORT POSITION. ................. 403 Denial of capital exports................... 403 Basis for capital export................. 4o4 Pilling the capital vacuum............... 405 Bilateral trade.............................. 406 Treaty terms............ 407 Capital exports................ 409 Export policy. ............... ...... 410 Pood exports ........................... 413 Imports, re-exports....................... 4l4 Capital trade by country................... 417 China trade. ........................... 4l8 European nations......................... 419 Hon-satellite pacts............ 421 Merchant marine........................... 421 Mixed capitalist corporations ........ 422 Germany’s economy.......... 424 Hungary.................................... 426 Rumania.................................... 427 Single state monopoly....................... 430 Operating capitalist industries. ..... 431 xiv CHAPTER PAGE Public seizure ................... ..... 433 Tito and colonialism ............. . 434 Monetary controls. . ................... . 436 Invisible import of 'wealth ........ 437 Higher profit yield abroad . . ........... 438 XVII. CONCLUSIONS. . .............................. 44l End of revolution........................... 442 Imperialism.................................. 445 The capital export position............... 447 Economic organization.......... 449 State capitalism ................... 451 State monopoly abroad..................... 453 The Cominform................ 457 No unified line.............. 459 Multi-national federalism................. 460 Competition with America................... 462 The economic comparison................... 464 Limits of expansion. . ................... 465 BIBLIOGRAPHY ' *^8 CHAPTER I SUMMARY OP THE THESIS The economy of Russia and of those countries in which Russia has made major political and economic penetrations since 1936 manifests itself as an enormous accumulation of commodities, with the state serving as the principal force for capital accumulation and investment. State and economy are intimately fused. Internally as abroad Russian economy remains securely based on commodity production, wage labor, money and credit, and the creation of a surplus which is appropriated by the state in the form of profit, and used for new capital accumulation and payment of interest at home, and for capital export abroad. I. STATEMENT OP THE PROBLEM Whatever one may think of Russian society internally there is little dispute that Russia has expanded well beyond her old borders. Par from being socialist the expansion has taken well defined economic forms of the movement of capital or production goods through the state, coupled with military, political and socio-economic controls which when consummated by other powers are called imperialism by Russia's leaders. It Is not generally accepted that the revolution of 1917 which had halted Czarist Imperialist expansion has Itself perished, and that with the abandonment of the revolutionary bases of Russian society and liquidation of the early revo lutionary leaders a resurrection of older forms of expansion grounded on highly trustified industry had intensified even before the second world war had begun. The aim of this work is systematically to lay bare the forms and methods of state monopoly expansion to the present day and whom it benefits. It is fully recognized that until Russian state capital exports abroad grow so large as to be impossible for the blindest to Ignore, or atomic warfare eliminates Russia from the face of the earth, or revolution intervenes, the raging controversy on Russian economy may be expected to continue. In view of the existing diversity of views it becomes an Imperative to establish the historical and polemical record of what a self-styled socialist state is do ing exporting capital. Only in this way can there be a full demonstration of the interrelation between economic and polit ical expansion by a state, like early mercantilism and unlike the more ^private1 ' Imperialism of other powers. Organization of chapters. An introductory statement of the foundations of the analysis is followed by a description of the internal economy from the vantage point of the current ex pansion. Earlier works have not made the linkage between the inner and outer phenomena. A second entire phase, the period from Czarism to revolution or roughly from 1700 to 1924, shows state capitalism under Czarism and revolution, and foreign trade under the state monopoly. Three chapters explain the retreat to capitalism from 1927 to 1937 when, as a favorable balance of trade was gained, capital export resumed, as did territorial seizures abroad. Socialism in one country” was ended in practice by the ex pansion of 1939-^0. Basic expansionist demands are shown, as are the opening pacts with Hitler, particularly in economy, and the first burst beyond the borders. Parallel policy with the Allies against Germany, begun in March, 19^0 and continued until 19^5, is the subject of three chapters. Lastly there is the spilling over into other lands following out the pre-war growth tendencies, the capital labor seizures, organization of politico-economic empire, and the tendencies of a state monopoly system. Previous studies. Russian expansion has been depicted militarily by many writers, and there is no mysterious social ist or non-capitalist technique employed, but the opposite. Political analyses, discussing a pattern of conquest, have been offered. Partial studies of Russia’s internal economy exist, supplemented and sometimes wondrously so by reports of travelers and even by governmental utterances. Several impor tant works on Russian foreign trade up to 1939 are available. However, no post-war economic study of Russian expansion that integrates economic with political and military actions is in print, nor has a connection between the internal economy and the vast growth of foreign trade following the war been drawn. The main deficiency is examination of the pacts with Hitler from 1939 to 19^1 in which the program of expansion has up to now been more or less securely buried. Methods and sources. Russian leaders hold the German view that foreign policy is only the continuation of domestic policy. While there may be doubt as to what is occurring within Russian economy, such difficulties are less serious in her actions abroad. Despite the unavailability of many Russian materials on the pacts with Hitler and concerning expansionist tendencies that existed even before 1939» it is possible to reverse the old adage about foreign policy, and work back to the relation it has to domestic policy. Most of the German side of the record is captured, and sufficiently meaningful sections of it can be had with sup porting historical information to indicate the course of the expansion, its origin, development and fuller blooming after the passing of Hitler. As aid to Hitler could not be concealed, so capital export, bilateral trade, land seizures, war booty and agreements with powers which Russia formerly called imper ialist permit observation of whether "world revolution" was a part of Russian policy. Stalin’s armies had come out into the open and their conduct could be assessed. There is an unfortunate tendency to slur over the Russian economic arrangements in the nearly two dozen pacts with Hitler, with the result that confusion as to the origin and growth of Russia outward continues. Many writers have admirably guessed at and delineated the agreements with Hitler. But taking all their analyses together, their repor ting remains tied to one event at a time, and that superfi cially, and not to detecting the trend of development in the bed rock of economic relations. As storytellers they are vividj as interpreters of history without sufficient economic grounding, they have failed to establish Russia's long-run trend towards expansion. Thus the existing analyses usually suffer from a nearly total undervaluation of the economic foundations of Russian society, particularly of its longtime tendencies towards capital export and expansion abroad since a favorable bal ance of trade was achieved in 1935• Hone of the previous studies of Russian economy following the second world war has as yet made an analysis of the economic arrangements with Hitler. As a consequence the process of growth beyond the borders remains distorted. II. DENIAL OF ECONOMIC EXPANSION Confirmed pro-Russian people and many liberals, their faith battered yet extant, insist that Russia has a socialist economy which requires no economic expansion and is largely 6 independent of the world market. Generally unaware of the long time tendency of expansion internally leading to expansion ex ternally, these writers have been driven to a denial that Rus sia could expand abroad in any economic sense. Even bitter cri tics of Russia have part of this view, a tribute to the power of propaganda to confuse simpler economic forces. Reasons for self-sufficiency. "The Soviet Union,*’ Ed gar Snow wrote, "cannot have any expansionist tendencies."1 Dobb gives an economic basis for this reasoning; . . . the pressure to export capital, which has been so large a factor in shaping the policies of capitalist states, is absent from Soviet economy. This is not to say that there are no reasons which may induce the U.S.S.R. to export goods on loan to other countries . . .It will not be thirsted for as a means of maintaining or enlarg ing the paper value of capital claims . . .2 However, Dobb does not mention repeated instances of Russian loans and gaining of profits from investments abroad. 1 Edgar Snow, The Battle for Asia. (New York; Random House, 1 9 W , P. 300. 2 Maurice Dobb, Soviet Economic Development Since 1917 (New York; International Publishers, 19WJ, p. 29. Compare this to Albert Rhys Williams, The Russians (New York; Har- court, Brace & Company, 1943], p. 5* "who speaks of Russia as having "an ever-expanding economy" that has no reason for imperialist expansion, although it has "small loans" abroad. He contends Russia’s internal market is.too big to require foreign markets? But Lawrence W. Towle takes the far sounder view; "International trade can be.regarded as simply an exten sion of.domestic trade." see International Trade and Commer cial Policy (New York; .Harper and Brothers publishers, 1947), p. 3. In The Great Globe Itself, William C. Bullitt wrote on p. 112, "To the Soviet Union foreign trade is a dispensable luxury.”.(New York; Charles Scribner's Sons, 1946). Russia is presented as separate from the world market. 7 Others argue that Russia's war losses were so great that for years she will be engaged in internal reconstruction; • that she would welcome capital imports and substantial credits from the United States. Another group contends that Russia is so weak in her new-found land area.s of expansion that military and political strength have to be used to maintain domination. In contrast, as Russia's leaders proclaimed before 1939* there are writers who Insist that Russia uses foreign trade not for political control but solely to obtain missing goods. Liberal writers emphasize that Russia has no capital for export and that here is a "socialist imperialism1 1 based not on profit but on inequality in terms of trade.3 All these viewpoints separate economics from politics, whereas in reality these are inextricably linked In Russia. They do not consider Russia's pre-war trend to export capital to less advanced countries. Ignored is Russia's concrete de pendence on the world market and the actual moves of Russia beyond 'socialism in a single country* and national self-suf ficiency to obtain a major section of the world market. In deed, It is necessary to begin this work where others have stopped. Condoide wrote, "obviously, no comprehensive estimate can be made at present with regard to this tendency toward 3 Examples are: Robert E. Sherwood, Roosevelt and Hop kins (Hew York: Harper and Brothers, 1948), pp. 642-3; John Scott, Europe'in Revolution (Boston: Houghton Mifflin Co., 1945), p. 243; Vera M. Dean, The United States and Russia (Cambridge: Harvard University Press, 1948), p. 230; Hew Re public, November 8, 1948. economic expansion."2 * Where Condoide ends with, a rhetorical question, this hook begins. Russia's own explanation. Russia explains her expansion in the Balkans, Eastern Europe, and in the Middle and Par East as a postwar expedient to keep out reactionary forces, to gain reparations in order to replace heavy wartime losses, to police former enemy countries and to gain military security through controlling buffer states. War victory is heralded as a suffi cient reason for Russia to take the power-political position to which her economic and political strength entitle her. A leading British newspaper declared that Russia's ^leadership in Eastern Europe will be economic as well as po litical. "5 Stalin in an interview with an American Ambassador gave part of the reasons; ■He (Stalin) discussed in detail the Iranian oil question . . . He stressed the need of the Soviet Union for a greater share in the exploitation of the world’s oil resources, and said that Great Britain and later the United states had placed obstacles in the way of Russia when she sought oil concessions. But the Russian emphasis on postwar expediency is 4 Mikhail V. Condoide, Russian-American Trade (Colum bus: Ohio state University, 1946),’ p. 113. 5 The Times of London, August 1, 1941. 6 Walter Bedell Smith, My Three Years in Moscow (New York; J. B. Lippincott Company, 1950), p. 52. Towle wrote: "The desire for control over sources of vital raw materials was one of the leading excuses advanced by the dictator na- ‘ tions for their aggressions in the 1930’s and early 1940’s.*J See,op. clt., p. 237. clouded over by an insistence by Russian supporters that this is a 1 1 socialist” expansion, taking countries out of the orbit of imperialism, and that Russia is bringing these countries the benefits of an economy that has moved beyond capitalism. However, as will be demonstrated, the means employed in expand ing are as old as capitalism, and in many instances are actually a regression to mercantilist devices.. No new techniques of ex pansion have been presented, although old types have been in tensified, nor is any higher form of expansion apparent. Par from being a democratic and socialist expansion, the Russian emergence is highly nationalistic. It is also predatory and parasitic and directly linked, to the export of capital. It would be a source of error to consider as did James P. Byrnes that, "the flush of victory has encouraged the Soviet Government to extend its ambitions.While serving to give the expansion its particular economic and political shape, the war and military victory was not its raison djjetre, nor were wartime losses an explanation of what Russia was doing outside her borders. Quite the contrary, the expansion policy had come into full flower before the war and before a single wartime loss, at least by 1935-36 and decisively in the 1939 pacts with Hitler. Reasons for Russian expansion lie far deeper than military and strategical considerations, important as 7 See his Speaking Frankly (New York: Harper and Bro thers, 19^7), p. 292. Other writers treat the expansion as a postwar phenomenon, and do not trace its origin. 10 they are. Historica.lly no nation In modern times has moved against smaller nations -without having profound expansionist purposes grounded in needs of her economy and reflected in her politics. Russia is no exception. Economic reasons were basic to her arrangements with Germany. They paced the ex pansion, underlay it all along and continue to exercise their sway to this day. Russia moved rapidly out of economic iso lation. Her leaders knew that foreign policy required strong economic relations with surrounding countries. III. ORIGIN OP EXPANSION Confusion over how a state-controlled economy can expand abroad can be dissipated only by reference to the historical development of Russian economy. For expansion is grounded not in ideology but in economy. State control and regulation of the economy were characteristics of the Czarist structure. Within Russia the origin of capital was largely in state mon opoly under a system that was essentially mercantilist. Exter nally, like other major powers, the government established state chartered corporations to rule Alaska and develop trade. The Czarist state bank helped control the economy. Cza.p- ism imported capital from the west, and at the same time expor ted capital to the eastern countries. For this it was denounced by the Bolsheviks as an imperialist exploiter for many years. By the time the Bolsheviks came to power In November, 1917, they 11 had Inherited the largest state-economic machine in the world and a near-monopoly by the state over foreign trade. At first the Bolsheviks sought not to introduce socialism but to carry out further measures of what they called flatly wstate capital ism,” under control of the working classes. Bolshevism renounced Czarist imperialist gains in land, economy and privileges. It denounced secret treaties and sur rendered all claims to seized territories, and other areas promised the Czar by secret treaty, such as Constantinople. At Brest-Litovsk in 1918 the Bolsheviks were forced to sign a peace treaty with Germany under which Russia lost most- of her western reaches. Later, in 1939~19i H> the claim was advanced that Stalin had signed with Hitler as at Brest-Litovsk. In 1918 it was Russia which was the victim of Germany. In 1939 It was Russia in common with Germany which victimized other countries. Then Russia continued to control these countries after Germany's fall. In their program of 1919 the Bolsheviks declared that should the Russians ever again set out on a pro gram of conquest, territorial seizure and subjugation of nation alities, the revolution would be over. How to raise capital. Slowly relations with the outer world grew from nearly total isolation and military separation to extensive trade. Russia’s state monopoly of foreign trade, a device now quite common, was more than a tariff. It was aimed at keeping Russian economy from being subordinated to 12 more powerful economies outside. Revolution had not altered the fact that capitalist economies were more productive and efficient than that of Russia. Under conditions of military siege and widespread des truction a policy of war communism or highly organized scarcity, at an economic level little removed from starvation, was insti tuted. It appears to have been the closest real approximation to a transition society beyond capitalism, at least in struc ture but not in productive capacity and development, War com munism sought to end wage labor and profit appropriation, to eliminate money and institute a rough equality of hardship. Little,progress was made with it, principally for lack of cap ital and technicians and great disorganization. By 1921 the Bolsheviks had established the New Economic Policy of a controlled state capitalism--still under workers' control in theory--of concessions to foreign capitalists, and of state mixed capitalist corporations. The Russian state and individuals participated with foreign investors in these mixed and single state monopolies, designed primarily to gain the cap ital goods with which to revive the prostrate economy. A major dispute over how to raise capital developed. One group urged use of primitive "socialist" accumulation, pat terned after Marx’s analysis of the origin of capital by force, enclosures, taxation.' Certain leaders proposed to raise capital from the surplus of the peasant through a system of monopoly 13 prices favoring the city workers. Another source was to be the surplus of state industry, arising from its own produc tivity. Lastly loans were to be raised from abroad. Eventual ly all these sources were utilized. The seemingly theoretical argument takes on great practical significance for the post world war two years when Russia moved to gain capital from abroad through a process of accumulation closely fitting Marx's description of seizure and expropriation. Despite the early renunciation of -imperialism, by 1924- moves to the right were apparent in Khiva and Bukhara. Economic concessions were sought, in Mongolia and on the Chinese Eastern Railway. Factual control of the line was sought in 1926 under the argument that for Russia not to control the road would be a gain for foreign imperialism. Spheres of influence with Japan were rejected in those years as an attempt to liquidate the foreign policy of the revolution and to open the way for nation alism and growing bourgeois influence. By 1928 Stalin had cemented control of party and state and the theory of nationalist socialism within a single country was to receive an extended trial. Five year plans for a vast increase of heavy industry were launched. Nevertheless, com modity production, instituted by the HEP in 1921, remained, as did money payment, wage labor and profits. Trade agreements with Germany, opened at Rapallo in 1922, were climaxed with signing of a treaty of neutrality on April 26, 1926, father of the later main pact. 14 Foreign trade grew after 1928, but was hard hit by the depression of 1929, which showed Russia's severe depen dence on the world market, despite claims of self-sufficiency. Russia denied that seizure of markets could ever be the aim of her foreign trade, and exports were termed a means to cover payment for imports, and no more. However, Russia had already utilized foreign trade to make profits for obtaining increasing capital goods from abroad. From 1926 to 1930 Russia built a railroad from Siberia to Turkestan, the Turksib, ostensibly to offset British influ ence, actually to open up the area to Russia economically. Roads were improved, and in 1931 secret agreements negotiated for exploitation of Sinkiang's mineral wealth. Both Tannu Tuva and Outer Mongolia were tied to Russian economy. At this time, 1932, Stalin declared that Russia did not wish an inch of foreign soil. By 1932 German leaders had remarked Russia's emergence from isolation and were seeking ways to regain influence and land beyond her borders. In 1934 Hitler stated that he welcomed stabilization in the East through a system of pacts. Economic relations with fascist Germany and Italy continued. Russian bonds made their appearance in Europe, having been offered as payment for credits. In 1934 Russia entered the League of Nations, previously denounced as the enemy of revolution. Russia shipped huge quantities of oil to Mussolini during the Ethiopian war. Other powers did the same. 15 Capital export resumes. Capital export, as under Czar- ism, had now definitely resumed. Internally Russia had reached a strong capital position so that imports of capital were dras tically reduced. Capitalist norms returned in the form of speed up and great inequality in the distribution of wealth, and great changes in education, marriage and religion. Wo individual capitalists or employers of labor remained, but the state occu pied this position in relation to labor and individual investors arose as bond flotation was instituted as a capital-raising technique. With the purge trials of 1936-1938 nearly all the Old Bolsheviks were liquidated and the country became highly nationalistic. American observers were surprised in 1937 that Russia floated loans that bore four per cent interest. In 1935 and 1936 a favorable balance of trade was achieved, constituting the springboard for the leap into cap ital export from Russia. Credit indebtedness was reduced, a working reserve of foreign exchange established, and the mer chant fleet increased. Most analyses of this crucial period have shown the rise of industrial production, but little has been done to indicate the relation of rising capital goods pro duction at home to growing exports of capital, except by Aaron Yugoff and Alexander Baykov. Semimanufactured and completely finished articles were now exported in place of agricultural products. The fall of 16 agricultural exports has been another remarkable alteration, but its relation to the shift to export of capital has been lost. Countries along Russia’s borders were becoming raw materials providers and were in turn receiving much of their industrial exports from Russia. Although the five year plans for expansion of heavy industry made no explicit statement regarding the export of capital, such export was no small part of the working out of the plans. Other countries were linked to the plans, principally as suppliers. Russia was building roads, railroads, plants and sending In capital equipment and parts to neighboring lands, under the plans. While the Russian share of total world trade was small even by 1938, internal production had already raised her beyond all other powers but America, although per capita pro duction was low. But the tendency toward export of capital to less advanced countries had been fully established, indicat ing that Russia was very far from being a self-sufficient econ omy. Towards weaker countries Russia even loosened the state monopoly of foreign trade to permit freer forms of trading. Before 1939 she granted a $250-mlllion loan to China and loans to other lands. Economic Isolation was ending. Efforts to increase the population In eastern Siberia were made In pre paration for increased Eastern Trade. Business relations with all countries, Including fascist nations, were emphasized as basic to Russian policy by 1936. The elimination of the remaining Old Bolsheviks in the purges of 1936-38 had a direct connection with Russia's return to trade and political dealings with world powers. Germany noted that Russia was now far more acceptable as an economic partner. At this time too Russia entered the non-intervention Committee for Spain* thereby preventing aid going to opponents of Gen eral Franco. The point of view that Russia had become some other form of economy in' 1921 or 1924, or by 1928 when Stalin rose to full power, appears to confuse a process with its conclusion. The changes began that early. They were consummated only when in ternal capital development reached the stage where export of capital by the state arose with achievement of a favorable balance of trade in 1935• In the earlier years Russia was not a capital exporter. When she became one, her outward growth awaited only favorable opportunities and weakness and division among potential opponents to achieve overt results. Yugoff noted that Russia's increasing search for purchasers of her raw materials and finished products continued until wthe second World War interrupted this struggle for market s.*’ ® IV. MEAWIWG OF PACTS WITH HITLER German leaders by 1932 and others by 1937 had noted that 8' Aaron Yugoff, Russia'3 Economic Front for War and Peace (Hew York: Harper and Brothers, 1942)," p. lit) . 18 Russia was seeking to emerge as a power in Eastern Europe and had become nationalist again. Economic relations between Rus sia and Germany were increased at the end of 1938 with signing of a new trade pact. While fulminating against the "aggressor1 ’ and calling for "collective security,” Russia was continuing and improving economic relations with Germany. Thus with the collapse of the peopled fronts before the growing fascist forces, and the tremendous rightward shift of all governments under the impact of the depression and resulting enormous state intervention, Russia’s best economic relations were with Germany. Stalin1s offer. Early in 1939 Russia expressed an in terest in part of Poland. On March 11, 1939 Stalin in a speech to the eighteenth congress of the Communist Party said that Russia favored "business relations with all countries." Private ly he informed Hitler that he had spoken with Germany in mind. The congress too decided to rewrite the 1919 program which had said expansion abroad would be the end of revolution. Secret negotiations with Germany began on April 17, 1939, while public negotiations opened between Russia and Britain and Prance. In these two-fold negotiations Russia found her opportunities for raising up her demands for expansion in the form of concessions and gains, land entry and seizure, bases and border guarantees, and special privileges in economy. The western powers proposed no increase in the business relations Stalin had specified were the basic proof of sincerity. Moreover they required that Russia make near-military moves. Hitler demanded nothing, and offered a large trade treaty. The Russians accepted after clarifying the political basis, which was to be the division of Eastern Europe into spheres of influence, partition of Poland, granting of most of the land of Estonia, Latvia and Lithuania to Russia, permitting Russian expansion in Bessarabia and to the south as far as the Dardanelles. On August 19, 1939 the trade pact was signed, increasing total trade almost 700 per cent above 1938 and guaranteeing Hitler grain when he was preparing to unleash war against Poland. By signing the ’ ’ nonaggression” pact of August 23-24, 1939 with its secret protocol for dividing Poland and Eastern Europe, Russia and Germany were in reality agreeing to joint aggression. Of the many explanations made at the time concern ing the meaning of the main pact, none showed that political expansion was founded on an economy that was using capital ex ports to push into areas abroad.9 The historic choice of signing a pact, German leaders put it aptly, lay with Russia’s leaders. The initial agreements divided Eastern Europe, brought Russian forces beyond their borders and provided Germany and 9 in his work, We Can Do Business With Russia (Hew York Ziff Davis Publishing Co., 19^5), Hans Heyraann wrote on page 74 that after the Nazi invasion, #leven the Hazi-Soviet pact was seen as a blessing in disguise.” A blessing to the Poles? Russia with their first common frontier in a generation. In phase two the frontiers were rectified, populations shifted, economic deals made and forces marshalled against each other from the Baltic to the Black seas. Phase three comprised mainly the struggle for the Danube estuary, Rumanian oil and Black Sea littoral, and was marked by the inability of Russia and Germany to agree on disposition of the main spoils of the European war, the Balkans, Dardanelles and Middle East. Par from being a nonaggression policy, the pacts were a modus vivendi between two clashing powers and at the same time a collaboration against common opponents. They were a temporary agreement regulating the conflict and planning disposition of the war spoils before the anticipated defeat of the west. The pacts represented a studied plan of expansion on Stalin’s terms, terms laid down to the Allies as well as to Germany, and terms which were again, achieved after wartime victory in arrangements with the very same Allies. "Socialism in one country* had definitively perished and Russia was serv ing as a capital exporter, seeking through military,'political and economic means to gain a major share of the world market. Capital expansion was vitally fused with the other forms. Business relations with Germany. In Poland In Septem ber, 1939 Russia helped crush a nation by military means. She opposed any rump Polish state and agreed with Germany to sup press all agitation affecting the two expanding powers. For 2 1 his excellent work In arranging the pacts Rlbbentrop that same month was awarded Russia's highest medal, the "Order of Len in.” Seven years later both Russia and the Allies were to vote to hang Rlbbentrop for participation in starting the war. Russia ousted Polish workers from factories they had sought to control. Local peasant committees had seized the land, and not the Russian armies. Russia promised there would be # , no Sovletization” in seized territories. Demands were made against Finland. While economic trade with Germany grew Russia permitted trans-shipment of commodities from the east, thereby becoming the largest hole in the British blockade. Finland was invaded on November 30, 1939» forcing the Russians to unfurl more openly the military phase of expansion since the Finns fought back. By the beginning of 1940 Stalin had informed German economic negotiators that Russia was less dependent for heavy industry needs on foreign countries and shortly would be capable of supplying two Germanys. Russia began exporting iron and other ores to Germany. By the spring of 1940, however, when the German blitz krieg outran expectations, Russian leaders saw that the pacts had not given them peace or a breathing space, but had led to a great strengthening of Germany. Parallel action by Russia with the west began, as Germany was still busy In the west. < « Russia seized northern Bukovina, but was halted by Germany from gaining control of the lower Danube. 22 In the Baltic states Russia suppressed workers’ attempts to seize factories, deported certain trade unionists and even ordered the shooting of unruly demonstrators. Pressure was put on Finland to gain the nickel mines of Petsamo. German leaders remarked that Russia sought possession of bases and control of Europe’s economic life. Where in 1918 the Bolsheviks had opposed elections under occupation armies, in 1939 and 19^0 Russia be gan supervising and voting in such elections. Bloe voting began. On the twenty-third anniversary of the Russian Revolution, November 7, 19^0, Marshal Semeon Timoshenko declared: ’ ’ Russia, has extended her borders, but we cannot be contented with what already has been achieved.”1° A few days later Germany offered to include Russia In a division of the world. This would have given Russia an outlet to warm seas through the Persian Gulf. Russia sought continued influence In Finland, bases in the Dar danelles, the Ears-Ardahan areas from Turkey, and increased controls In other areas. Hitler ordered plans for operations against Russia accelerated. Russia on November 25> 19^0 offered to accept the German proposals, if her conditions were met. Ger many made no further friendly reply, thereby denying Russia full access through the Baltic and Dardanelles openings. Basic to the relations with Germany were economic accords. Once these economic substrata are shown, there is little mystery about Russian foreign (and Internal) policy, nor are any special 1^ Facts on File, November 7» 19^0• 23 phrases about socialism, transitional society or communism required to explain what Russia is doing. Total trade with Germany may have reached from $155- $250-mlllion. Certain writers have concluded that the trade was more significant politically than economically. This is an error. Russia was supplying materials unobta.ina.ble else where. She was purchasing scarce products for Germany, crack ing the British blockade, trans-shipping commodities from the East and from America. Russian grain kept the German belly full^ Russian oil greased the German war machine. The exports came at a. strategic time, and Russia simultaneously guaranteed a solid wall in the East that freed Hitler*s hand in the west. When Russia would not grant great economic concessions and sought to move out along the paths of expansion she had indicated in conversations and raised in demands, Germany at tacked . Stalin had not avoided war through supplying Hitler. Nevertheless the pacts enabled Russia to emerge as the princi pal force in eastern Europe both politically and economically. This appears to have reversed the trend of importing technique and culture from the west, and to extending Russian influence outward. The expansion was not by revolutionary means through working class forces, but by arrangements with Hitler, and later by arrangement with those powers Russia had for long years called imperialist. Russia's own forces employed in expansion were military, political and infiltrationist but in 24 no respect revolutionary and representative of workers. V. THE POST-WAR EXPANSION War delayed further expansion by Russia, but the out ward thrust persisted. Approximately $ll-billion in aid from the- United States under lend-lease and other aid from Britain was received. In return Russia held the main land front for a long period against the Nazis. Germany was denounced for con ducting an imperialist war. In 1943 the Comintern was dissolved, ostensibly to reach better relations with the Allies. Seizures and looting. Once German armies were driven back Russia continued a course toward the working classes that she had begun In Poland, the Baltic states and Finland. Czech and other workers were disarmed and pro-Russian rulers installed. No revolution was called for in Germany, unlike the appeals of 1918-1923. An army of occupation was Imposed on many countries, violating earlier revolutionary dicta. Trade unions in occupied lands became part of the state appar atus for control of labor. Russia’s areal gains since 1939 have realized all her basic expansionist demands, with the exception of the two main warm water openings at the Dardanelles and Persian Gulf. Some 260,000 square miles of territory were added, and much more land controlled through Communist Party and satellite forces. The economic gains are the real measure of Russia’s conquests. 25 Among the techniques used were land and population seizure, extraterritoriality and transit rights, military bases and military occupation, indirect aggression and infiltration, Communist Party and secret police t rule, and decisively mixed state capitalist corporations, concessions and single monopo lies based on Russian capital export and economic dominance. Following the death or flight of former owning classes Russia and pro-Russian forces have set up their own controls. From the 1922-28 struggle .over how to accumulate capital, the Russians had learned a lesson that was applied in seizure of capital from abroad. Primitive accumulation of capital through force is a quite normal way of originating claims to ownership. Former owners were replaced not by workers but by pro-Russian forces. Property relations were not altered, and revolutionary actions were thwarted. No workers Soviets exist in adjoining lands, and Russia has opposed Sovietization and nationalization, although consistently favoring vastly increased state controls. The Russians, it should be emphasized, have nowhere said they share their newly seized ownership rights with German or other workers, or that a socialist ownership or socialist pro perty relations signifies that workers have a share in properties held by Russia. Instead, the gains from controlled industries go to strengthen Russia’s rulers. These forms and techniques of seizure and of ownership and control are not socialist but along traditional lines approaching Czarist mercantilism. The process 2 6 is not new, except that it is based on state trusts. Land division was accomplished not by the Russians but by the peasants themselves, as Russian economist Eugene Varga has admitted. It is a process opposite to land nationalization; and even this latter was considered a quite ordinary capitalist reform by Marx and Lenin. Under her interpretation of the Pots dam agreement of August, 19^5 Russia seized German external as sets. None of these reparations, plants and shares in German industry were shared in "communist" fashion with German workers; but in many cases were taken by the Russians against the massed resistance of German labor. Such Is the extension of "socialist" property relations to Germany! Almost 75 Pe^ cent of Austria's industry was taken over as former German assets. Other proper ties seized included, for example, materials from Manchuria which belonged to China, an ally and not an enemy country. Moreover, Russian armies lived off the land. They drew into Russia labor from occupied lands and seized war booty which was entered in no repa,rations account; whereas in 1918 the early Bolsheviks had called for no annexations, no indem nities and no stifling of national Independence. Total repar ations and war booty, along with labor seizures, a share of cur rent production, profits from single monopolies and mixed or joint corporations may be near $30-billion since 19^5* In beating back attempts towards nationalization in Austria, and towards working class controls elsewhere Russia has alienated 27 workers in many lands. Capital export techniques. Through her seizures of cap ital and her own fairly strong capital goods industry, Russia has reached a powerful capital export position on her borders. Those writers who deny this new-found power are thinking largely in terms of pre-1939 days and are usually unaware of the long- run tendency of Russia to export capital as far back as 1935 when a favorable balance of trade was gained. Also ignored are the economic pacts with Hitler as part of capital export growth. Poland received a $^50-million capital loan from Rus sia in 19^8. China was granted a loan of $350-million in 1950. The Russian state is an investor in most eastern European in dustries to the extent of several billion dollars. In their trade relations the Russians use bilateral trade agreements, giving her special rights and privileges and more favorable prices than other traders. Since Russia’s war losses are officially at least five or six times larger than all her booty and reparations gains, her capital for export can come only partially from seized capital assets abroad and mainly from her internal economy. Pood exports have been used to influence political conditions in neighboring countries. Sat ellite countries do certain kinds of purchasing in international markets for Russia. The five year plans nowhere state openly a relation to Russian economic expansion abroad. Yet oil production In the 28 plans Is set so low that only imports from abroad could meet the doubled and trebled estimates for production in other industries. Here is one reason for Russian penetration of Austrian and Rumanian oil and her attempt to gain oil from northern Iran. Russia has contracted to build some 2000 miles of railroads in Manchuria, works in Sinkiang, to reconstruct Warsaw, to provide tractors, machinery and motorized equip ment to border lands. She has expanded her merchant marine, which is already carrying most of her freight tonnage. To harness economies of neighboring countries to her needs Russia has set up state mixed or joint capitalist cor porations. These have been compared to the joint companies Lenin permitted within Russia under the New Economic Policy in 1921. Russia economy of those years was created by revolution, that in eastern Europe by an opposite process. Under HEP Rus sia was the field of investment for foreign capital; today Russia is the investor and foreign lands are the object of investment and profit extraction. Mixed state corporations exist in Rumania, Germany, Hungary, Manchuria and along the Dan ube. Holding 50 or 51 per cent of the shares, Russia receives an equivalent portion of profits. A stage beyond joint state companies is Russia's single state monopolies in land, plants and oil fields she has seized. A unified control of the Danube river exists. Instead of con cealing control behind native owners and dummy groups, like 29 earlier conquerors, Russia has ruled directly and publicly, later letting entrenched pro-Russian forces hold power. Enmeshed In ancient nationalist conflicts the Russians in their attempt to unify eastern Europe economically alienated the Yugoslavs, who opposed their role of colony and raw mater ials supplier, and sought to develop industries. Russia has established a broad economic countril for eastern Europe. Linking the various capital export tools are the Rus sian banks. At first the Russians sought to control banks in occupied lands. They poured printing press money into both occupied and friendly countries; the result was additional strip ping of the wealth of these countries. In comparison to the old Valuta plan for reaching a rough balance between receipts and expenditures in foreign exchange, Russia has become a pow er that receives much interest on investments abroad. Prom her foreign trade the Russian state has always drawn a profit. The Russians, apparently aware of the higher profit yield abroad, are not hesitant about taking advantage of their po litical and military position to cement economic controls. Moreover, the Russians have to fill the economic and political vacuum with capital or watch satellite lands purchase goods elsewhere. - VI. IMPERIALISM AND REVOLUTION In renouncing expansion by imperialist means, the early 30 Bolshevik leader Nikolai Lenin had written in the 1919 program: Let us Imagine what would happen if the workers * Soviets of Great Russia were to attempt by force of arms to coerce the working class of other nations into sub mission. The latter would mean the complete collapse of the whole of all proletarian movements and the fall of the Revolution. Lenin was not like the myriads of liberals who came to Stalin’s support later when Russia had become nationalist and conserva tive. Under Lenin expansion was by revolutionary means. Under Stalin expansion was through state capital export, complemented by military conquest which Lenin had prophesided would mean the fall of the revolution. Stalin well understands the nature of imperialism, not alone from the work of Lenin which placed the export of capital at its base but from his own statements and actions. In a speech on November 6, 19*H* Stalin declared: The Germans are now waging a war of annexation-- an unjust war for the seizure of foreign territory and the conquest of other peoples . . . /the Russian a,rm27 is not waging a predatory imperialist- war but a. patriot ic war, a war of liberation. This was not a revolutionary war. In other speeches Stalin declared that Germany had seized foreign lands, sucked out profits and conquered peoples. But in speaking of the liber ating mission of Russia’s armies in various lands, Stalin included as Russian those lands to which Lenin in 1917-18 had granted independence. Under the guise of a patriotic war of liberation the entire program of expansion since 1939 "was to be continued on the basis of state monopoly trusts and modern 31 mercantilist relations of state regulation of other economies. Towards revolution the Russian state has shown an intol erance that has meant destruction of all efforts by workers to control their own affairs. Di s-e stab1ishment of the Junkers in Germany was not a socialist measure, many writers have shown. Throughout Russian-led areas no workers representation or con trol exists, nor do workers share in Russia’s seizures of pro perty and in profits that swell'Russia's economic gains. The forms of military occupation so bitterly fought by the early Bolsheviks have shown that the methods of expansion are those of a system of economy that has not gone beyond Imperialism but has reverted to mercantilist mechanisms. Russia’s attitudes toward unions Is an extension abroad of labor controls within Russia. Criticism, demonstrations, a labor movement separate from the state, all are forbidden. Revolutionary extremists have been quelled. No Sovietization has occurred and nationalization in many cases has been fought. Russian nationalism has replaced internationalism. Within Rus sia major changes in economy have occurred as ’ ’socialism In one country„m the earlier expression of nationalism failed, and in place of self-sufficiency the Russian state sought to gain dominance over a section of the world market. The great Russian Revolution was over. Prom the proscen ium of the Bolshoi theater was removed the sign, ’ ’ Workers of the World, Unite!” CHAPTER II THE INTERNAL ECONOMY i The Russian constitution of 1936 declares that socialist principles are the fundamental law. Immediately this creates a problem in nomenclature, since most people accept declarations of socialism at face value. Statistics which are incomplete have been either sharply criticised or completely accepted as evidence of a growth curve greater than that of other socie ties. Arguments from the standpoint either of statistics or state pronouncements are overly attentive to the printed word and are insufficiently concerned about social relations lying behind outer appearances. Between the paper declarations and reality, form and content, legal and extra legal apparatuses, there is a wide gulf. Indeed, were the Russians more skilled In the propagandistic presentation of statistics they would have used figures to establish whatever point they wished. Since the test of the claims has to be made socially, the em phasis of this work is on the real, underlying social relations. I. THE PRODUCTION SYSTEM Russia has a commodity and price system of economy. Voznesensky declared that Russia Mhas its own form of commodity exchange," and that "the exchange of goods . . . represents an exchange of commodity values," although he insists on calling 33 this “socialism.1,1 Under War communism commodity production had been largely ended and goods rationing on a level of starvation instituted. The New Economic Policy reinstituted commodity production or production for a market, and the five year plans although replacing the system of KEP continued com modity production, money, wage labor, interest, bonds and pro fits . Lenin had called HEP a form of state capitalism, under workers* control. In the later production system the workers, as will be shown, were to lose this control. Since the Russians for some time have contended that their system is founded on Marxian economics, it is instructive to see that Marx called production relations based on commodity production and money ' “human self-alienation” of the worker and the "fetishism of commodity production.” By this he meant that what appeared in the market as a relation between tilings, com modities, was in reality a relation between laborers, concealed by the form of production and exchange.2 Concerning this, En gels had written; The seizure of the means of production by society puts an end to commodity production, and therewith to the domination of the product over the producer.3 1 Nikolai A • Voznesensky, The Economy of the USSR Dur ing World War II (Washington; Public Affairs~Fress, 19£8J, pp. 727 88. 2 Karl Kgi’ sch, Karl Marx (Hew York; John Wiley end Sons, Inc., 193o), pp. 1$0, 157, 131. 3 Karl Marx, selected Works, Vol. II (Moscow; Cooper ative Publishing Society, 1936)> P* 185. 34 Law of value. Voznesensky has written that the law of value exists under "socialism® in Russia, that monetary ac counting is necessary, that value is "based onecost of produc tion and may differ from price because of the state plan. He wrote, “socialist planning . . . is in itself a social law of movement and development of the economy."^ But Heymann said: . . . leading Russian economists have reconsidered the teaching of economics in the Soviet Union . . . some capitalist ingredients which have sneaked in the back door of the Soviet state socialism in recent years are now being legitimized by this official pronuneia- mento. For instance, the status of capital accumulation, prices, taxes, and also economic laws as operating within the soviet system are now recognized.5 Yet Marx himself had said that the law of value he es poused applied to capitalist economy only and to no other. ^ see Voznesensky, op. cit., pp. 88, 86. 5 Hans Heymann, We Can Do Business With Russia (New York: Ziff Davis publishing Co., 19^5), P• £17• Basis of Marx's reasoning was not only that commodity production,would disappear but that production would reach a condition of such great abundance that no reason for 1 1 economy" or conserving and allocating scarce resources would remain; all goods would be come free goods in place of economic goods. Korsch wrote, “Political Economy, then, according to Marx, is a bourgeois science. This applies even to Marx's own contributions . . . Marx fought to the end against the mistaken idea that his economic analysis of Value applied to any other than bourgeois conditions.® See op. cit., p. 91. Nikolai Bukharin wrote, “political.economy as a science can have as its object only a commodities soeiety--a capitalist society . . . In a socialist society, political economy will lose its raison d'etre . . . for the relations between men will be simple and clear, the fetishist objective formulation of these relations will disappear. See The Economic Theory of the Leisure Class (New York: international Publishers, 19277* p. Each society has its own laws, Marx had written repeatedly. 35 To replace the law of value/planning has in the past been called the socialist answer to production organization. Pre- obrashensky had noted: It follows that in so far as the allocation of pro ductive activity is brought under conscious control, the law of value loses its relevance and importance; its place is taken by the principle of planning.° But he admitted that the law of value was only limited and not fully replaced in the Russia of the 1920’s. Planning. Bobb considered that planning replaces the market as the "coordinating mechanism of the economy.”7 But Voznesensky showed the great pressure production for a market (including the world market) has on state planning: The existence of reserves in production and distri bution provides for a stable planned character of de velopment of the national economy of the USSR. Without reserves the law of value unleashes its elemental prin ciples .o Planding is widely held to mean the final elimination of economic crises and problems of instability. In the Russian economy of commodity production the planning frequently re mains largely on paper. Planning in the individual plant "is in many ways quite similar to the planning of production 6 Paul M. Sweezy, The Theory of Capitalist Development (New York: Oxford University Press,~T942), pp. 53 - ^ > quoting from E. Preobrashensky's work, The New Economics (published in Russia, 1926), p. 11. 7 Maurice Bobb, Soviet Economy and the War (New York: International Publishers, 19^3)» P• 36^ 8 see Voznesensky, op. cit., p. 91• 36 by the individual capitalist entrepreneur,” Bienstock re ported. Stalin informed the fifteenth party congress, "Our Plans are neither predictions nor conjectures; they are di rectives.” Moreover, Bienstock declared that after 19^0: Leaders of Soviet planning came to the conclusion that *we have not as yet achieved a real economic plan and a full guarantee of its fulfillment." (Becree of April 16, 19^0; pravda, April 18, 19^0). "Our plan ning,” complained L. Meizenberg, an outstanding plan ning official, "is still to a great extent clerical and statistical work, absolutely divorced from econ omic practice. Yugoff wrote elsewhere that Russian economy is "state- operated . . . but it is not an economy operated under a planning system, with coordinated constituent parts, with a harmonious development free from crises." A "managed economy,” he said, "is like a war economy," but it lacks the ability "to foresee." The first five year plan did not foresee intro duction of card rationing, ending of unemployment, collec tivization of agriculture, nor the "inflationary 'dying out of money.1" Hot foreseen by the second plan was creation of private peasant homesteads, reduction of rationing for a time, "nor the building of the whole system of government finance on the basis of revenue from the 'price mechanism.'" Plan three did not foresee the role of Stakhanovism, the increase of the working day from seven to eight and more hours and forced 9 Gregory Bienstock, Solomon M. Schwarz and Aaron Yugoff, Management in Russian Industry and Agriculture (Lon don: Oxford University Press, 1944;, pp. 53, 55, 56, quoting from Stalin and from "On the Economic Plan," in Planned Econ omy, 1940, No. 10, p. 12. 37 increase of the labor force.1° Russian economist Eugene Varga argued that the so- called capitalist ’ ’ anarchy of production" had changed during the war when it was "imperative to assure the output of such and such an amount of steel, such and such an amount was needed for the army, so much for the rear.”’ * ' 1 Other economists denied this was planning. Who does the planning, how it is done (whe ther democratically or from the top) and for whose benefit are the real tests. Unfortunately Russian declarations have it that even shortages are planned, because of emphasis on produc tion of goods for heavy industry. This makes planning a pecu liarly slippery phenomenon to describe or examine. War economy. Socialism even to the Russians is not one uninterrupted swing upward of production, although they deny the existence of crises in Russia. The war period was characterized by Voznesensky as "a special period of socialist economics, a period of war economics."12 A war economic plan was drawn up on August 16, 1941 to relocate industry to the east and to intensify war production. But Yugoff had repeated that Russia "is like a war economy,” and Bean that economy was geared for war, and that most of heavy industry was war 3-0 Aaron Yugoff, Russia1 s Economic Front for War and. Fea.ce (New York: Harper and Bros., 1942), pp. 237/ £39» 24l. 11 Eugene Varga, soviet Views on the Postwar World Economy (Washington: Public Affairs Press, 1948), p. 6. 12 see Voznesensky, op. cit., pp. 1, 22. 38 industry even before the second world war.13 Varga was denounced by his fellow Russian economists for stating that war economy in the United States was highly regulated. Others have shown that in a war economy unemploy ment can disappear largely, as in Russia. II. PROPERTY RELATIONS AND CLASSES Russian writers contend that their country is socialist because exploiting classes and private ownership of the basic means of production were abolished. Nearly 90 per cent of all productive property is held publicly and approximately 9 per cent cooperatives, leaving a small fraction for self-employed and persons whose incomes come from inheritance o r ; . other funds. Molotov put the number of intelligentsia in 1937 as less than ten million and together with their families a,t 14 per cent of the population. Leading authorities on Russia dispute whether workers and their children are blocked from advancement to high er positions. All agree that intelligentsia, workers, peasants and certain government officials are distinct groups. Management and classes. Russian plant managers have no control over policy and are like managers in the United States Post Office. They are the instruments of policy, not determines. 13 see Yugoff, op. cit., pp. 237* 239* 2^1; and Vera M. Dean, The United States and Russia (Cambridge; Harvard Uni versity Press, 1948),p. 91* See Bienstock, oj). cit., p. xvil. 39, Classes are determined, according to the Russians, by their ownership and or control over the means of production, role in the production process and relation to appropriation of the fruits of production. Yugoff who denies that Russia has new possessing classes writes: That social stratum which personifies, represents, and sometimes even takes the place of the government has assumed definite form. That is the upper crust of the party and soviet bureaucracy . . . which . . . decides in what amounts and for what purposes the ac cumulated national savings shall be used.15 He shows that these groups receive large salaries, use a disproportionate share of the surplus of industry and agri culture, and concludes that the state bureaucracy "is not a class but it represents a materially privileged social group" from which a class could develop as "new possessing classes have often sprung from the ranks of the government bureaucracy. ” Yugoff failed only to note that the Russian state bureau cracy is part of a class, standing in a quite definite relation of dominance over the main means of production, non-performance of labor usually and receipt of a heavy share of new values cre ated in the economy. The various evidences of separate stores, social inequality, revival of rank in the army and the possible change of state bureaucrats into a new ruling class are but facets of the problem. Those who imagine that a state monopoly economy is monolithic will be much disappointed by Russia, where various classes exist. ^5 see Yugoff, op. cit., p. 258, ff. 40 So long as one group controls state property and reaps benefits from it, while another group labors to produce commod ities, the basis for inequality and exploitation exists. Con cerning this phenomenon Marx had written: Just as at a given stage in its development, com modity production necessarily passes into capitalistic commodity production . * . . so the laws of property that are based on commodity production^ necessarily , turn into the laws of capitalist appropriation . . .^6 Just as the state capitalism of mercantilism broke apart into various classes, so the highly state monopolized trusts of Russia have, while never eliminating different classes, begun to separate into distinct classes, with the rulers of the state fused with the rulers of industry. State capitalism. Russia has been called "socio-cap- italistie,” "state capitalism" and the opposite, a "new cap italism," "qua,si-socialism" or "state-influenced or controlled capitalism" as frequently as Russian writers call it socialist. Trotsky denied state capitalism could exist as a social organ ization, thereby agreeing with many pro-Russian analysts. By and large most of these views have ignored Russia’s own economic development. Writing of how Russian industry "from the first worked in close dependence on the state" and "was directly fostered and supported by the state, mainly in the interests of military efficiency," Carr declared; 16 Karl Marx, Capital, Vol. I (Chicago: Charles H. Kerr & Co., 1906), p. 639* See also pp. 624-5. 41 At the moment of the introduction of the first Five- Year Plan, Stalin appropriately recalled how ”peter the Great, having to deal with the more developed coun tries of the west, feverishly built factories and work shops to supply the army and strengthen the defense of the country.”1' TOien writing of differential wages and the low standard of- living in Russia, Hubbard explained: . . . in most material things the Soviet worker is in the same position as his capitalist opposite number. In theory he may have an infinitesimal share in the country’s means of production; but in practice he is just a hired hand in one of the many State enterprises liable to penalties and dismissal. According to Trotsky, ”state property becomes the pro perty of the whole people only to the degree that so cial privilege and differentiation disappear, and therewith the necessity of the state.J,1o A single capitalist. Economists of Russia openly and even carefully call their durable instruments of production ”capital,” just as earlier Marxian writers had. To establish whether capitalism, under a state monopoly and resting on national trusts and multi-layer trusts, exists h Russia it will be necessary to show earlier views of the possibility of such a development. Marx who called capital Ma, social relation between persons” wrote: . . . Centralisation in a certain line of industry, would have reached its extreme limit, if all the indi vidual capitals invested in it would have been amalgam ated into one single capital.19 !’ T Edward Hallett Carr, The Soviet Impact on the West ern World (New York: The Macmillan "Company, 1'9WX7 P • ^ Leonard E. Hubbard, Soviet Trade and Distribution (London; The Macmillan Company, 1938)» P* xi. 19 See Marx, op. cit., p. 687. 42 Engels developed this thought further: In one way or another, with trusts or without, the official representative of capitalist society, the state, is finally constrained to take over the management of production . . . . . . state property shows that for this purpose the hourgeoisie can he dispensed with. All the social functions of the capitalist are now carried out hy sal aried employees. However, Engels differentiates: . . . neither conversion into joint-stock companies and trusts, nor conversion into state property deprives the productive forces of their character as capital . . . The modern state, whatever its form, is an essentially capitalist machine . . . The more productive forces it takes over, the more it becomes the real collective body of all the capitalists, the more citizens it ex ploits. The workers remain wage earners, proletarians. The capitalist relationship is not abolished; it is ra ther pushed to an extreme . . .20 Under Czarist mercantilism the state managed production as state property under a state monopoly, but without trusts. Today Russia has added trusts and modern financial controls. The individual capitalist is dispensed with in Russia, as he was subordinated under Czarism. Although Engels does not write of this, the individual investor has persisted, and state cap ital or accumulation of capital through the state arises from bond flotation, the surplus of production, the turnover tax and other taxes. State capitalism can go beyond other forms of capitalism only if the state is really "revolutionary-democratic," Lenin wrote. Nationalization, Yugoff said, is not always socialist: 20 see Marx, selected Works, op. cit., pp. 178-9- 43 Private property has indeed been abolished, but instead of the means of production being socialized they have merely become state property. The manage ment of the national economy as a whole and of indiv idual industries and enterprises is not in the hands of organized elective economic organizations nor of self-governing workers' cooperatives, but of the bur eaucratic apparatus of the state . . . all are decided by government bodies without participation or control by the workers. Workers have no control in Russia, and a school of writers maintains that Russia is similar to a huge state corporation with the working population on its payroll, although this gives a false appearance of monolithism. Like the state monopoly economy of mercantilism, Russia today has resurrected the old form on a base of multi-layer trusts. The Russian politico- economic system may be termed state monopoly capitalism. III. COLLECTIVE FARMS A peculiar element Is the collective farm, which is neither collective nor socialist but appears to be a semi- cooperative colony. . Under Czarism before the first world war there were 4,700 cooperative societies in agriculture and ap proximately 11,000 rural consumer cooperatives., with a member ship of more than two million persons. When the first five year plan was adopted, the problem of raising capital was discussed in relation to farming. The capital required, said Bienstock, "could be obtained only from the villages and only on 21 Yugoff, op. cit., p. 255. The reform of nationaliza tion has occurred even under Nazism and Fascism. 44 condition of their rapid economic development.1,22 This was only one means of raising capital, as the debate on primitive or original accumulation showed. But it was used, and the pea sants were treated roughly as a ^colony.” Today collective farms employ more than 93 per cent of the peasants. Property rights. The first collectives had a more or less equal distribution of income, plus a distribution in pro portion to invested shares for five per cent of income under a decree of April 13* 1930. This was abolished in 1935* A piecework system of payment in terms of work days was adopted under a decree of March 1, 1933* There is, of course, a cer tain competition between collectives, with members sharing out of increased income. A collective farm has been called a cooperative farm in which peasant families pool land and livestock, while holding a small acreage for truck farming. It has also been termed quasi-cooperative, and distinction is made to show that on a state farm ownership and management belongs to the state which employs agricultural laborers, while collectives employ their own members. There is an absence of private property in the instruments of production, social organization of production and piecework in place of payment by shares or investment. Still, during the war ruble millionaires arose on the farms. 22 Bienstock, op. cit., p. 133* 45 Cooperative elements such as common use of land and working together still do not gainsay the absence of any real producers1 cooperation in joint ownership of the basic instru ments of production, such as tractors, combines, threshers and other machinery. In 1930 instead of permitting cooperatives to have their own tractors and other machines, the government set up machine tractor stations. For a short year they were organs of the collectives, but in 1931 they became "joint” enterprises of the collectives and the government, and in 1932 they became solely government organs. Collectives now have to purcha.se machine tractor station services under con tract, for a fee. The state is the owner of all important rural instruments of production. As a result the collectives instead of owning their own machinery or being in joint partnership with the government have become dependent on the government. Moreover, these instruments of production are nearly all outside the collective, and there is no unified economic collective but a division of function which gives the government the real power over the collectives. Thus the state is the main partner in the div ision of the products of the collectives, and has the first claim on production, with the peasants being residual claim ants. In 1939 the government received 3^ per cent of the crop.23 23 ibid., pp. 135, 173-1 *. Parenthetically it may be ob served that entry by collectives into ’ ’ partnership” with the state led to single state monopoly of machinery and dependence of the collective on the state. 46 It Is instructive to compare this steady evolution to ward state dominance and reaping of the surplus to Lenin’s de claration that, ”The cooperatives are also a form of state cap itallsm.w2^ He was referring to the types of state capitalism existing in Russia in 1917* and after. The collectives have, however, meant an end to crop failures of serious size since the disastrous famine of 1932-33• IV. LABOR RELATIONS Hubbard wrote that the Russian worker and the ordinary capitalist worker both hire themselves out, the latter to a private capitalist (or government, as In civil service), the former to the state: A purely objective and dispassionate examination of the position leads to the conclusion that Soviet workers are wage earners In the ordinary sense of the word, that they are employed In enterprises that are the property of the state, and that this Is not by any means the same thing as the property of the working community. The relations between workers and managers much more resemble those between employees and employer than between co-partners or co-workers in a joint undertaking.25 Trade unions. By 1929 union leaders were purged and men drawn mainly from the party apparatus were placed in control. Union hiring halls and workers' plant committees 24 Nikolai Lenin, Selected Works, Vol. IX (New York: International Publishers, 1936)", pp. 182, 185 • 25 Hubbard, op. cit., pp. 319-321. 47 were steadily subordinated to the influence of the plant man agers, who by 1931 were given the right to hire and fire with out reference to the union. As collective contracts of the 1920*3 were dropped, union control over wages and working conditions vanished. By 1935 collective bargaining had com pletely disappeared. Trade unions were "nationalized,1 1 their functions being merged with the Commissariat of Labor, their aim being to increase production. There would be no international controversy with unions elsewhere, Turin wrote, "if the Russian trade unions had been renamed 'Workers,1-or what is perhaps much better, 'Producers* Associations. Thus Russian -unions are government organs. Strikes are not illegaly, they are unthinkable. Unions per form functions which in other countries are done by ordinary state bureaus, such as attending to social insurance, adjusting piecework norms, welfare activities. The influence of unions and of plant committees on the state has dwindled to nothing, has literally withered away. As Yugoff put the matter: . . . the workers have not become the masters of the tools of production. They neither manage them 26 s. p. Turin, The U.S.S.R. (London: Methuen and Company, Ltd., 1948), p. ’ 536” Compare this to the story by Walter Bedell Smith in his My Three Years in Moscow (New York: J. B. Lippincott Company, 1^50), p. 122: '"Harry Hopkins . . . told me that during one of his early discussions with the Gen eralissimo on Lend-Lease, he answered a complaint by Stalin about slow delivery of certain items which had resulted because of strikes in the United States. Stalin raised his eyebrows. "'Strikes?* he asked, 'Don't you have police?*" 48 themselves nor through their representatives--their role in the economic process continues to be that of selling their labor power, of hired men working for wages.27 Russia's worst failure, it has been said, is this withering of popular participation in political and economic control. Piecework wages. Abolition of the wages system at least as a tendency is totally absent in Russia. Yet it was the key demand of Marx for ending capitalism. Instead of the worker receiving a share in the joint product of all labor, he is paid an individual wage. Hor can such benefits as social in surance and pensions provide a share of the "social dividend,n for these exist in avowedly capitalist countries, whose so cial security measures are more advanced than those of Russia. Incentives in Russia are not superior to those under capitalism. They are differential piecework wages on a pro gressive scale, combined with awards and patriotic drives and prestige devices. Marx, the father of revolutionary socialism, had declared; Piece-wages become . . . the most fruitful source of reductions of wages and capitalist cheating. A customary trick is the selecting of a man who possesses superior physical strength and quickness, as the principal of several workmen, and paying him an additional rate, by the quarter or otherwise, with the understanding that he is to exert himself to the utmost to induce the others, who are only paid the ordinary wages, to keep up to him. 27 Yugoff, op. cit., p. 255. See also Louis Fischer, Gandhi and Stalin fRew York: Harper and Brothers, 1947), p. 31. . . . piece-wages is the form of wages most in har- money with the capitalist mode of production . . .2o In place of the old revolutionary slogan of distribution of products according to **need,M Russian leaders substituted dis tribution according to wwork.t t Piecework wages have been condemned not only for their use in increasing intensity of labor but also because they continued and accentuated the division of labor that reduced work to monotonous tasks. For example, Marx had written: . . . there can be no doubt that when the working class comes into power . . . technical instruction, both theoretical and practical, will take Its proper place in the working-class schools. There is also no doubt that such revolutionary ferments, the final result of which is the abolition of the old division of labor, are diametrically opposed to the capitalistic form of production, and to the economic status of the laborer corresponding to that form . . .29 Differential wage scales, according to Yugoff and others, show a wage spread of one to twenty for different categories of labor. Piecework was applied on collective farms too. Already some 85 per cent of all workers In large-scale industry are on incentive wage systems, either on straight piecework, progress ive piecework, or on time payment with bonuses for efficiency. Stakhanovism, or the piecework system evolved since 1935> have forced a rapid increase in the working pace and the rise of a workers1 aristocracy of notables. Marx, Capital, op. cit., pp. 605, 606, 6o8.- 29 ibid., p. 53^. 50 During the war years, according to Voznesensky, progres sive piece rates and bonuses in conjunction with time rates were greatly extended, along with additional material incen tives : The share of bonuses in the total earnings of en gineering and technical personnel increased from 11 per cent in 1940 to 28 per cent in 1944, and in the earnings of workers--from 4.5 per cent in 1940 to 8 per cent in 1944. . . . The wide application of bonus payments . . . was a very important additions, 1 stimulus for the growth of the war economy . . . This positive experience of the war economy is also being applied during the post war period . . .30 These types of payment to labor indicate that the workers1 share in the social product is not increasing in relation to that of other groups: the wage spread instead of decreasing is being intensified. Moreover, interest on holdings such as bonds is increasing. Relatively state-free labor unions would combat such piece rates. However, in Russia new industrial leaders are taught that "to strive for social equality would be mere petty bourgeois leveling," Bienstock wrot’ e.31 wages are closely tied to price fixing and rationing, which are treated separately. 3° Voznesensky, op. cit., p. 69* 31 Bienstock, op. cit., p. 121. He added: "soviet La bor Law, a college textbook" . . ., describes the tendency to equaTT£e wages of skilled and unskilled workers as a feature of capitalist countries, and emphasizes the socialist character of wage differentials; ’petty bourgeois egalitarianism in wage policies is the worst enemy of socialism.1" A theory of an elite has been evolved to fit differential wage payments. It may be asked, how much farther under this species of "socialism" can progressive piecework progress? 51 Different categories of labor receive different rations and in some cases a different diet. Consumption of non-essen tial and even of luxury goods Is encouraged to stimulate the quest for higher wages. While a seven-hour working day is legal, piecework payment and overtime work make the average working day about nine h o u r s .32 Forced labor and unemployment. In a war economy prob lems of unemployed workers are reduced. A decree of 1931 had abolished unemployment and specified that people would have to take the jobs offered them. This "abolition" of joblessness has been called a mass conscription of workers, and stronger expressions. All available labor may be employed. Whether labor is working at producing something of real value and is earning a living wage is another matter. The ranks of the army, secret police and state.hold a large number of potential laborers. Without any real trade unions to defend them, workers in Russia labor for a wage little removed from starvation, except for Stakhanovists and pace setters. There is a. difference, however, between ordering workers to remain at one job and prison and so-called slave labor. "Re-education" of persons called criminals is done primarily through hard labor. Many projects, such as the Baltic-White 52 see “Turin, 0£. cit., p. 237* Thus the "carrot and stick" Incentives of old are employed, the carrot to entice more effort, the stick to operate where the carrot fails. x. 52 Sea Canal were "built by prison labor, mainly jailed ex-Kulaks. Several millions of prison laborers may be employed in such public works projects. Under a law of 19^0 a "Free Labor Force” was established for mobilizing youth for work in industry and transport. Con cerning such developments, Yugoff objected that compulsory mob ilization is ’ ’ bound to fail, since forced labor is incompatible with high productivity.”33 V. MONEY AND BANKING Stalin in 193^ had ridiculed the "nonsense” that money was not needed and that trade was "obsolete." When the third five year plan announced socialism had arrived, Yugoff wrote: The Soviet economy is a money economy . . . every product constitutes a market’commodity not only in the export trade but in the internal market . . . Question of cost of production,. price, credit, and capital accum ulation continue to exist and all government undertak ings are conducted on principles of cost accounting - . on the financial side . . . known as ruble control.3^ Russian economists call money the main Instrument for redistribution of the national Income. Money exchange is de termined by the government, which is the largest single buyer. 33 Yugoff, op. cit., p. 309. Of such labor relations, Marx had remarked; "The Roman slave was held by fetters: the wage-laborer is bound to his owner by invisible threads. The appearance of independence is kept up by means of a constant change of employers, and by the fictio juris of a contract." See op. cit., p. 628. In Russia workers cannot change employ ers; contracts and collective bargaining no longer exist. 3^ Yugoff, op. cit., p. 1^1. Ruble shifts. By a decree of December 14, 1947 the Russian government ”confirmed the well known fact that during the war the amount of money in circulation in the U.S.S.R. 'has considerably increased.'”35 Rationing was reintroduced to absorb excessive purchasing power, and multiple pricing was begun, with prices in state-owned commercial shops and on the limited free market four or five times higher than for rationed goods. Paper money was exchanged at the rate of ten old rubles to one new one, depending on different amounts held in banks by individuals. Farmers were the heavy losers in the financial reform, as they had been the main gainers during the war years. Prices remained high, with the consequence that for the worker to earn more wages he had to produce more. On February 28, 1950 the government put the ruble on a gold basis, increased its value and announced price cuts of from 10 to 49 per cent. > But the theory that a 'planned' econ omy could avoid inflation had received a serious shock. Voz nesensky admitted the increase of currency, circulation was 2.4 times and that it was impossible to avoid currency issue dur ing the war economy period. He declared: Currency issue was one of the sources of financing the Patriotic War, although Insignificant in comparison with such sources as profits and the mobilization of the means of the population. . . . Money, as the medium for payments and savings, ' 35 current History, July, 1948, pp. 33-4. see also The Economist, December 2d),~ 1947 • 54 carried out-the mobilization of the savings of the working people for the needs of the Patriotic War.36 The currency reform of 1947 and the ruble shift of 1950 struck at illusions about economic stability and money less economy. The decree of December, 1947 stated that the currency reform would increase "hhe importance of money” in the national economy. Crises in money heralded underlying maladjustments, such as commodity and labor shortages, specu lation on grains and bonds, excess profits, black marketeering, capital shortages, and pressure of the world market. Attempts at state managing of the currency began in 1931 when a budget was drawn up in terms of 1913 rubles, with a sliding scale of conversion into current rubles, based on a monthly price index. When the currency was stabilized.in 1924 this system disappeared. Under the five year plans managed prices assumed as great importance, if not greater than managed currency; a price index became practically meaningless, and it was no longer issued. 30 Voznesensky, ojd. cit., p. 83- Yet Heymann wrote, "in a planned economy . . . inflation can be mastered through the organization of supply and the fixing of prices.” See op. cit., p. 133- Attempts at regulation are not planning. The """state theory of money” of G. F. Knapp hardly applies to Russia since repeated ruble shifts and inflation indicate the state does not really control the entire monetary system but is influenced by market conditions, production, and the world market, see The State Theory of Money (London: The Macmillan Company, 1942), p . 1." Wherein do Russian monetary controls under her war econ omy differ from the war financing elsewhere? Halm lists the techniques as monetary controls, taxation, voluntary and forced loans, wage stabilization, price-fixing and rationing.. See George H. Halm, Monetary Theory (Philadelphia: The Blakiston Company, 1942), p . 328.' 55 Changes in the ruble were made at least in 1921, 1922, 1924, 1935* 1936, during the war years of huge currency issue, and in 19^7 and 1950. There may be other changes, but Russia has had far from a stable currency. The internal ruble has been separated from the ruble used in foreign exchange, which has a gold value. Internally Russian currency was no longer redeemable in gold, after March, 1926. Until 1950 the rate of exchange in foreign commerce was pegged to the dollar, one dollar being taken as equal to 5.30 rubles. Price-fixing. There are many different prices for the same commodity in Russia, which has never realized any broad, single state market. Yugoff considered that "prices in the markets are determined by supply and demand,1' with the govern ment "as the owner of the great bulk of the market commodities and as the biggest buyer, as well as through legal and admin istrative measures,” able to "influence the price level. . .”37 The existence of different prices for the military and even for different ranks within this grouping, and for the var ious other ranks of Russian society, is "planned." ¥hile the state has a monopoly of price determination, it uses the mon opoly for purposes which are not at all socialist. The relation between price and reduction of cost in a state monopoly based on multi-layer trusts is demonstrated by Bienstock: 37 Yugoff, op. cit., p. 132. 56 Price ’does not represent the money equivalent of the cost of production. It is the main instrument for the redistribution of the national income’ . . . Accor dingly, reduction of cost does not ultimately result, as under free competition, in reduction of price. In an even more absolute way than the monopolistic corpor ations of the ca,pita.list countries, the soviet State may keep prices unchanged despite reduction of cost: State monopoly is complete. Reduction of cost may, therefore, wholly or in part, result in increased plant profits and State revenue, instead of in lower prices . . .38 Bienstock writes that the three main complaints against capitalism, namely, monopoly, unemployment and privileges are matched in Russia by this failing to sell at cost and by add ing sales (turnover) taxes to fixed prices. Nor Is capacity fully used or properly employed compared with consumer desires. On their part Russian economists contend that capitalist coun tries have much unutilized capacity, even during war. Russian state controls over prices establish that her economy is far from being free of the price mechanism. An increase of goods might eliminate most of the need for such controls, but this the government proposes only on paper. Rationing. The rationing of War Communism was a dis tribution of scarce products. Rationing of bread began again at the end of 1928, and was later abolished but reinstituted for this and other products. Administrative and bookkeeping expenses were enormous, but the emphasis of theY;plans was on heavy industry production and not on creation of consumption 38 Bienstock, op. cit., pp. 83-4, xxiv. 57 goods for raising the standard of living of the population. Bobb has argued that when there was a small supply of goods ra tioning was an efficient way of dividing available supplies. With the passing of certain shortages an alternative method of bridging the gap between selling prices and costs so that too much funds would not remain in consumers1 hands was the turnover tax, which diverted such funds to the state budget. He sugges ted that permitting prices to rise would have drained off sur plus funds as readily.39 This device too was employed. Some small rivalry In consumer shops exists. Fixed turn over periods for retail trade ensure that consumers goods are kept on the market until sold. While middlemen are largely ab sent, except for second-hand dealers, there Is no one system of trade or rationing. Government-conducted trade is separated from consumer's cooperatives, and workers1 supply in Industry. Government officials purcha.se rationed foods at prices below that of other segments of the population. Black markets in rent, food and clothing, whereby better-paid groups have a superior living standard, hardly demonstrate the attainment of socialism. Voznesensky declared that during the war economy period the nature of trade and organization of supply underwent a "material change." Rationing of consumers’ goods and foodstuffs 39 Bobb", op. cit., p. 90. This might have resulted in a scramble for materials and labor by different trusts that would have dislocated the plan, Bobb contends. 58 was reintroduced, differential rationing instituted and work ers' supply in enterprises organized. The war merely continued earlier tendencies towards selective rationing in favor of the §lite. ' Banking. The state Bank (Gosbank) established on Octo ber 12, 1921 is the principal bank, having more than three thousand branches. It is the only bank of issue. Short-term financing is provided and government loans issued to absorb savings and finance industry. The national budget practically coincides with the national income, emphasizing the identifica tion of state with economy. When providing loans to industry, the bank participates in the profits and is allowed by the government °an interest rate to cover the operation expenses," or administrative costs.210 Interest from industry is two to four per cent yearly. Four specialized banks for long-term financing cover industry, agric ulture, municipalities and housing, and commerce and foreign trade. Loans are extended up to forty years and pay interest. Bank reserves include money and gold, and also silver and platinum. The State bank receives its funds from deposits of government and budget funds, issuance of notes, industrial and trading enterprise deposits, savings, and its own capital. 2 1 : 0 See Heymann, op>. cit., p. 13 Joseph A « Schumpeter noted, "It would hardly do to accept such measures as the na tionalization of the Bank of England--the Imperial Bank of Russia, was a state bank--as proof positive of socialist inten tions ." See ^English Economists and the State-Managed Economy," Journal of Political Economy, October, 19^9, p. 373. Savings banks "accept savings, pay low interest rates thereon, and. carry out commissions of their depositors for the purchase of government bonds.The number of banks grew from 16,000 in 1929 to 41,000 in 1940, with deposits rising from 315-®iHion rubles in 1929 to 8.8-billion rubles in 1940. All workers are expected to purchase internal state loans. Savings bank depo sits pay three per cent interest, or five per cent if deposited beyond a six-month period. The depositors1 money is made available to the national treasury through the savings banks purchasing of government bonds. In recent years with the encouragement of private build ing of houses, individuals are granted credits by the state bank for such construction. Loans extend for five years, and interest is 2 per cent yearly. Those with larger incomes can obtain housing superior to that of the average worker. With government undertakings operating "on a commercial basis, to buy and sell and work for a profit,*1 Yugoff wrote, the role of the banks increased greatly. "Credit is granted for commercial operations,*1 approved by the Gosbank. In place of the promissory note there is "settlement through banks by check. *"^2 ^1 Yugoff, oj>. cit., p. 148. 42 Ibid., p.* 146. John Steinbeck commented on how sur prised a farmer was that the American government "lends money to farms . . . they seemed to think that they had. invented the system themselves." See A Russian Journal (Hew York: The Viking Press, 1948), pp. <86-7. 60 Bank credit had to be restored as industry began "business accountability" and state subsidies fell off. Bienstock noted that these banks operated on rules "common throughout the world- in granting short- and long-term cre dit, discounting bills, cashing checks, accepting collateral. For a time the question of interest was unsettled, and indiv idual savings were small compared with deposits by state plants and agencies.^3 Now this has shifted considerably. Moreover, the present credit system while applying methods "created by capitalist society” has far more control over economic policy. If this be a difference from capitalist banking generally, it is assuredly very little different from Czarist state bank controls. A special bank exists for commerce and foreign trade. At first one of the banks Involved was organized with the participation of foreign investors, but this was altered sub sequently. VI. CAPITAL ACCCMULATION Only for purpose of presentation is a separation made here between capital accumulation and money and banking. As ^3' Bienstock, op. cit., pp. 87, 90* Joseph A. Schum peter in "The Instability of Capitalism,” Economic Journal, September, 1928, p. 362, wrote that capitalism was character- ized by private property (private Initiative), production for a market, and credit, with credit being the distinguishing feature. He added that competitive capitalism gave way to trustified and managed capitalism at the end of the nineteenth century. It is no accident that credit exists in state trusti fied Russia. 61 Voznesensky has pointed out, profit and loss accounting in Russia is not considered in conflict with "socialism." The Twelfth Congress of the Communist Party in 1923 resolved that, , f A country's industry can be victorious only if it yields more than it absorbs. All parts of industry were to be organized on lines of "business accountability" to make a pro fit. Russian leaders blessed the change by hailing the redis covery of the profit principle in "socialist” economy. Price determination included among other things profit in addition to factory production costs, distribution and transportation costs and the turnover tax. Interest is also paid on deposits in savings banks. In some enterprises em ployees may share in the profits of the business. Where businesses did not operate at a profit, state subsidies were granted. Voznesensky contends that the averaging out of the rate of profit in Russia does not affect economic development. Apparently he means that investment can take place without expectation of a return above cost, should the state so desire It. ^5 Turnover tax. The turnover tax accounts for nearly two- thirds of the state budget. When receipts from loans are added ^ Bienstock, op. clt., p. 1. 4-5 Voznesensky, op. cit., p. 89. See also Ernest J. Simmons (Ed.), U.S.S.R.~TltEaca, New York: Cornell University Press, 19^7)# p. 229. 62 to the tax, this combined figure approximates the amount spent for capital investment and military expenditures. In this way the turnover tax becomes wthe chief form that the ’savings’ of the community assume. ”46 Capital accumulation is accomplished by the state in its budget. Since the turnover tax and the state’s share of profit are large, consumer control over costs is very much reduced, and the state can manipulate prices so as to charge monopoly prices and not pass on reductions in cost to the consumers. By keeping prices high, an additional means is developed for obtaining funds for capital accumulation. A large part of added values for each year are simply plowed, back into industry and may not necessarily appear on the market. Russian writers are very proud that a fourth of the national income goes for future expansion, compared to one-tenth in America.^7 But there are some indications that this is fall ing. Some 24 per cent of national income was allocated in the second five-year plan in 1932, 19 per cent in 1937 and, accord ing to "Voznesensky, 12 per cent in 1946-50. Capital accumula tion, at least in its rate of growth, appears to be lessening. However large Russian budgetary allocation for capital invest ment may appear, Czarism has shown as huge an allocation, about one-third its pre-19l4 budget going for government-opera,ted 46 gee Dobb, op. bit., p. 93* ^7 William M. Mandel, A Guide to the Soviet Union (New York: The Dial Press, 1946), p.-434. 63 industries and construction, the military receiving another fourth, for a total of seven-twelfths.^8 The turnover tax, according to Yugoff, is antisocial: With the government in monopolistic possession of the economy of the country, the idea of extracting from the population the means of recovering govern ment expenses and of accumulating capital hy means of a sales tax on commodities could be acceptable if the government selected the objects of the tax ■with care and skill . . . Instead, the Soviet tax manifestly has for its object the raising of the largest possible sums of money without regard to considerations of a social character /and had/ all the objectionable fea tures of indirect taxation.^9 Other levies include a direct tax on the population that provided some six per cent of government income before the war. This included an inheritance tax, income tax and a tax for cul tural purposes, along with customs revenues. Today there is also the large gain from the share in profits from investments abroad, both in mixed capitalist corporations and single state monopolies. Despite the size of the taxes, during the war the growth of ruble millionaires among the peasants continued, un til the devaluation of 1947 slowed the process. Carr declares that the principles laid down by John May-: nard Keynes for government investment, heavy taxation and mon etary manipulation were worked out in Russia before^being presented in Keynes1 work. The rentier had been eliminated, ^8 Bertram D. Wolfe, Three Who Made A Revolution (Hew York; The Dial Press, 1948), p. 22. 49 Yugoff, op. cit., p. 132. This sales tax consti- tues the state's hidden hand in the consumers' pocket. 64 Carr wrote, as was visualized by Keynes.50 Russian state mea sures are more thorough than the Keynesian ones. Actually the investor has return, but the entrepreneur has been liquidated. Bonds and loans. While some writers have been surprised at the smallness of direct taxation and loans to the public be fore 1939# this is much changed since the war. Primarily, of course, the turnover tax already draws on the public for funds to the extent of two-thirds of the entire budget. But bond holdings and interest on them was small, the interest rate be ing reduced from 8 to 4 per cent in 1936. At one time it could be said that Russia in the main did not raise money by floating large bond and stock issues, as Heyraann wrote.51 But by 1940 a fifth of the budget was coming from loans. Bond income was low before the war, cooperatives receiv ing two per cent interest on bonds they bought, while individuals received four. No stocks were sold, since in theory all the means of production were owned by everyone. Yet credit was obtained from the ostensible , } owners” in the form of savings, turnover, income and other taxes, and bond purchases. The work er was making ”advances" to the state. Before the war it was common to pay out lottery prizes for certain bond holdings, as is done in some other European countries. 5° Carr, op. cit., pp. 34-5* With all her state controls Russia had not reached the equilibrium sought by Keynes with less stringent measures. 51 Heymann, op. cit., p. 134. On the collective farms there is a holding of shares of the collectives,.and for a time there was a sharing of income based on a percentage of these holdings. From one's holdings it is now possible to pass on wealth; Russia has an inheritance tax. But state loans were developed by 1936 as a major means of gaining liquid assets from the population, and at the same time of preventing any over-accumulation of funds in idle hands. In pre-war years nearly everyone with any income owned some state bonds, for a total of more than fifty million people. Loans usually were issued for ten years. During the period of the war economy, Voznesensky tes tified, "one notes a new phenomenon in the war economy--the increase in loans . . . amounting to about 6 billion rubles during 19^3. , r '52 While the receipts from the turnover tax fell greatly with the drop in consumer purchasing, part of the slack was taken up by increased loans. Also direct taxes were raised and encouragement given to make sacrifices and gifts to the defense funds. Russian writers deny that subscription to bonds amounts to compulsion. But great pressures were brought to bear on the population, and in a war economy to refuse to buy bonds would be a serious offense. What this large-scale bondholding will do to increase further the differentiation of classes is slowly becoming visible. One added change is the increase in Russian interest 52 Voznesensky, op. cit., p. 8l. 66 from investments abroad, from the mixed capitalist corporations which pay Russia 50-51 per cent of the profits and from her single state monopolies. Abroad, moreover, Russia is more than an investor and creditor. She is a direct state owner and controlling force. What Voznesensky calls the indepen dence and sovereignty of the Russian econo my ..constitutes a relation of economic and political dependence for many other lands on her borders. The denial by the Russians that there can be crises or depressions in Russia is oft repeated. This is most crudely put in such works as the collection edited by Simmons, where it is written, "the Soviet economy, if properly planned, cannot have an economic crisis," and that the difficulty is in the other direction of too much purchasing power for existing goods.53 yet a lack of consumer's goods is a major sign of crisis. The monetary devaluation of 19^7 was a serious crisis. Russian analysts even say that shortages, such as of consumers' goods, are "planned.” To this superficial evasion the only rejoinder has been that one does not need planning to have shortages. It is well known now that the five year plans lacked the ability to foresee, that the world crisis of 1932 had a deep effect on Russia. Hubbard has explained this very well in declaring that if a crisis is a condition of under production or overproduction, then the economic history of Russia 53 simmons, o£. cit., p. 230. This limits a crisis solely to a scarcity of goods.' 67 is a succession of crises, like the famine of 1932-33. In this regard as in so many others Russia is deeply affected by every change in the world market, of which she is an irre placeable part. The possibility of deeper crises exists when purchasing power is unequal to a great extent and consumers goods are short. Capitalist society puts forward the formal claim that there is the right to freedom and equality of income and purchasing power. Without excuse and by legal statement, the Russian state monopoly trusts glorify as ’ ’socialism" a disparity of purchasing power of one to twenty times. VII. SOCIAL CHARGE Development of Russia from the nationalist theory of ^’socialism in a single country*’ to extreme nationalism brought back Into official favor the word "fatherland." A nations,1 anthem replaced the Internationale. Czarist ranks were rein troduced into the Army, whose name was changed from Soviet and Red to Russian. Soldiers had to salute their superior officers. Stalin acquired a new title, Generalissimo. Co-education was abolished in schools and, the national history of Russia replaced In large part the teaching of sci entific socialism. Both Greek Orthodox and Moslem churches were re-enfranchised, in 1936, and during the war anti-religious publications were restrained. Common-law marriage was abolished in 19^4 and divorce made more difficult. After abortions were 68 prohibited, prizes were offered for large families. Russia presented her own theory of biological evolution, and laid claim to national priority in inventions of all kinds. It would appear that these nationalist reassurances not only are excellent propaganda at home, but are an advertisement of Russian products and capital goods now increasingly being sold abroad. Where Soviets or village and city councils were for a short time means for the great mass of the population to par ticipate in government, today single party control is complete. The Russian workers1 psychology is distorted by piecework. All possible opposition leaders have been purged. A state monopoly which shows no signs of eliminating commodity produc tion, credit and money, bond sales and investments abroad, interest payment and differential wages that have bred great inequality, cannot be termed socialism. CHAPTER III STATE CAPITALISM UNDER CZARISM AND REVOLUTION State control and regulation ©f Industry, agriculture and foreign trade were the vital distinguishing features of Russian economy under Czarlsm. Emerging Into the modern cap- Itallst economy as a major force In the time of Peter the Great, Russia was profoundly Influenced hy the existence in the more advanced lands of western Europe of the system of mercantilism. Through state monopoly, subsidies and Interven tion In both domestic and International economy mercantilism had helped ereet the noted state-chartered corporations, such as the London Company, the East India Coo?)any and the Russian American Company that opened up the whole world to capitalism. Alongside the cottage industry Peter I erected a large textile and Clothing Industry to provide uniforms for the armed forces, and an Iron and steel industry to produce the materials of war. "Capital was Invested by royal command," wrote Wolfe. "A laboring elass was created by assigning serfs from the Crown.estates. Czar Peter ordered sons of the nobles, as he himself had done, "to study science and technology."1 1 Bertram D. Wolfe. Three Who Made a Revolution (New York: The Dial Press, 1948J, p. £1. "Long before Marxian so cialism was so much as dreamed of," Wolfe said, "the Russian state became the largest landowner, the largest employer of labor, the largest trader, the largest owner of capital, in Russia, or in the world." See p. 21. fO Development of state mining In the Urals and of shipbuilding and merchant capital were stimulated by Peter 1.2 , A companion feature of state Industry, which was also the largest single customer for private Industry, was the ‘ A : ■ /J- , . . . . . -Lo use of the system of rank and development by the Czar, a sys tem of classification of the population In his 0table of ranks. "3 Industrialization came from above as part of militarization; it was complemented by a near-military division of the population. I. MERCANTILISM AND STATE MONOPOLY Encouragement of trade and aggrandizement of Russia, opening of modern Industry so that Russia could be indepen dent of the west, and a feverish program of expansion to over take the more advanced lands characterized the means used to establish state Industry. Still heavily agricultural and arriving late on the historical scene as a capitalist power, seventeenth century Russia and her leaders looked down on "merchant nations” like England and France, "which occupied territories and built empires for the benefit of money-mak ers.”^ Later in the century she was to catCh up to them. 2 Ernest J. Simmons (Ed.), U.S.3.R. (Ithaca, New York: Cornell university Press, 1947)» p. 514. 3 Harrison Salisbury, Russia On The Way (New York: The Macmillan Company, 1946), p. 53. * David J. Dallin, The Rise of Russia in Asia (New Haven: Yale University Press, 194977 p7“I57 71 Not that Russia strayed from mercantilism, hut for a time her main emphasis was on internal construction to over take the more advaneed lands. Within Russia, as in certain other lands, the origin of capital was in state monopoly. To gain sufficient capital to he ahle to hire lahor, a minimum not yet found in the hands of single Individuals, the state became the main force for investment. As Marx wrote: . • . This gives rise partly to state subsidies to private persons, as in France in the time of Golhert, and as in many German states up to our own epoch; part ly to the formation of societies with legal monopoly for the exploitation of certain branches of industry and commerce, the fore-runners of our own modern Joint- stock companies. 5 Moreover, Marx adds: The system of protection was an artificial means of manufacturing manufacturers, of expropriating indepen dent laborers, of capitalising the national means of production and subsistence, of forcibly abbreviating the transition from the medieval to the modern mode of production ... On the continent of Europe, after Colberts example, the process was much simplified. The primitive industrial capital, here, came m part directly out of the state treasury . . .° - ? Karl Marx, Capital, Vol. I (Chicago: Charles H. Kerr and Company}sl90t>), p. 338. On the same page, Marx wrote: “Martin Luther calls these kinds of institutions: ‘The Company Monopoila. *“ Ignoring Marx, Russian economist Eu gene Varga wrote in Soviet views on the Postwar World Economy (Washington: Publle Affairs Press, l*H&7: are talking specifically about state-monopoly capitalism, because there can be state capitalism that is not monopoly capitalism. “ See p. 100. state regulation, he wrote, “is characteristic of a pre-capitalist way of lire.” see also p. 09. Marx had said state monopoly and regulation was the very basis of the primitive or original accumulation of eapltal. 6 see Marx, op. cit., p. 030. Marx‘s views are im portant since Russian economy supposedly follows his theories. 72 That mercantilism, "the exercise of state power over every side of economic life, ”7 existed in Russia is hardly questionable. Representing the beginning of ’ "national reg ulation of international commerce," mercantilism was the system whereby ^economic control passed from the lords and local units to the national monarehs and legislatures.w& Mercantilism sought a favorable balance of trade, to bring in precious metals, to keep domestic wages low and as a corollary to develop a large working population, even to the extent of granting bounties to large families. The state created the merchant marine and granted monopolies of the shipping trade. All this was geared into the quest for na tional power and additional territory and colonies. For Russia many of these were internal colonies. T h . Heaton, Economic History of Europe (Hew Yorks Harper and Brothers, 193b),p.3^4. 8 Lawrence W. Towle, Internetional Trade and Commer cial Policy (Hew Yorks Harper and Brothers, 1947J7 pp. 16 ff. In their work, Comparative Economic, systems (Hew Yorks Harper and Brothers, l£48;, William ft. Loueks and J. Weldon Hoot wrote that compelling similarities between the aims of fas cist states and mercantilism exist. In addition to what has been noted here, they wrote, ”an intricate system of regula tion was necessary. The state controlled the establishment of new industries, conditions of apprenticeship, wages, and place of residence ... To run such a system required a great bureaucracy See p. 644. Elsewhere than in Russia mercantilist regulation broke down with the growth of technology and spread of capitalism throughout the world, and the reaction against authority in both economic and political life. Both the Physiocrats and Adam Smith with their emphasis on the natural order and non necessity for government control contributed to the fall. Mercantilism has continued today In state monopolies, now based on trusts. 73 In the commercial capitalism of those days "before there ■was much talk of pure competition, monopoly at the level of the state was the principal organizing mechanism for spreading the national power. Mercantilism was a system of state mono poly capitalism In which -the dividing line between polities and economics did not exist. An outstanding example of how a typical state monopoly operated is the company for organizing Alaska: . . . the interests of all Russians engaged in the American fur trade were merged in 1799 with the charter ing of the Russian American Company, and upon his acces sion to the throne Alexander confirmed the monopoly granted this company and placed it under his official protection. It was given full control over all Russian settlements from Bering Straits to the fifty-fifth parallel— all of what is now Alaska--and the further authority to enter into treaties with the Indians and to establish colonies south of this line wherever the territory was not already occupied by another power. The Czar sought to establish an organization comparable to the British East India Company or Hudson*s Bay Com pany. It was virtually an independent branch of govern ment designed to promote Russian interests in the Hew World .9 The elements of mercantilism included merger, chartering of a state corporation, monopoly and official protection. In addition as a direct arm of government the state monopoly cor porations had territorial control and the right to establish colonies and enter into treaties to promote the national interest. 9 Foster Rhea Dulles, The Road to Teheran (Princeton: Princeton University Press, 1$44), p. c*?. with the change of date and place, this system of state chartered monopolies is identical with that utilized under the later Hew Economic Pol icy of 1921 and In eastern Europe today. The main difference is that modem state capitalist corporations are based on trusts. 74 In Russia, relatively untouched by the revolutions that were destroying absolutism In most of the west, state controls persisted. The state sought to amalgamate with the evolving higher forms of capitalism, trusts and financial rule. Land expansion. From some five hundred square miles In the fourteenth century Muscovy has grown Into the largest uni fied continental empire in the world. Concerning this vast process which is the equal of any previous growth, Sorokin wrote that Russia's ability as an expanding force has been due primarily to the peaceful penetration of Russian peasants, explorers, merchants, and mission aries, and partly to the voluntary submission of num erous tribes and nationalities to Russia. Only to a slight degree has It been achieved through military conquest. It exhibits the Russian nation as a truly great erapire-builder. This rather strange view of expansion as peaceful when there is "voluntary submission0 by others Is not borne out by toe facts. It will be dealt with where Sorokin projected this theory of a ' ’ slight degree1 * of military conquest Into the al legedly ’ "peaceful penetration® after 1939. Only toe part about toe areas Into which Russia penetrated is exact, namely, to all points of the compass. On toe western frontier Russia, &nder Catherine II, drew 10 pitirim A. Sorokin, Russia and the United States (New York: E. P. Dutton and Company, Inc., 1$44), p. 29. This error aside, Sorokin's work Is vital, particularly for its sociological characterization of Russian society today. 75 In Estonia, Latvia, Lithuania, Western Ukraine and Western Byelorussia. Prom 1769 to 1774 Russia held Bukhovina, then lost it. On the hasls of this five-year occupation Russia in 194© was to lay claim to the area; she holds it to this day. The outward growth leaped across the Bering Straits into Alaska and as far South as San Franelsco. But the Rus sians withdrew and sold their Alaskan possession to the united States in 1867 for $7,200,000. By i860 VladlvQstock was established as Russia's Paci fic port. In exchange for the Kurlle Isles Japan in 1875 eeded Sakhalin to Russia* Later, in 1944 and 1945» Russia was to claim the Kuriles as historically her state property. A contract to build the Chinese Eastern Railway was granted Russia in I 8 9 6, along with rights to police the right of way. These rights were extended in I 898 to include the brandh line from Harbin and Port Arthur. 11 The outward march of Czarism was abruptly halted by the Japanese in the Far East; as a result of their war vic tory in 1904-5, the Japanese obtained control of Korea, half of Sakhalin and of Port Arthur. But the halt of Russia was temporary and localized. By her secret treaties with Britain within a few short years Russia was to gain added territory in the western borderlands and warm water outlets in the xx James S. Gregory and D. W. Shave, The U.3.S.R. (New York: John Wiley & Sons, Inc., 1944), pp. 15^-9• 76 Hear East. At no time was the expanding colossus content with its swollen borders, on the other side of which dozens of small states fearfully awaited the Gzarlst knout. II. THE STATE BAHK Two state-owned banks were opened in 1754, one for commerce and the other for the landed nobility. The first Russian paper money, the assignat, was issued by the state in 1 7 6 9, under Catherine II. The state-owned central bank was founded In 1S60, the first private joint stock bank in 1864. By the opening of the twentieth century the state had consolidated its position as the leading banker in Russia, having a turnover of 234,009,000,000 gold rubles ($117-billion) In 1 9 1 3.12 By 1914 private commercial banks numbered 47, with 743 branches. There were also cooperative banks and mutual credit societies. State-owned banks numbered over 8,000 in 1912. Czar- 1st banking Wwas mrked by a rather greater participation of the state than in other countries and by a large influx of foreign capital.nl3 12 See Wolfe, op. cit., p. 22. 13 gee Simmons, op. cit., p. 234. While Simmons on the same page contends that present Russian finance differs large ly from that of other states, he does not remark that it diff ers little from Czarlst Russian finance, of which it is a quite real continuation. 77 As the principal Investment force the Gzarlst govern ment appropriated one-third of its pre-1914 budgets for state-operated industries and construction.1^ This rate of investment, as will be demonstrated, at a later point, was as great or greater than present rates. It was an index of the hothouse development of the economy that Gzarlsm sought. Communal and state land. Atop the state Industry they were constructing the Czars of the nineteenth century placed "military state farms," characterized by Vernadsky as "an ex periment in a sort of military socialism. The plan was developed during the later stages of the Napoleonic wars with the aim of having the army engage in productive labor in order to reduce the military budget. Regiments were settled in rur al districts. Fully half of the forty million serfs at the time of emancipation in 1861 were state peasants or serfs of the crown.3-^ Between them, the state and the imperial family owned two-thirds of all the lands of Russia property. Uj» to 1905 the peasants largely did not individually own land, which was tinder the control of a kind of village corporation See 'Wolfe, oj>. cit., p. 22. ^5 Loe cit. 1& Edward Cramkshaw, Russia and the Russians (New Yorks The Viking Press, 1948), p.' HTT Thus the state was the direct employer of millions. called the mir.^7 III. INDUSTRIAL GROWTH AND CAPITAL IMPORT Following the emancipation of the serfs in 1861 private capital and free labor developed swiftly. But so strong was the grip of the state, so close its ties to industry and agri culture, that the state too expanded economically and penetra ted and helped extend industry. Large-scale state banking has already been shown. New trading monopolies were established. Telegraph lines and railroads were constructed by the state. The railroad industry is one example of how swift this development was. By 1889 the government owned 23 per cent of the railroads. This rose to 60 per cent in the next decade. With the construction of the Trans Siberian and other roads in ten years the Gzarlst state ' ’ completed a greater railroad construction than any government before or since. By 1913 more than two billion rubles had been Invested by the government in buying existing railroads and construc ting new ones. In that year the railway network reached ^3*798 miles, of which 67 per cent were state-controlled. During the first world war, Wolfe wrote, "it was still build ing railroads at a more rapid rate than the Bolshevik Govern- 17 barren B. Walsh and Roy A. Price, Russia, A Handbook (Syracuse* Syracuse university Press, 19^7)» P- 5l» Wolfe, op. cit., p. 22. 79 meat, with all its Five-Year Plans, has ever been able to achieve•nl9 Capital Import. Czarism was tunable, however, from its own internal resources and the weakness of its partially feudal structure to raise sufficient funds to meet Russia's fast- growing needs. Hence she resorted to imports of capital from abroad. After conclusion of the Franco-Russian alliance in 1891, foreign funds flowed in at an accelerated rate.20 An av erage of some 200-million rubles were Imported annually in the two decades from then to the first world war of 1914. Nearly half the capital Invested in the Bonetz coal basin prior to 1914 and more than 80 per cent of the capital in iron mining, metallurgy and oil was foreign.21 Total for eign capital was estimated at more than two milliard gold rubles in industry and an additional five milliard in State and municipal and state-guaranteed loans*22 In a still more profound sense Russia was dependent on the west for imports of technique, technical personnel and even foreign managers for her Industries and some of her large banks. ^ Loc."*cit. 20 William Henry Chamberlin, The Rusalan Enigma (New Yorks Charles Scribner's Sons, 1943J, * p. 12. 21 Maurice Dobb, Soviet Economic Development Since 1917 (New Yorks International Publishers, 1948}’ , p. ' 3 8. 22 Ibid., pp. 3 6, 3 8. 80 By 1913* however, Russia was the fifth largest Industrial pro ducer In the world. ghift In trade. Before the turn of the century Russia*s foreign trade turnover "almost doubled within five years."23 However the import of capital was not sufficient to cover the expenses of invisible imports. As a result when Russia entered the first world war, her external government and private debt totaled 7,5 billion gold rubles (approximately $3. 7 5-billlon) .24 In 1 9 1 31 the peak foreign trade year, imports equalled 7 per cent and exports about 6 per cent of the value of total home production. Far from being backward at that time, what industry Rus sia had was of the latest and most trustified type, it grew rapidly, with total capital investment reaching heights that enabled Russia to make the shift to supplying more than half of Europe with wheat, refined sugar and lumber.26 Russia then led the world in grain exports and, in addition to wheat, sup plies nearly a half of other grains imported into Europe. 23 Alexander Baykov, The Development of the soviet Economic system (London: Cambridge Unlversiliy Press, 1946), F • 3 • 2* Ibid** p* *• 25 Aaron Yugoff, Economic Trends in Soviet Russia (London: George Allen and Unwin, Ltd., 1930), p. 194. 26 jj. h . Lovell, The Soviet Way of Life (London: Methuen and Company, Ltd,, 1948), p. ll5T . 81 State action In foreign trade extended to trade agreements, operation of customs, and a few limitations on certain state monopolies* There were other normal provisions concerning health, morals and public safety. Export of capital * While occupying a position of near- dependence on the west for part of her capital needs, Czarist Russia by the turn of the century had developed a relation of capital export and even of dominance in countries to the east. There she sought markets for manufactured goods. Lenin wrote that the feudal landowners headed by the Czar and "ruling In dose alliance with the magnates of fin ance capital" constituted an Intertwining of "the latest capitalist imperialism'" with "a particularly dense network of pre-capitalist relations." In his words, "a very backward agriculture,and very primitive village* existed side by side with a "very advanced Industrial and financial capitalism."2® In the years immediately preceding the first world war some Russian firms such as in handicraft were able to shake off dependence on the west and achieve a certain indepen dence. Baykov points out that this was "only in Eastern markets (Persia, Afghanistan, etc.),® but the tendency had 2? Dobb, op. cit., p. 38* 2® Loc. cit., quoting from Nikolai Lenin's Collected Works (Russian edition), Vol. XIX, p. 136j Vol. XX, p. 3?0. Lenin had remarked this capital.export as early as 1905* 82 been established.*^ j. b . Yanson, a high Russian official, said of this period: The ezarist Government considered Eastern countries as an object for Its colonial imperialistic policy; it tried to enslave them, to seize their territory and to exploit them economically. She trade relations . . . amounted to a maximum export of Russian goods to these countries, this being achieved by the establishment of special privileges for the trade of Czarlst Russia.’0 Yanson noted, "there was a penetration of Eastern coun tries by Czarlst financial capital. Russia sought to strengthen its concessions and industrial enterprises there.* Moreover, Gzarism for a whole century conducted warfare "with other cap italist countries for the possession of Eastern markets* and sought "colonial expansion.” What this policy consisted of in the concrete was demon strated when the early Bolsheviks on February 26, 1921 in a treaty with the eastern countries in Article 8 "finally re nounces the economic policy pursued in the east by the Czarlst Government, which consisted in lending money to the Persian Government, not with a view to the economic development of the country, but rather for purposes of political subjugation.” In renouncing rights to payment on these loans the Bolsheviks gave up "claims to the resources of Persia which were specified ~ Baykov, op. cit., p. 5* 3° j. D. Yanson, Foreign Trade In The G.S.S.R. (London: Victor Gollancz, Ltd., 1^34), p. .1337 Yanson delineated the features of this colonial imperialism as use of finance cap ital for export, special privileges, concessions, economic en slavement, actual industrial enterprises and warfare for mar kets and colonies. Soroking had called the expansion "peaceful penetration." 83 as security for the loans in question.”31 Thus within Russia prior to 1914 there had been a great concentration in certain sectors of production, giving Czarism a highly statelfled Industry and in some branches a most modern one. Syndicalization of the means of distribution was growing. IV. WARTIME GONTROLS War shifted the course of foreign trade and forced a tightening of state controls and active entry of the Czarlst government into foreign trade, some trade agreements were invalidated. While private organizations at first shared in trade, "the state gradually extended its activity from control to direct participation.”32 ^al, materials purchases were tahder direct control of the War Department. In Why, 1916 it was made compulsory to deposit foreign currency receipts with the finance ministry.33 With the state In charge of what Lenin later termed "the commanding heights" of economy, i.e., the key Indus tries, its sway was undisputed. "What the Bolsheviks really took over in 1917,” Wolfe wrote, "even befere they had nation 31 Arthur Uphan Pope, Maxim Litvinov (New York: L. B. Fischer, 1943) $ PP* 170-1. 32 Alexander Baykov, Soviet Foreign Trade (Princeton: Princeton fnlverslty Press, 1940), p. *>. 33 Stephen Enke and Virgil Salera, International Eco nomics (New York: Prentice-Hall, Inc., 1947) * P* 279* THe Swiss, they remarked, had a monopoly of foreign trade too. alized a single industry on their own, was the largest state economic machine in the world. "3^ 5 5 1© economic base of the coming revolution was thus a state monopoly capitalism, organ ized on a foundation of trusts and finance capital. She first revolution. Wartime collapse and the fall of Czarism in March, 1917 forced Russia's withdrawal from the world market. Great suffering ensued in Europe, dependent in { such large measure on Russian exports of wheat and other grains. At the same time Russia was .unable t© supply her financial em pire in the East. TJpon its entry on the historical scene the Provisional Government attempted to work out a general foreign trade plan and . . . to organize large scale accumulation of stocks for export as well as the purchase of Import goods. By the eve of the October Revolution of 1917* the State had materially increased its control over the coun try's foreign trade turnover and was an active parti cipant. These measures were the outcome of wartime conditions, but, in a sense, they paved the way for the state monopoly of foreign trade introduced by the Soviet Government . . .35 While the liberal democratic elements at the head of the Provisional Government were insisting they were far to the left of -the Czar, they were foreed to move to an even greater heightening of state controls over foreign trade. As part of their basic foreign policy the liberals sought to 31 * - see ftolfe, og. cit., p. 23. 85 continue the wartime alliance with England and. France and participate further In the war. Despite their claims to democ racy they sought to keep in full effect all the wartime agree ments, most of them secret, whereby Russia would have gained Constantinople and territory from the central powers of Germany and Austro-Hungary. 'When Lenin arrived in Russia in April, 1917 the Bolsheviks in opposition to this policy called for and end to the war and exposure of the seeret treaties. Lenin proposes state capitalism. The celebrated "April Theses” of Nikolai Lenin were a veritable bombshell in the Bolshevik camp, for the leader of the party did not call for the immediate introduction of socialism. Instead he advocated steps leading to what he termed bluntly and honestly state capitalism. Socialism was not on the immediate list of pro posals. In Clause 8, Lenin wrote: Not the ‘introduction of Socialism” as an immed iate task, but to bring immediately social production and distribution of goods under the control of the Soviet of Workers* Deputies.3© He called further for the "amalgamation of all banks into a single national bank, control over which shall be exercised by the Soviet.” Lenin made it clear that this and control over syndicates and cartels were "measures which do not in any way imply the ‘introduction* of socialism” but 36 Nikolai Lenin, Selected Works, Vol. VI (New York: International Publishers, 1938)$ p. £4. 86 ”which have been frequently undertaken during the war by a number of bourgeois States.**37 To this analysis Lenin, on the eve of the second rev olution, added: But try to substitute for the Junker-capitalist state, for the landlord-capitalist state, a revolu tionary-democratic state (i.e., such as will destroy all privileges in a revolutionary way without being afraid of introducing in a revolutionary way the fullest possible democracy), and you will see that, in a truly revolutionary-democratic state, state mon opoly capitalism inevitably and unavoidably means pro gress towards socialism! ... For socialism is nothing but the next step forward after state capitalist monopoly. . . . State monopoly capitalism is the fullest ma terial preparation for socialism. It is its threshold, it is that rung on the historical ladder between which apd the rung called socialism there are no intervening rungs.3° ' ’ State monopoly capitalism1 * was the full and literal description of what Lenin proposed. Concerning nationalization and compulsory syndication of industry, Lenin wrote that this “does not directly, in itself, infringe upon the relations of private property to any degree,” and that only all-embracing workers' control over the capitalists was proposed.39 While for lack of practical application of the theory it is not possible to pursue it further at this point, some 3Y Loc.~cit. 38 Ibid., vol. VII, p. 366. 39 ibid., vol. VI, p. 26. Trotsky and Russian economists were to spend a lifetime writing that state capitalism was im possible anywhere. Lenin moved beyond sueh terminological nice ties to the central tendency of Russian economy. 87 steps were taken to establish "mixed companies” with foreign capitalists and local ones as well. Where private concerns continued alongside state enterprises joint controlling bodies from the unions, private owners and government were set up. Groups among the Bolsheviks opposed the policy of making such deals with capitalists. Renunciation of imperialism. One day after the seizure of power by the Bolsheviks, on November 8, 1917> the Congress of soviets adopted the Decree on Peace, it abolished secret di plomacy, called for open negotiations and asked all belligerents to open conversations for ”an equitable, democratic peace, with out annexations and without Indemnities and with a proviso for self-determination for all nations.”^ On November 15 the gov ernment proclaimed the right of self-determination, including secession and formation of independent states. When the Allies made no reply to peace overtures, the Bolsheviks began publication of the secret documents of the Czarlst foreign office. An example of these papers was a sec ret treaty with Britain for "Constantinople, the western coasts of the Bosphorus, the sea of Marmora and the Dardanelles, as well as southern Thrace to the line of Eros-Midia.**^2 On ^ Dobb, op. clt., p. 92, ^1 Louis Fiseher, The soviets in World Affairs (New York: Gape and Smith, 1930), p. 3£5• ^2 i,oc. cit. 88 December 3, 1917 the soviet government declared: We say that the secret treaties of the overthrown Czar, confirmed by the overthrown Kerensky, about the seizure of Constantinople are now torn up and destroyed. The Russian Republic and its government ... Is against the seizure of other people*s lands. Constantinople must remain in the hands of the Moslems. We say that the treaty about the division of Persia . . . and ... of Turkey and about the "taking away" of Armenia from It Is torn up and destroyed. in addition to the name of Nikolai Lenin the decree bore the signature of the People's Commissar for Nationalities, "Dzugashvili-Stalln." The Bolsheviks renounced in their en tirety Czarlst claims to Estonia, Latvia, Lithuania, Poland and Eastern Galicia, Finland, Constantinople, Persia and Far Eastern areas. Then, in March, 1918 the Bolsheviks were forced to sign the Brest-Litovsk treaty under powerful German pressure. Rus sia lost many of her western territories . Brest-Litovsk de monstrated how far German imperialism could go in a "peace" treaty. It remained for Russia, the victim at Brest-Litovsk, to show a generation later how it too had changed to the extent that it imposed on conquered peoples treaties legalized largely by force and demanding land, population, resources and indem nities . The episode in German-Russian relations is of great significance for the explanation of the pacts with Hitler in 1939-41, principally because of the Russian claim that as at Brest-Litovsk in 1918, the pacts were signed out of necessity. But in 1918 it was Russia which was the vietlm of Germany; In 1939 it was Russia which with Germany*s active aid victim ized other countries, precisely those which Lenin and the other early Bolsheviks had granted independence* Representatives of Czarlst Russia who were present at the Paris Peace Conference bitterly contested the Bolshevik grant of independence to Finland and the three Baltic states. Even the Provisional Government of 1917, which called itself liberal democratic, had refused to grand such independence to Finland. As a consequence of Bolshevik recognition of a se parate existence, Finland refused to aid the subsequent three year intervention. Lenin explained that the Finns feared that victory for the pro-Gzarist "White Armies would mean her reih- corporatlon into Russia, while victory for the Soviets would mean continuance of her independence. Later, in 1939> in taking away the Independence of the Baltic states, Stalin was to espouse the same demands raised by the Czarlst representa tives whom the early Bolsheviks had overthrown. VI. LENIN'S PROPHECY OF DOWNFALL The early Bolsheviks were fully aware that any return to combinations with capitalism for suppressing revolution and oppressing nationalities or seizing their territories would mean the death of the revolution. Their thoughts on the possi bility of their own degeneration are, looking backward, almost strikingly clairvoyant. Ending of the Russian revolution of 1917 in aggrandizement and exploitation abroad was forecast 90 prophetically by the Program of the Communists (Bolsheviks), published in May, 1918. After proclaiming *the right of the working classes of eaeh nation to complete separation* from Russia, the pro gram inquired what would happen wif the Great Russian Soviets should prevent by force any part of the working class of any other nationalities from separating?* It answered: *lt is clear that the complete ruin of ■ vS <•/ ' the entire proletarian movement, complete destruction of the Revolution would be the consequence.* Lenin was the author of the program. The prognosis of 1918 became, as this work will establish, the reality of 1939 and subsequent years. CHAPTER IV STATE MONOPOLY OP FOREIGN TRADE TO 19 2^ Just what did the revolution of 1917 do to the already highly nationalized economy of Ozarlst Russia, to which the Provisional Government had added controls that constituted a virtual state monopoly of foreign trade? It will come as a surprise to many persons that Lenin had emphasized that social ism was not to he introduced immediately. The first steps were to he control by the workers over the "state capitalist" syn dicates and cartels, state monopolization "frequently undertak en during the war hy a number of bourgeois states. Lenin sought for Russia a state monopoly capitalism with out the landlord-capitalist state and based on "revolutionary- democratic" rule, with socialism being "the next step forward after state capitalist monopoly." 2 Indeed, Lenin made It abun dantly elear that the measure of "nationalization" and "compul sory state syndication" of Industry "does not directly, in it self, infringe upon the relations of private property in any degree."3 up to the November, 1917 revolution only all-embrae- “ 1 Nikolai Lenin, Selected Works, Vol. Vi (Hew Yorks International Publishers, 1938), p. 24. 2 Ibid., Vol. VII, p. 366. 3 ibid., Vol. VI, p. 26. Nationalization Is a bourgeois or capitalism reform; only working class revolution could make It have a more radical content. Much nationalization has been done by Hitler and Mussolini. 92 ing workers control over Industry was proposed. I. REVOLUTION IN ECONOMY Given these proposals before the November revolution, the economic changes after the revolution can be understood, so as to make It clear when the revolution moved beyond state capitalism to a different form of property relations. Czarisra already had control of the ^commanding heights*1 of the economy, and had bequeathed to Its successors wthe largest state econ omic machine In the world. The Czarlst state bank was the leading banker In Russia. It participated more In the economy than similar banks la other lands, and It was the principal Investment force In Industry. To this state banking the Bolsheviks added nationalization of banking in December, 1917• Beals In stocks and bonds were end ed, all bank guarantees annulled In January, 191S, along with all Internal and external loans, and all bank capital confis cated. After April, 191®, stocks and bonds had to be registered with the authorities.^ In those early days the peculiar feature of the Russian Revolution was the fact that the proletariat undertook ccmpletien ^ Bertram D. Wolfe, Three Who Made a Revolution (New Yorks The Dial Press, 1948), p. &3• 5 Ernest J. Simmons (Ed.), U.S.S.R. (Ithacas Cornell University Press, 19^7), p. 219- Reglstratbn of stocks and bonds is now common. Bonds and bondholders were to return in Russia, although the private entrepreneur was to go. 93 of the bourgeois democratic revolution, but not yet of its own proletarian revolution. Writing on March 5, 1921, Lenin noted : In a feu weeks, from November 7, 192*7# to the Brest Peace, we rushed forward, built up the soviet state, extricated ourselves from the Imperialist war in a rev olutionary manner and completed the bourgeois-democratic revolution at such breakneck speed that even the great movement of retreat (the Brest Peace) left us sufficient room la which to take advantage of the "respite * * and to march forward victoriously . . .6 The proletariat by November, 1917, had achieved only state capitalism with workers control. Proletarian revolution. On the first anniversary of the revolution, Lenin declared on November 6, 1918: . . . the following has been done s from workers control, the first measure taken by the working class, and from husbanding the resources of the country, we are directly confronted with the task of creating a workers' administration of industry; in place of the general struggle of the peasants for land, the struggle of the peasants against the landlords, a struggle that bore a national, bourgeois and democratic character, we have reached a stage when the proletarian and semi proletarian elements in the countryside have become differentiated . . . A few pages further Lenin wrote: And we have now taken the first big step towards the socialist revolution in the countryside, in Octo ber (i.e., November, 1917-JM’ ) that was impossible . . .7 The attempts at workers' administration in 1918 were a step beyond state capitalism. The drive beyond this came when the poor peasants in 1918 moved against the landlords, 8 Lenin7 og« clt., Vol. IX, pp. 3©l-2. 7 Ibid., Vol. VI, pp. 486, 493. 94 an action which, was legalized by decrees making land public property and also affecting industry on June 28, 1918. This important development was explained by Lenin on March 18, 1919* . • . . In a country where the proletariat was obliged to assume power with the aid of the peasantry, where it fell to the lot of the proletariat to serve as the agent of a petty-bourgeois revolution, until the organization of the Committees of Poor Peasants, i.e., down to the summer and even the autumn of 1918, our revolution was to a large extent a bourgeois revolution. We are not afraid to say that . I . But from the moment the Commit tees of Poor Peasants began to be organised, ©mr revolu tion became a proletarian revolution ... we found our proletarian base; it was only then that our revolution became a proletarian revolution in fact, and not merely by virtue of proclamations, promises and declarations.® • nevertheless, the changes on the land were far from signifying victory of the proletarian revolution. Peasants held the land "privately," while the state held it on paper; but the Czarlst state had held a vast section of the land be fore the revolution. It was to take to 1928 and after before private peasant possessions could be broken up and the peasants alienated from their own type of ownership, i.e., physical holdings. Moreover, Lenin like Marx before him considered land nationalization as a bourgeois reform .9 II. NATIONALIZATION OP FOREIGN TRADE Under the Provisional Government from March to November, 8 Ibid., Vol. VII, March 18, 1919, p. 37- 9 Ibid., Vol. IV, pp. 318-9; Vol. VII, pp. 345-6. See Karl Marx, Selected Works, Vol. I (Moscow: Cooperative Pub lishing society, 193.6), p. 42. 95 1917 the state "had materially Increased its control over the country*s foreign trade turnover and was an active participant,” paving the m y to heightened state monopoly. Lenin stated In 1918: L . . . Let us consolidate and regulate the state monopolies (monopolies of grain, leather, ete., were introduced In the latter part of 1917), which have been Introduced already, and through them pave the way for the state monopoly of foreign trade. Without such a monopoly we shall not be able to save ourselves from paying tribute to foreign capital.11 Thereby Lenin distinguished -the fundamental aim of the state monopoly, to extricate Russia from being dependent on foreign capital any longer. A system of foreign trade embargoes and licenses was decreed on December 29, 1917* Then on April 23, 1918 the government Issued the decree national izing foreign trade: Commercial transactions with foreign countries and individual commercial firms abroad for the purchase and sale of any commodity Is carried out on behalf of the Republic by organs specially set up for the purpose any commercial transactions concerning imports from or exports abroad is prohibited except through their inter mediary.12 What the foreign trade organs were was not specified at the time. The concrete measures had not as yet gone beyond " 10 Alexander Baykov, The Development of the Soviet Economic System (London: Cambridge University Fress, 1946), p. 6. 11 Mikhail V. Condoide, Russian-American Trade (Colum bus: Ohio state University, 19^6), p. 38. 12 See Baykov, oj>. elt., p. 8. 96 Czarlst and Provisional Government practices In any “ basic sense.13 Alternative controls. From 1918 to 1922 other methods of controlling foreign trade "were proposed. The leading one was high customs duties. But it was feared that other coun tries could flood the Russian market despite a high wall.l2 * Some Russian leaders at the end of 1922 sought adoption of a resolution to liquidate gradually the state monopoly of foreign trade. The resolution was defeated. 15 Meanwhile the “ balance of trade continued unfavorable. Russia's foreign debt reached 13*8 billion gold rubles, or $6.9-billion.16 13 Ancient Egypt and Persia had state monopolies of trade. After 1939 many countries concentrated foreign trade under state agencies. See Lawrence Towle, International Trade and Commercial Policy (New York: Harper and Brothers, 1947) / P» 3* 1* At a low point of development Russian economy, with all the nationalisation measures, simply could not compote with capitalist economies. A change in relation to countries of a lesser economic development came in 1936-39 and after, mainly toward lands of the east. ^ As on many other aspeets of government policy, de bate on this resolution was unusually fierce. No action was taken on the resolution, according to YUgoff, because ”Lenin considered the time was not yet ripe." See Aaron YUgoff, Economic Trends In Soviet Russia (London: George Allen and Unwin, Ltd., I93UJ, p. 220. Leon Trotsky who was there at the time declared that the resolution was defeated. See The Real Situation In Russia (New York: Hareourt, Brace and Company, 1929) > P* 28¥7 3-6 gee Baykov, o|>. elt., p. 6. "When revolutionary Rus sia repudiated foreign and domestic debts, she started her economic system with a elean accounting slate. Deficits grew. In-1920 the separate organs of foreign trade were transformed into the People*s Commissariat of Foreign Trade. With the removal of middlemen and most private traders, the state was able to gain profits from foreign trade directly, and "foreign trade monopoly became a source of capital accumu lation. In the striving for valuta, valuables and gold with which to pay for Imports, the state was to make great use of this method of capital accumulation. it was not too far re moved from the older mercantilist striving after gold and silver. \ III. WAR COMMUNISM Anti-Bolshevik radicals contend the property relations in Russia never really changed and were always state capitalist. But Menshevik party writers who said in 1917-22 that Russia was too backward to proceed beyond state capitalism today call Russia "communist." Others argue that at least for the civil war period of war communism from 1918 to 1921 a type of transi tion economy to socialism was in existence. Marx had written: Between capitalist and communist society lies the period of the revolutionary transformation of the one into the other. There corresponds to this also a pol itical transition period in which the state can be nothing but the revolutionary dictatorship of the pro letariat IT Condoide, op. elt., p. 32. After 1939 capital ac cumulation in the form of "profits was to reach new heights not merely from reparations but from interest on investments. Marx, op. elt., Vol. II, "Critique of the Gotha Program,* p. 577. 98 Wap communism more nearly approximated this general forecast than the state capitalist measures of 1917-18. It was a hind of move beyond commodity production, wage labor and profit appropriation, but it was complicated immediately by its militarization of the economy. Russia had become a veritable armed fortress, with a policy of near-martial law to distribute products. In broader historical terms the war communist system was a military interregnum on a productive base so low that in no economic sense, except certain struc tural modifications, could it be described as having developed beyond capitalism. Thus Yugoff could write concerning this undeveloped pro ductive apparatus, "the Soviet monopoly of foreign trade is a vestige of war communism. "19 enable to move production for ward the government resorted to the method of "direct assault,” forced on it by the military intervention of foreign powers. In March, 1919 the Bolshevik party program explained what this con stituted : In the sphere of distribution the present task of the Soviet Government is unwaveringly to continue on a planned, organised and state-wide scale to replace trade by the distribution of products.20 In place of money soviet Accounting Tokens or Sovznaki were utilized. Money had become so nearly worthless that 19 Yugoff, og. elt., p. 218. 20 Leon Trotsky, The Revolution Betrayed (Garden Citys Doubleday, Doran and Company, Inc., 1937) * P • 22. 99 near the end of 1920 the Commissariat of Finance declared that It had finally disappeared and the budget revenue In 1 9 2 0 "consisted almost entirely of receipts of commodities." 2 1 With most products going to the military fronts the few ar ticles of consumption were rationed. The economy eould be called a "highly organized scarcity® 22 at the starvation level, and below* By the middle of 1921 money ms worthless and the domes tie economy nearly destroyed by warfare. Hot even armed work ers * detachments sent out by the government to round up grain could solve the problem of supply. Scarcity was so prevalent there was little left to economize. Foreign trade had fallen to zero. The military organization of economic and political life for the pursuit of the struggle against opposing armies had run its course. Peasant mutinies broke out against gov ernment grain taxes. Leading cadres of the Bolsheviks were killed in the war. The Kronstadt mutiny, suppressed bloodily by the Red Army, symbolized the great unrest in the country. Polish war. In 1920 the government decided to pursue the war into Poland, with many leaders calling for a "revolu tionary war" to overthrow . Polish capitalism. This expansion was paced by appeals to both the Polish and German workers to 21 Leonard E. Hubbard, soviet Trade and Distribution (London: The Macmillan Company, 1933), p. 11. . 22 Simmons, eg. cit., p. 220. 100 overthrow their masters, fraternize with the Red Army, and help make a proletarian revolution. Thus at certain points it was possible for revolutionary Russia of the early days to expand beyond its borders, but the methods and forms of expansion were revolutionary and aiming at the death of capitalism. The Polish war, in which the Russians were defeated, contained within it the seeds of possible degeneration into aggrandizement. It could have led to revolutionary war and its success, or nationalist seizure. But the Bolsheviks were still firmly on the course of renouncing Czarlst land seizures.23 IV. TRADE AGREEMENTS, 1920 After the failure of armed intervention, business lead ers of many countries, despite refusal of their governments to recognize the Soviet regime, urged resumption of commercial relations. Russia sought an agreement with the United states. Confiscation of branches of American corporations was delayed and concessions granted American oil interests. But the time limit expired and the concessions were never worked. The economic blockade was broken in 1920 when a peace treaty with Estonia was signed. Sweden that year accepted a 23 David J. Dallin in his works writes that aggrandize ment of the Russian state Is the highest principle, even though in the days of weakness from 1917-21 it was oversha dowed by permitting separation. This view ignores the means used. The revolutionary measures.of 1920, such as the call to fraternization, were the opposite of those of 1939 ahd af ter when eapltal export, relations with Hitler and military seizure and military occupation predominated. 101 large deposit of Russia's gold as advance payment for railway rolling stock, negotiations for a trade agreement began with. England, and an agreement was concluded in March, 1921. Other trade agreements followed with most European countries. Maxim Litvinov in a note of March 21, 1921 urged renewal of trade relations with the United States. This was rejected a week later, as was a Russian proposal for a trade mission to the United States, although proposals for concessions had been accepted by individual American companies.2^ Agreements were reached with Afghanistan, Turkey and Per sia and a treaty of friendship signed with Persia on February 26, 1921. Its various articles declared void Czarlst treaties, recognized prohibition of "intervention in the internal af fairs'* of the signatories, prohibited secretly organized hos tility and in Article 8 finally renounces the economic policy pursued in the east by the Czarlst Government, which consisted In lending money to the Persian Government, not with a view t§ the economic development of the country, but rather for purposes of political subjugation . . .25 After renouncing rights to payment on these loans and nullifying them Russia gave up "claims to the resources of Per sia which were specified as security for the loans in question." tenia, Yugoff complained, in a report of November 27# 1920, said, "Concessions— these do not mean peace with capit alism, but war upon a new plane." see Yugoff, o£. elt., p. 22^. 25 Arthur Uphan Pope, Maxim Litvinov (Hew Yorks L. B. Fischer, 19^3)# pp. 170-1. 102 Revolutionary Russia of those days repeatedly denounced the League of Nations as a counter-revolutionary "thieves1 kit chen.** V. HEW ECONOMIC POLICY ' v l- r 1 . • ^, Kith large portions of its territory gone, its economy in ruins and its leading revolutionary cadres decimated, Rus sia was very near death. Forced to make compromises with capitalism to import capital goods and equipment and technique in order to bring about some measure of reconstruction and to revive peasant supplying of the cities, the state put into operation in March, 1921 the New Economic Policy (NEp) of per mitting a controlled regrowth of capitalism. Peasants were granted prices so favorable that requisi tions by force were no longer necessary. Paradoxically the peasant land seizures of 1918 which were the step towards pro letarian revolution on the land had resulted, with the military defeats, in the breakdown of relations to the peasants that precipitated the crisis and forced acceptance of NEP. Money was reissued. A tax in kind replaced requisitioning of grain. Peasants were encouraged to develop production. Private trade was permitted. Rationing was eliminated in the cities and payment of wages was reintroduced. Commod ity production resumed. Prices began to operate on the semi- eontrolled market. Lenin admitted It was a mistake to think that the initial stage of communism could have been reached 1Q3 without passing through a period of socialist calculation, and Trotsky wrote that a plan has to be checked through the market: ^Without a firm monetary unit commercial accounting can only increase the chaos. "26 inequality of income was recognized, but not in the form of piecework which came much later.27 Monetary reconstruction was begun and a stabilized currency established, with the aid of former Czarist finance ministers. At the base of the entire edifice of HEP lay a phenom enon never gainsaid by subsequent alterations of soviet economy: This was production for a market, wage labor and money, profit and business accountability through the state (except on the later collective farms), rising inequality, and a semi-state controlled market. Concessions. Approximately 4,000 small enterprises were leased or rented to private capitalists. Private capit alists obtained about 52 per eent, and of these 30 per cent went to former owners. Cooperative groups leased the remainder. Foreign capital was invited to participate la joint or mixed undertakings, called nconcessions” to foreign entrepreneurs. At the highest point concessions covered four per cent of the production of Soviet large industry. Thus the state 2G George H. Halm, Monetary Theory (Philadelphia: The Blakiston Company, 1942), p. 11, quoting from Leon Trotsky*s Soviet Economy in Danger (New York: Pioneer Publishers, 1935)» — - = * — 27 pltirim sorokin, Russia and the United States (New York: E. P. Dutton and Company, 1944), p. 19?. 104 not only continued to operate more enterprises, numbering about 4,500, "but also the larger-sized plants. Thus "the government made steel; private enterprise made hardware. w28 Joint-stock and mixed companies. Joint stock and mixed corporations, which Czarisra had used, were organized with Rus sian capital only or with the participation of both Russian and foreign capital. These were different from the concessions that were leased or rented to foreign and native capitalists and cooperatives. Arkos, the All-Russian Cooperative Society, first formed as a purely Russian capitalized concern, was one form. Later it was changed into a Joint-stock trading company. such com panies include Amtorg, the corporation for trading in America, state syndicates, trusts, and other share companies. Mixed corporations Included both Russian and foreign capital, with at least 51 per cent of the shares being Russian- owned, and standardized agreements and trade concessions being reached. In addition certain foreign concessions were given the right to export and market commodities they made to foreign countries. Large state mixed corporations totaled twelve in number, such as the Anglo-Russian Timber Company, the Soviet- Polish Trading Company and the Austro-Russian Trading Company. Pour concessions were granted foreign capital for exploitation 2G William M. Mandel, A Guide to the soviet Union (New York; The Dial Press, 1<?46), p." “£>9. 105 of natural resources In Russia. But total trade by these corporations and groups never bulked large.29 Tariff not enough. Proposals to end the monopoly of foreign trade were defeated, and Lenin wrote of the idea: No tariff policy can be really effective in an era of Ioqaerialism, an era of enormous discrimination be tween poor countries and very rich countries. In such circumstances any rich industrial country can completely defeat tariff protection. To do so it need only intro duce an export bounty on the goods exported to Russia on which we levy a duty . . .30 Krassin, organizer of the foreign trade monopoly, said: Soviet monopoly of foreign trade is simply the ap plication of the general Soviet principle of planned State regulation to the sphere of the foreign trade . . . Without a foreign trade monopoly, the soviet state could not carry out the state planning scheme .31 Thus NEP continued nationalization and planning, and the state retained the "commanding heights” of economy, Including for eign trade, so that It could protect against possible subor- dketlon to the world market. yugoff, who takes the ordinary socialist view that favors free trade and opposes tariffs, said that customs tar iffs in Russia protect certain home industries against foreign competition but raise prices In the process* Moreover, "cus toms dues are a considerable source of revenue to the state." 29 Babkov, o|>. elt., pp. 12-13* See also Condoide, op. cit., p. 4l. 3Q Baykov, og>. cit., p. 71* 31 Loc. Git. 106 H© contends this is a "system of self-imposed isolation,” which serves only to "encourage a weakly, infirm, and hope lessly uneconomic system of industry.”32 Moreover, the en tire monopoly of foreign commerce "is a vestige of war com munism.”^ yugoff insists that Russia is following the anti social trend of the commercial policy of capitalist lands. In discussing the high protective tariff of Russia Condoide considered it an additional method of regulating trade and that the high tariff strengthened economic inde pendence. He pointed out that a special lower tariff existed for eertaln goods coming in from eastern lands, and for others which agreed to special reductions or most-favored-nation treatment .34 Trade aims. The general aim of foreign trade was to develop the national economy. Baykov denies this was ”to obtain profit.”35 He contends it was designed to further rehabilitation, ”to utilize foreign eapital and foreign commercial experience, in organizing trade with individual countries or dealing in particular commodities* * ‘ 36 32 Yugoff, og>. cit., pp. 203 , 218-9• 33 ibid., p. 218. 34 Condoide, o|>. cit., p. 55* 35 Baykov, op. cit., p. ?4. 36 Alexander Baykov, soviet Foreign Trade (Princeton: Princeton university Press, 194b), p. 11. 107 HEP was an effort to obtain capital from abroad for development of Russia ’a collapsed industry. Lenin hoped that internal growth of state industry would outrun tenden cies for foreign capitalist and private domestic capitalists to destroy state control of the "commanding heights. ” To HEP Lenin gave the name "transitional mixed system” and to the system as a whole the term "state capitalism" under workers control, as he had done in 1917 and 1 9 1 8 .3 7 Dependence on more advanced countries for import of capital, technique and technicians— at the root of Russia’s industrial weakness over a long period— could not be altered even by revolution. But the base was laid for the return of Russia to world economy. The corollary abroad of HEP at home was the conclusion of many commercial agreements. VI. RAPALLO After the revolution Russia's dependence on the west 37 The "shell of state capitalism" included, according to Lenin, "the,grain monopoly, state-controlled producers and traders, bourgeois cooperators.” See Lenin, op. cit., Vol. VTI, p. 194. He gave examples of concessions, joint or mixed companies, single monopolies, leasing and renting. All these were put into effect under HEP, with Russia serving as the sphere of investment. Two decades later Russia did the inves ting and erecting of state mixed corporations and single state monopolies in lands beyond her borders. Maurice Dobb argues that this "mixed economy" of HEP fitted the conception of the '"transition period between cap italism and communism.” 1 see Soviet Economic Development Since 1917 (Hew York: international Publishers, l94ts), p. 146,' ‘ Yet Russia was then below the level of capitalist economy. If any thing, the transition was the other way, back to capitalism, an attenuated state monopoly capitalism. 108 for capital inrport 3 far from being eliminated bad actually increased greatly. Some ten million gold rubles of foreign capital came In during the first years of the concessions policy. Long-term credits could not be gained at Genoa in 1922 and at London In 1923. Part of the gold reserve was shipped abroad. The Bolsheviks at Prinkip and elsewhere of fered to pay the repudiated Czarlst debts if credits were forth coming with which to resume production. At that time the core of political strategy was the attempt to bring about the German revolution. A combining of German technology and Russian natural and human resources would mean victory for world revolution, Lenin reasoned. Al though this failed, Russia continued the most intimate econ omic relations with Germany in what has been called a leading example of economic symbiosis. When neither Russian nor German delegates could make headway at Genoa they opened separate discussions at Rapallo, where on April 16, 1922 they signed the Treaty of Rapallo. With one blow the two outlaw nations smashed through their isolation and undertook to complement each other's economies by resuming trade relations. Discussions had been opened by Baron von Maltzan, ehief of the Russian division of the Ger man Foreign Office. Rapallo was complemented by a secret military agreement under which German officers under Reiehswehr Leader Hans von 109 Seekt were to come to Russia to act as military Instructors and to gain experience with artillery, tanks and other weapons forbidden Germany under the Versailles Treaty. In those pre- Hitler days these treaties were a subordinate feature of Soviet economy and politics. On November 6, 1922 Rapallo was supple mented by an agreement regulating diplomatic and economic re lations. Results of this rapprochement were to loom large a little more than fifteen years later. VII. PRIMITIVE "SOCIALIST” ACCUMULATION Where to get the capital to reconstruct and possibly expand industry was a question of profound Importance to Soviet leaders. The problem was complicated by the growing dispute over world revolution or a self-contained socialism within a single country, by the party dispute between Stalin and Trotsky, and by the rapid rise of an dlite bureaucracy. One group urged "acquiring the aid of foreign capital, if need be by extensive economic and political concessions, and for nursing the richer peasant . . . t<y accumulate cap ital and cultivate a larger surplus for the market.”38 The other group favored treating the peasantry as "colonies” for the benefit of the city laborers. 38 Maurice DobbSoviet Economy and the War (New Yorks International Publishers, 19^3)> pp. 19-20. Inhere other countries had developed by raising loans from abroad, Dobb contends that "this was excluded on principle" for Russia. Dobb had made a key error. 110 Sources of eapltal. Sources and methods for raising capital, a social relation borrowed without apology or qua lification from capitalism and applied to a supposedly non capitalist economy were termed "primitive socialist accumu lation" by Preobrazhensky. The term stemmed from Marx' 3 analysis of primitive accumulation mainly through force having opened the way for capitalism.39 Preobrazhensky's argument was that, apart from loans from abroad, the two sources open to the state for eapltal accumulation were the surplus production of State industry itself, due to its own inherent productivity (i.e. the difference between the value of its production and what it paid out in wages and salaries), and what it could derive from the 'exploitation' of small-scale private econ omy by extracting from the latter a greater sum of values than was given to it of industrial products in exchange. The first source was the state economic system proper. To the second source Preobrazhensky applied the term primitive socialist accumulation. He defined it as "the accumulation in the hands of the state of material means obtained chiefly from sources lying outside the state economic system." 39 Marx, Capital, Vol. I, op. cit., pp. 7 8 6-7. Marx had written in parts ". . . The so-called primitive accumu lation, therefore, is nothing else than the historical pro cess of divorcing the producer from the means of production . . . The expropriation of the agricultural .producer, of the peasant, from the soil, is the basis of the whole process." This alienation of the peasant from the soil was to, come, as was an ending of workers control in industry. gee Bobb, Soviet Economic Development since 1917* op* cit., p. 184. Ill H© ©ailed the entire stage the period of primitive or prepar atory socialist accumulation, and the outside spheres of econ omy "colonies.” Preobrazhensky had the courage to admit: ... the necessary economic basis of the transi tion period was a relation of ♦exploitation' between the 'metropolis' of State industry and its surrounding 'colonies'; the former drawing in 'surplus value* from the latter, whereby it expanded the basis of industry, its productivity and the possibility of living on its own surplus, until finally petty private ©eonomy was k crushed out and 'engulfed* in socialist economy . . Two means of carrying out the accumulation were direct f taxation which was severely limited and could be evaded; and the method of market exchange between state industry and the outer colonies. Through a system of "Socialist Protectionism,” the rate of exchange between state industry and the "colonies” could be set to "exploit” the "colonies" and turn their surplus over to the state for purposes of socialist capital accumula tion. This would constitute a monopoly price for state in dustry, although Preobrazhensky wrote that he had avoided calling this "increased prices.” Dobb declares that this was never the official policy. But Hubbard wrote concretely that Preobrazhensky was appointed head of a special financial committee to work out the HEP: . . . To do this he proposed a deliberate issue of paper money as a means of producing the necessary commodities from the peasants. This policy was ^1 Loc "cit., quoting from E. Preobrazhensky, "The FundamentaTTJaw'lJF socialist Accumulation," in Viestnik Komm. Akademia, Vol. VIII, 59 seq., 69-70, 78 seq. followed ... But the results were almost as unfavor able to the State as to the peasants, and In October It was decided to establish a State Bank with the right of issuing bank notes backed by a metallic reserve.^ Although trade was reorganised on commercial principles the interchange between town and country was to serve as a source for manipulation by the government in its continuous efforts to obtain capital. Leaders of government disagreed with Preobrazhensky, declaring that squeezing of the peasants was a limited affair as under war communism, and that the pol icy underestimated the sources of productivity of state industry. Bukharin denounced the theory as trade unionist j and said that a monopolist policy for industry would lead to "par asitic decay.Bykov argued the impossibility of "state capitalism . . . after only three years of HEP, of attaining a state of affairs where only a small number of State organs are required, forming an immediate connection between the factory and the consumer."^ Import of capital. Krassin in 1923 had urged a more liberal concessions policy to bring in foreign capital and raise a loan abroad of 300 to 500 million gold rubles, along with relaxing the state monopoly ©f foreign trade. Others ^2 Hubbard, oja. cit., p. 13. ^Monopoly price" was to be used later as a means of milking both worker and peasant. ^3 Dobb, o|>. cit., p. 1 8 7. These were prophetic words. ^ Loe. cit., from a speech of Rykov on Beeember 29, 113 such as Medvediev in 1924 feared that HEP would mean revival of class differentiations in the village. He proposed raising foreign and internal state loans, granting concessions and seeking credits, which would means sacrifices to foreign cap ital. Bronsky called this proposal "an auction sale of Russia to foreign capital."45 Sokolnikov, the onetime Commissar for Finance, in 1925 proposed giving priority to the expansion of light industry and importing capital goods from abroad. Against this Stalin declared s . . . if we remain at this stage of development in which we do not ourselves manufacture the means of production, hut have to import them from abroad, we cannot have any safeguard against the transforma tion of our country into an appendage of the capit- .. alist system.^® Ordinary business credits were slow in coming in. Be cause of the demands of stabilization of currency and exchange imports were reduced for a time. ------ ^ TCggr:, p. 200. 46 ibid., p. 201, quoting from Sokolnikov*s speech to the Fourteenth Party Congress and from Stalin*s reply. The reply is reproduced in Stalin's Foundations of Leninism (Hew York: international, publishers, 19^2). CHAPTER V RE-ENTRY INTO WORLD ECONOMY Following the revolution dehate raged in Russia as to her relation to the world economy, as exemplified in the oppos lng theories of socialism. In the Far East, where in spite of her weakness Russia was stronger than she was in Europe, diff erences from the early revolutionary policy began to emerge. I. TWO STEPS BACKWARD IN THE FAR EAST Tannu Tuva. The Revolution of 1917 ended the Czarist protectorate from 1912 to 1917 over Tannu Tuva, lying beside Cuter Mongolia. White Russian troops in their retreat from Siberia had overrun both Mongolia and Tannu Tuva in 1921, but were forced out by the Red Army. With its troops in the area the soviet Government ended the old Czarist protectorate "forever1 * and granted Tuva independence. Foreign Affairs Commissar Georgi Chicherin on September 23, 1921 wrote the people of the area: . . . the Workers-Peasant Government of Russia, expressing the will of the tolling masses, solemnly proclaims that It in no way considers Tannu Tuva— the Hryankha region— as its territory and has no aspirations to it whatsoever . . . The Russian Government derives no privileges for itself from the fact that there are numerous Russian settlers on the soil of Tannu Tuva; nevertheless It considers it imperative to arrive at an agreement with the people of Tannu Tuva, with Its administrative 115 organs, concerning the protection of the interests of these colonists, the Russian peasants and workers residing in Tannu Tuva 5 in no case sanctioning the forcible seizure of Tannu-Tuvinian lands. 1 The deliberate colonization of the area by Gzarism was thus renounced by revolutionary Russia. Mongolia, which also had held the area, in its turn had been claimed by Czar- ism. From this auspicious start in the Far East a basic change in policy and lines of march was to come within a few years. Sinkiang. In its first agreement with sinkiang on May 27, 1920, revolutionary Russia renounced privileges accorded to her tradesmen under the agreement of l88l . 2 Azerbaldjan. Re-conquest of Georgia and of Azerbaidjan has been interpreted by some as being out of the direct line of revolutionary policy.3 Khiva and Bukhara. The onetime Gzarist vassal states of Khiva and Bukhara in 1921 were proclaimed people*s Repub lics. But by 1924-25 they had lost their autonomy and were incorporated directly. Lenin had guaranteed the integrity of Bukhara in a treaty with Afghanistan.^ 1 David J. Dallln, Soviet Russia and the Far East (Hew Haven: Yale university press, 1948), pp. 84-5. 2 Ifeid., p. 107. 3 Aaroh Yugoff, Economic Trends in soviet Russia (London: George Allen and Unwin, Ltd. ,""T93o), p. 321. * Dallin, op. cit., pp. 1 9 8, 1 8 2* 116 Outer Mongolia. A Chines© province for many years and a Russian protectorate after 1912-13, Outer Mongolia ■was freed from Russian control when the revolutionary Rus sian government renounced all Czarist rights and claims to foreign lands. As in Tannu Tuva, when the Red Army drove out the White Army, Soviet forces were stationed in the area, remaining for four years. The soviet government signed a new agreement with Outer Mongolia on November 5, 1921, providing for mutual recognition and not mentioning China.. Consulates were pro vided for, Russia was to construct postal and telephone communications, and Mongolia was to ’ 'cede to Russia such territory as would be needed for the -ultimate construction of railroads.”5 soviet economic agencies opened offices and the new bank depended upon the Soviet State Bank. Soviet Russia was willing to give up the special privileges, acquisitions and treaty rights of Czarism, in eluding extraterritoriality, trade privileges, concessions and indemnities from the Boxer rebellion. But concerning 5 ' ibid.Y, p. 191. Dallln's is the best work in English on this episode in Par Eastern relations. Yet it suffers from several defects, one of which can be considered at this point. In his discussion of the period he writes that the trend to ward expansion began nfor the first time® in relation to Buk hara and central Asia, see Ibid., p. 182. Later he calls penetration of Outer Mongolia “the first instance of extension of Soviet control over a neighboring non-Russian area. Ibid., p. 191. Poland preceded both of these. Still, the meaning and not which came first is the vital thing. 117 territorial acquisitions of the Gzar a shift in policy came. Returns of these territories to China would mean letting them fall hack into the hands of imperialists• This was a recurring argument, which increasedin force through the years. Thus the agreement of November 5, 1921, Pavlovsky noted in surprise, "maintained extraterritoriality for the Russians (Article 5); with regard to the territorial limits of Outer Mongolia, Rus sian diplomats . . . confirmed the point of view of their pre decessors.**^ Under the Soviet-Ghinese treaty of May 31, 1924 all previous agreements between the two powers were nullified. Outer Mongolia, the agreement ran, "constitutes a component of the Chinese Republic, and the USSR will respect China’s sovereignty.”7 in a separate note Russia agreed to withdraw her troops from the territory, and all her forces were removed by the following year.® But Soviet military advisers remained after the departure of the troops.9 By this time the region was a secure dependency, **with Soviet ’advisers’ in every government agency, a Mongolian Army actually under Soviet Command, and the Mongolian economy ^ Michel N. Pavlovksy, Chinese-Rus a tan Relations (New York: The Philosophical Library, Inc., 1949 )> P* 7 Dallin, o£. cit., p. 195* ® Pavlovsky, op. cit., p. 8 9. 9 Dallin, op. cit., p. 191• 118 gradually being Integrated into the Soviet eeonomie blood stream.”* * ' 0 Da 11 in concludes that Outer Mongolia, renamed the Mongolian People*s Republic, was the first Soviet "zone" or “sphere.” Chinese Eastern Railway. In the moment of Russia *s weakness China at the end of 1919 assumed military protection of that section of the Transslberian railroad through Northern Manchuria known familiarly as the Chinese Eastern Railway. Content with its swift success, the Chinese government let slip the extraordinary opportunity contained in the famous declaration of Earakhan, who offered to return to China, without compensation, all Russian concessions, including the Chinese Eastern Railway. When, in the following year, the Soviets renewed their offer, their terms were already less categorical* instead of offering the Chinese Eastern Railway as an outright gift, they proposed to negotiate the terms of its return. 11 Negotiations over the return of the railroad were going on when China learned belatedly of the signing of the Soviet- Mongol agreement of 1921, not made public until April, 1922. Swiftly the Chinese government protested. Reminding Russia of her declarations, the Chinese government in its note expressed astonishment at the action “of the Soviet government ^whieb/ is similar to the policy assumed by the former Imperial 10' T8fa:, p. 77. H Pavlovsky, ©£. cit., p. 8 7. Karakhan*s note was sent on July 2 5, 1§19. It Vas in tune with the renunciation of conquests all along the borders, and deserves comparison to the later policy of obtaining border areas. 119 Russian government towards China. Under the terms of the Chinese-Russian treaty of May 31# 1924, “the Chinese Eastern railway was to he considered a purely commercial enterprise. “13 Despite the Russian agree ment to withdraw from Outer Mongolia, sinee the fall of 192k- Russia and China jointly controlled the railway. Each had five representatives in the railway’s administration, and personnel were divided equally. Secretly the Soviet state had no intention of sharing control for any length of time. A commission was set up by the Politburo of the Soviet Communist Party In March, 1926. Trotsky was chairman, and Voroshilov, Chicherin and Dzershin- sky were members, in its resolution this commission asked for “the strict maintenance of the factual eontrol of the line in the hands of the Soviet authorities.0^ While it is going beyond this phase of expansion to conclude the conflict over the railroad prior to the Japanese invasion of China in 1931# It may assist in clarifying the 12 pavTovsky, eg. cit., pp. 8 7-8, quoting the note. *3 David J. Dallln, Rise of Russia in Asia (New Haven: Yale University Press, 19^9)# p.Tptn I* Ibid., p. 254. This “joint0 administration was a normal imperialist, not soviet, type of direction. Trotsky revealed part of this resolution in 1929# In Bulletin of the Opposition, 1929# No. 3. As part of his bio0 with Zinoviev and k&menev In 1925 Trotsky had accepted their position con cerning the Chinese Revolution. Ballin appears to be correct In stating that Trotsky’s attitude towards the railway did not differ from Stalin’s. But he does not explain why. 120 problem to go beyond the general expansionist actions in relation to the railroad. Manchurian authorities seized the Chinese Eastern Railway on July 10, 1929. Chiang Kai-shek, declared on July IT that "Red imperialism is more dangerous than the white.n Next day the Soviet Government quoted from Chiang Kai-shek: Our steps are designed to take the Chinese Eastern Railroad. Our hands contain nothing unusual--we want first to take hold of the Chinese Eastern Railroad, then to take up the discussion of all the questions.15 Armed clashes broke out several weeks later and serious fighting in November, but in December, 1929 China yielded and restored the status quo ante bellum. The dominant leaders of the Politburo, still tied to the revolutionary policy but already moving beyond it, op posed a '"revolutionary war." To gain the railroad, however, they unraveled a new line of policy: that loss of the road would be a gain for imperialists abroad: Voices were heard telling us that the Chinese Eas tern Railroad belonged to us, that the Chinese Eastern Railroad was built with the money of the Russian people, etc. And from these supposedly proletarian but ac tually nationalist conversations the *leftistf conclu sion was drawn that the Red Army must be brought to Harbin. The party refused to take that position. There were still more voices heard to the effect that we must give up the Chinese Eastern Railroad, that the line causes us only unnecessary trouble* and difficulties, etc. This point of view was likewise based on incorrect premises. Xt failed to take account of a detail, namely, that the transfer of the line to 15 ibl&T, p. 260. 121 Nanking or Mukden would be a concession to Isqperialism, tantamount to the transfer of the railroad to the im perialists.10 Unlike the earlier viewpoint that expansion was permis sible as part of a "revolutionary war,” Russia was now rooted in a different economic and political situation. The Chinese Eastern Railway was the shortest route linking Vladivostok and the Maritime Provinces of Siberia to European Russia. En trapped by this contradiction and unable to clothe its actions in the guise of a revolutionary war, the soviet government gave a "defensive” reason for its expansionist move: The Soviet proletariat carries out the administra tion of the Chinese Eastern Railroad jointly with the Chinese (bourgeols-landowners) Government in the inter ests of preventing the transfer of the railroad into the hands of the imperialists subjugating China . . .*7 This was to explain what soviet Russia was doing in non-Soviet areas, without bringing revolution to peoples there. Spheres of influence. In 1925 Victor Kopp, Soviet envoy to Japan had written Litvinov, proposing to alter Soviet policy fundamentally and re-establish the pre-revolutionary arrangement ibid., p. 261, quoting P. Madyard, in Bolshevik No. 2, 1930. ibid., p. 262, quoting Communist International, Russian ed., August 31, 1929, p. By I9 2 0-2 9, then, Russia could administer a capitalist property "jointly, a signifleant departure from earlier revolutionary renunciation of speeial privileges and concessions. The negative or preventative rea son— advanced so frequently by expanding forces— signified that a continuation of this policy could lead to the trans formation of revolutionary poliey into its opposite. Fittingly the "actually nationalist" view was to become the basic policy of 1936-39, and following, years. 122 with Japan so as to establish a division of spheres of influ ence. under the secret treaty of 1912, Kopp pointed out, the division would he along the 116° 1 6* meridian. She plans were discussed in Moscow, hut rejected hy Stalin in a speech In the summer of 1925s Would it not he preferable to establish "spheres of influence" in China together with the other "leading” powers and to grab some parts of China for our own benefit? This would be both useful and safe . . . Such is the nationalist outlook of the new type, at tempting to liquidate the foreign policy of the Octo ber Revolution and harboring elements of regeneration . . . The source of this danger, the danger of nation alism, must be attributed to the growing bourgeois in fluence on the party.1® Stalin's rejection of the proposals of spheres of in fluence, a public measure unlike the secret resolution on sole soviet control of the Chinese Eastern Railway, did not signify opposition to influence in specific areas, a3 events were to show. II. WHAT HEP LEFT Alterations of both the state and economy within Russia and shifts in foreign policy were exemplifed by the ibid., p. 241, quoting from Stalin. Kopp was recalled to Moscow in July, 1926. Expansion of revolution was basic to Lenin's policy; it was expansion by revolutionary means and only secondarily with the aid of Russia's armed forces. Later ex pansion was to have a much different content, a distinction which Dallin neither makes nor accepts. .Was it "nationalism," "growing bourgeois Influence" an* "regeneration" of Czarist.foreign policy which Russian leaders were to put Into effect after 1936? 123 coming to power of the skillful machine politician, Joseph Stalin, Secretary General ©f the Communist Party. By 1924 Stalin had developed the theory of building "socialism in a single country,” as outer imperialist encirclement, cordons sanltalres and trade relations indicated that world revolu tion was not possible for a time. Revolution abroad became secondary. Communist Parties outside Russia, were steadily shifted to the task of neutral izing their bourgeoisie so that no attack could be made by these countries on Russia while the building of socialism went on. Acceptance of this doctrine, merged.with rising nationalism, meant a triumph over proletarian internationalism. It was also a major turning point towards cooperation with capitalist na tions, in place of the policy of world revolution. Step by step the foundations and the men of the October Revolution were to be eliminated. / Commodity production. From 1918 to HEP in 1921 commod ity production, wage labor, money, prices and profits had been supplanted by rationing, allocation and state regulation of war communism, by and large. HEP had reinstituted all these features of capitalism, with the state in control of the "commanding heights." In its turn HEP had gone through an evo lution as "planning" developed and foreign concessions fell off. But the elements of HEP remained as commodity production continued; money was the medium of circulation. Wage labor 124 continued. A surplus over the preceding year was created and a large part of the surplus was appropriated privately. Thus the argument advanced by certain theorists that HEP represented the restoration of capitalism takes on a certain interest; but its precise economic meaning waits on the appli cation of the joint or mixed capitalist corporations and state capitalist concession system not to Russia but by Russia to foreign lands. Else, the argument is an abstraction. When Zinoviev entered the opposition against Stalin, he - said in 1925: Here in Russia, people are now trying to explain the HEP as a manifestation of socialism. This sig nifies the idealisation of the HEP, the idealisation of capitalism. 1° Stalin in opposition to this declared that state Industry and trade were developed enough to be able 4 , of themselves to cement the ties between town and village,w and that the domin ant form of economic life* was no longer * state capitalism.*20 Yet the structure of capitalism remained. Surplus value. Existence of surplus value had been noted in 1922 by L. Martov, who wrote: wln contemporary 19 Yugoff, Economic Trends in Soviet Russia, op. cit., quoting on p. 321 from G.~ Zinoviev, "concerning Imaginary and Real Differences of Opinion in our Party," 1925* 20 Maurice Dobb, soviet Economy and the War (Hew Yorks international Publishers, 1943), P* 16, quot!ng“stalin. Al though the free market relation between industry and agricul ture was now state controlled, this by itself was not a step beyond capitalism. 125 Russia the workers are once more engaged In producing surplus value for other classes.Trotsky added by 1927: The appropriation of surplus value by a workers* state is not, of course, exploitation. But in the first place, we have a workers* state with bureaucratic distortions. The swollen and privileged administrative apparatus devours a very considerable part of our sur plus value.22 Trotsky meant that great inequality in distribution, of the surplus above costs and replacement had opcurred. The existence of surplus value and the capital relation of workers to state industry are the important elements of the problem here. Marx explained the beginning and the next stage: Just as at a given stage in its development, com modity production necessarily passes into capitalistic commodity production ... so the laws of property that are based on commodity production, necessarily turn into the laws of capitalist appropriation . • .3 Who did the appropriating will be described in a few paragraphs. To those who object that the property relations in Russia differ from those of capitalism, Marx made reply when describing commodity production, which no one can deny exists in Russia, and concerning wage labor: ... So long as the laws of exchange are observed in every act of exchange, Individually considered, the mode of appropriation may be completely revolutionised 21 yugoff, op. cit., p. 328, quoting from L. Martov, ^Dialectic of the STc tat or ship,n Sotslalistlchesky Vestnlk, 1922, Ho. 3. 22 i,eon Trotsky, The Real Situation in Russia (Hew York: Harcourt, Brace and Company, 1928), pp. 4l-2. 23 Karl Marx, Capital, Vol. I (Chicago: Charles H. Kerr and Company, 1906), p. 6 3 9• 126 without In the least affecting the property right bestowed by the production of commodities. The same right remains In force, whether it be at a time when the product belonged to the producer . . . or whether It be under capitalism, where the social wealth becomes in an ever Increasing degree the property of those, who are In a position to appropriate to themselves again and again the unpaid labor of others. This result becomes inevitable, as soon as labor- power Is sold as a commodity by the "free0 laborer himself. It is from that time on that the production of commodities becomes universal . . . the property laws of the production of commodities are converted . „ into the laws of capitalistic appropriation.24 Notedly this transformation of commodity production into appropriation by a few occurs even where as in Russia under basic law "the product belonged to the producer" in theory. This obtained so long as commodity production continued. That the law of value could apply to Russia was freely admitted by the leading economist, Preobrazhensky, with a qualification which does not exclude Marx's view: In our country where the central and planned econ omy of the proletariat has been established and the law of value limited or replaced by the planning prin ciple, foresight and knowledge play an exceptional role as compared with the capitalist economy.25 In the 1940*s Russian economists were to extol the law of value as necessary so long as it is controlled, while Marx --------------- pp. 643-4. 25 E. Preobrazhensky, The New Economics (in Russian, 1926), p. 11, quoted in Paul M. Sueezy, The Theory of Oap- italist Development (New York: Oxford University press, 1942), pp. *>3-4. jjweezy denied that the law of value ex ists in Russia, yet Russian economists were to accept its existence under the harsh blows of war. Preobrazhensky's was a more developmental approach, that the law could be limited or replaced, not that it had been. had flatly denied that his entire system of political economy, including the law of value, could he applied to any other so- lnto Hone single capital,” or total trustification, all had Capital ... Is here directly endowed with, the form of social eapltal ... as distinguished from private capital, and its enterprises assume the form of social enterprises as distinguished from Individual enterprises. It is the abolition of capital as private within the boundaries of capitalist production How Important this credit is for the existence and appro priation of a surplus by the state is shown by Marx: The specific form In which unpaid surplus labor is pumped out of the direct producers, determines the relations of rulers and ruled ... It Is always the direct relations of the owners of the conditions of production to the direct producers, vhieh reveals the Innermost secret, the hidden foundations of the entire social construction, and with it of the polit ical form of the relations between sovereignty and de pendence, in short, of the corresponding form of the state.2® 2C ^tie Titerature on the law of value will be treated in the chapter on Russla*s internal economy. Marx had applied the law only to the historically limited capitalist society, and had declared, *every historical period has laws of its own.” Marx, Capital, Vol. I, opt. cit., p. 23. 27 Ibid, vol. II, Ch. 27. 2® Ibid., Vol. Ill, p. 919. This condition exists even where the producer nominally controls or rather owns his pro duct legally, so long as commodity production obtains whether privately or In and through the state. ciety than capitalism.2^ State capitalism, centralization or merging cf capital been included by Marx and Engeles. 'When writing of the role of credit Engels went so far as to 3tate: Investor class. It Is now possible to describe where the surplus went, that Is, how it was appropriated. Turin writes that HEP collapsed as the relations between industry and peasant agriculture were more thoroughly directed by the state, in the process of eliminating other forms of control, "The entrepreneurs were not quite sure that what they had built up would remain their own, and, naturally, lacking this assur ance, did not want to take risks.”29 Private capitalists disappeared, and on the whole no private hiring of labor, no single, individual capitalist could be found. Host analyses of Russia's Internal economy that contend socialism has been attained rest on this disap pearance of the individual capitalist. Russia Is thus con sidered "socialist" by definition of an end to private capital. The history of Czarlsm has shown that a system of state monopoly capitalism has existed in Russia since mercantilist days,.with or without private capitalists. The state provided capital. Capitalism can retain the capital relation without a single private entrepreneur. Engels wrote: " 29 s. p. Turin, The U.S.S.R. (London: Methuen and Com pany, Ltd., 1948), p. 157• Concerning risk, Russian economists contend that state Investment of capital eliminates risk; but administrative costs remain, in his work, The General Theory of Employment, interest, and Money (Hew York: Harcourt, Brace and Company, 193b), «fohn Mayna9d Keynes noted on p. 221: "Though the rentier would disappear, there would still be room, nevertheless, for enterprise and skill In the esti mation of prospective yields about which opinions could differ." The opposite happened In Russia, and elsewhere. 129 State property shows that for this purpose the bourgeoisie can fee dispensed with. All the social functions of the capitalists are now carried out fey salaried employes.3« Marx had described the process of transformation of the actually functioning capitalist into a mere manager, an administrator of other people*s capital, and of the owners ©f capital into mere owners, - mere money capitalists.31 Blake added, **the capitalist is rendering himself func tionally superfluous•”32 Bukharin declared, ”The bourgeoisie is feeing transformed into rentiers who have about the same relation to the great financial institutions as they have to the State whose obligations they acquire; in both cases, they are paid their interest and have nothing else to worry about.” Rentiers woften do not even cut their own coupons.”33 Under mercantilism direct investment in state corpor ations existed. In the later state corporations the entre preneur if he existed, was replaced, but the investor remained. Russia*s structure of private investors is close historically 30 garl Marx, Selected Works, Vol. I (Moscow: Cooper ative Publishing society, 1936), pp. 178-9. 31 Marx, Capital, vol. I, og. cit., p. 689* 32 William J. Blake (Bleeh), Elements of Marxian Economic Theory and its Criticism (Hew York: Gordon Company, 1939)* P» 593. 33 Hikolai Bukharin, The Economic Theory of the Leisure Class (Hew York: International Publishers, 1927JV PP• 2 ^-2 6 , quoting from L. Parvus In Der Staat, die Industrie under der Sozlalisinus, Dresden, pp. IGS-TI Parvus, one of the modern developers of the theory of permanent revolution, became a leading international investor, a sort of socialist Ricardo. 130 to other forms of state monopoly capitalist enterprise using production for the market, money and wage labor, and the forms of investment through credit. Moreover, it is entirely pos sible, as Marx pointed out, to have a separation of ownership and control, with the private capitalist gone completely or rendered functionally superfluous, while capitalism could re main* In most state Investments the investor can receive pay ments of interest but cannot obtain the principals Thus Yugoff had noted: . . * surplus value flows away from production to enrich State dignitaries, to pay the highly-salaried directors and advisers, to support the inflated offi cial staffs, to satisfy the appetites of the huge army of "red® traders, brokers, and purveyors, and to pro vide funds for corruption, for excesses, and for pecu lations* While he has not considered the revival of the investor Yugoff continueds In these nationalised enterprises, there are no capitalist owners; but they have to support thousands of persons who are economically superfluous and many of whom are entirely parasitic. . . When the worker Is thus exploited, It matters little to him whether the exploiter is a private capitalist or a parasite of some other kind . . .3^ But economically, commodity production leads directly to private appropriation, even and especially through the state, as the vast growth in state bond purchasing establishes, a tendency greatly expanded In Russia itself In a short time. Bond sales increased greatly during the second world war. 3^ yugoff, o£. cit., p. 328 131 Leon Trotsky who incessantly searched for a private capitalist and overlooked entirely the role of the rising investors has shown abundantly how the "swollen and privileged administrative apparatus devours a very considerable part of our surplus value . . . the growing bourgeoisie, by means of trade and gambling on the abnormal disparity of prices, appro priates a part of the surplus value created by our stable in dustry. "35 The real economic development into appropriation through the. state has been largely unanalysed in recent years. Only by the end of the second world war was the tendency to reach such heights that in Russia the ruble millionaires emerged, billions of rubles in loans were held privately by many per sons and, above all, investment abroad, running into the bill ions of dollars, gave a share of profits out of the production of non-Russian labor. The right to receive an unearned ineremerfc thus remains in Russia, where "risk" is supposedly absent. » f Strikes. The labor relations whiGh Russians term produc tion relations had by 1928 reached a point where the soviet state guaranteed the foreign concessionaires that there would be no strikes. Yugoff complains of soviet press reports of those days in which the concessionaires were satisfied that "with the surpport of the trade unions" they were able "to 35 Trotsky, op. cit., p. 41. Why "surplus value" continued in a "working-class society Trotsky does not ex plain. , 132 introduce a piecework system into their enterprises. ”36 quoted from izvestla: In no other country does the employer find such peaceful labor conditions, for it is enough that he should be on good terms with the trade union, and then any possibility of a strike will be out of the question.37 Yugoff wrote that the Russian workers had been deprived of the right to carry on strikes. Concerning this Trotsky specified: On the question of strikes in the state indus tries, the decision of the eleventh party congress, adopted tinder Lenin, remains In force. In ease of.strikes in the concession industries, the latter shall be regarded as private Industries.38 These guarantees to the foreign concessionaires were a vital element in showing how far Russia was already willing to go to obtain capital goods from abroad. But their effect within Russia, coupled with other factors, was to Increase the amount of profit and to drive for anti-strike policies Internally. Moreover, like the components of HEP, the no strike policy continued on into the present, long after the concessions were terminated. Collectivization and accumulation. The HEP relation to peasant agriculture was also moving through a process 3'6 'Yugoff, Ibid., p. 231. 37 Loc. cit., quoting a statement of a concessionaire in Izvestia, October 7, 1928. 38 Trotsky, e > | > . cit., p. 5 8. 133 of change beyond the open market principle to a type of state regulation of marketing. But it would not be correct to ac cept the view of Trotsky that the "twenty-five million small farms constitute the fundamental source of the capitalist tendencies in Russia.w39 The investor, acting through the state, was already emerging; and by a process of somersaulting Russia shortly was to be transformed herself into an investor abroad. nevertheless it was not until 1928 that- wholesale col lectivization could begin, eleven years after the revolution in which the peasants had seized the land. To end peasant ownership in the form of possession, although the state had legally nationalised the land, was to be a ruthless and bloody process. It established again that the debate on where to raise capital— from abroad, from the peasant, and out of the surplus of workers in state industry— was the compelling necessity that drove Russiafs leaders to take desperate measures. Marx had described primitive accumulation as **the expro priation of the agricultural producer, of the pasant, from the soil.” Preobrazhensky had called this primitive ^socialist*1 accumulation in relation to taking a surplus from the peasants through monopoly prices. He had never called for their outright dispossession, I.e., divorcing the peasant producer from the instruments of production. This more intense form of accumulation 39 Ibid., p. 35* 13^ Stalls was to Institute. Pact of 1926. in October, 1925 trading methods were reorganized and joint stock companies, limited liability com panies and syndicates for important commodities in export trade were set up to handle export and import trade. They dealt in entire classes of commodities. By the end of 1925 relations with the outer world grew as trade increased. Russia agreed to send a delegation to attend several inter national conferences. Trade rose especially with Germany. Economic concessions were given to Japan as the price for her abandonment of military occupation of Northern Sakhalin In 1 9 2 5. Berlin and Moscow on October 12, 1925 concluded an economic and legal treaty covering conditions of residence and business and legal protection. A concession was granted in 1925 to the Lena Gold Fields Company, a British and Amer ican concern, for mines of various kinds In the Urals and Siberia. Involving an investment of eleven million dollars, the concession was to run for fifty years. Under a law of February 25, 1926 the German Government guaranteed payments for Soviet orders of 300 million marks \ for a period of from two to four years. Yanson, a Russian foreign trade official, wrote of this, "After the expiration Alexander Baykov, soviet Foreign Trade (Princeton: Princeton University Press, 194b), pp. 13-67 135 of that credit, direct trade negotiations concerning new orders and their financing were carried on . . At the time of voting to ratify the L0carno agreements Germany had requested admission into the League of Nations. She was de nied entry in 1926. Considering this an affront, German lead ers on April 26, 1926 negotiated an agreement with Russia. Signed at Berlin, the Treaty of Neutrality strength ened the Rapallo accord and compensated Moscow for Locarno. As was so noticeable later this agreement was the parent of the Hitler-Stalin main public pact of August, 1939* Recog nizing that the interests of the two peoples demanded “con stant and trustful cooperation,” the treaty noted that the two governments shall "promote an understanding with regard to all political and economic questions jointly affecting their two countries.*'1 * ' ^ Russo-German trade in 1 9 2 6 -2 7 amoun ted to 325-million marks. III. IMPORT OF TECHNOLOGY At the International Economic Conference in Geneva in the spring of 1927 Soviet delegates succeeded in obtaining agreement on a Russian formula for world trade: ^1 J. D. Yanson, Foreign Trade In The U.S.S.R. (Lon don: Victor Go1lanez, Ltd., 1934), P.T 26V 42 j p 0r allegedly acting as an agent of Germany, Kres- tinsky who signed the pact for Russia was shot in the purge trials of 193o-37« 136 Considering the great importance of the full par ticipation of the U.S.S.R. in world trade, the Con ference recommends that all the states develop their relations with the U.S.S.R. on the hasis of a peaceful co-existence of two different economic systems.43 Over this shift in approach to foreign relations was consum mated the basic split between Stalin and Trotsky, and the resulting great purges and expansion of the 1939 year of diplomatic activity. The contrast between the opposing Russian factions may be only partially gleaned from their pronouncements on world trade. Writing of the foreign trade monopoly, Trotsky who took the internationalist position wrote: . . . it is a weapon necessary . . . when the cap italist countries possess a higher technique . . . The goal . . . ought to be, not a shut-in, self-suf ficient economy . . . but Just the opposite— an all sided Increase of our relative weight in the world system, to be achieved by Increasing our tempo to the utmost.44 At that time there was even a difference over tempo of indus trialization. 43 Mallbone W. Graham, "The Peace Policy of the Soviet Union," in The Soviet Union and World Problems (Chicago: University ot Chicago Press, 1935)» PP* 25-6• 44 Trotsky, op. cit., p. 84. In an interview with a foreign workers* delegation in the autumn of 1927 Stalin said: "that for the workers, the abolition of the monopoly of foreign trade would mean refusal to industrialise the coun try . . . That would mean an inundation of the U.S.S.R. with goods from capitalist countries . . . For peasants this would mean the transformation of our country from an ^independent one into a semi-colonial one with an impoverished peasantry." See Yanson, op. cit., p. 24. Despite the differences, both factions agreed on the basic characterization of soviet economy. 137 Trotsky proposed in effect a vast increase of exports and economic competition for the world market, and an increased participation in world trade as part of an "example1 1 tech nique. Stalin was to come to this later, but in a far diff erent way in 1939 and after. By 1928 Stalin had eliminated internal opposition and with the first five year plan had set out to buildmp the economic and military power of Russia, re lying on its own national strength in place of aid to and from the international working classes. No 3mall part of the empha sis on increase of heavy industry was designed to gain Russia independence from capital import and, subsequently, to give her a capital export position. German trade. Trade with Germany in 1927-28 rose to more than 430 million marks, with German exports making up approximately 60 per cent of the total. On December 21, 1928 Germany and Russia agreed to a protocol to their treaty of October 12, 1925• A month later, on January 25, 1929, they signed a Moscow convention regarding conciliation procedure. Deropa, a company, was set up to carry out trade func tions in the sale of Russian oil products. A protocol ex tending the nonaggression and neutrality pact of April 24, 1926 was signed on June 24, 1931 in Moscow, it also extended the convention of January 25, 1929* In April, 1931 came an agreement under which the Germans granted an additional credit of 3GO million marks. 138 Concessions. A major decree permitting Investment of foreign capital in all branches of Russian industry was issued in September, 1928. Bettelheim wrote that this was ”without appreciable results.*1 ^ gut direct investment was not the only form of capital import. Meanwhile the International General Electric Company of the United States extended a cre dit of twenty-five million dollars in 1928 to use for purchases of materials. Russia paid in notes which were the direct ob ligation of the government.46 By the end of 1929 foreign concessions totalled 59: 13 German, 11 Japanese, 6 American, 5 British, 4 Polish, 3 Swedish, 3 French, and 14 others. The value of their output as of October 1, 1928 was approximately 8 5. 6-milllon rubles, or a fraction of 1 per cent of the production of state indus tries.^7 Foreign concessions fell to 27 in 1931, and prac tically vanished as the Russian government bought them up. Hone exists today, I.e., within Russia. Technical aid. Technical aid contracts whereby for- 45 Charles Bettelheim, La Planlfication Sovietique (Paris: Marcel RIvidre et Cie,, 1939), P* 22 46 Hans Heymann, We Can Do Business Wito. Russia (New York: Ziff Davis Publishing Company, 1945), p. 4l. Mikhail V. Condoide, Russian-Amerlean Trade (Colum bus: Ohio State University, 1946), P* 60. He reports that the Concession Committee of the Council of Peopled Commis sars ceased to function. In later years Russia was to revive concessions, this time with Russia supplying the capital and foreign lands serving as the sphere for investment. 139 elgn firms aided Russia with technical processes, trade sec rets and by sending engineers and skilled workers to act as instructions "are of greater importance than are conces sions, " Condoide wrote.^ 8 soviet engineers were admitted to plants in foreign countries under the contracts. The United States was ineluded in the agreements. Most of the arrangements, which totalled 13^ in 1 9 3 1» have expired. The irnpaet of American technology and business organ isation on Russian economic life was enormous. Trotsky called leaping whole stages to adoption of the latest technique along side the most primitive "combined development." Sorokin wrote that indirectly the United States had exercised great influence "through Russia's adoption of more and more American inventions, ranging from the steamboat . . . up to . . . mass production technology in industry." American engineers and business experts, he noted, guided construction of such enterprises as the Bniepro3troy dam, Magnitogorsk and collectivization. As a result, "the whole industrial and technical plant has been remodeled along strictly American patterns."^ The highest aim was to reach the American level of economy. ^ Loo."cit. ^9 pitirim Sorokin, Russia and the United states (Hew York: E. P. Dutton and Company, Inc., 1944), pp. 166-6 7• Today with Russia a capital exporter she must needs assert superiority of her own capital goods and therefore claim to have invented practically all of them. The United States is thus surpassed in paper claims. CHAPTER VI DEPRESSION AND SELF-SUFFICIENCY As part of the first five year plan and the reorganis ation In 1930-31 of the foreign trade commissariat, Increased exports were envisaged Mto pay for the import of equipment necessary to build industries. The export drive came at the beginning of the world economic crisis which had a nearly devastating effect on Russian trade, as "prices on most soviet commodities were falling rapidly."2 I. DUMPING So low had prices fallen that truly Russia was caught in an International "scissors" movement for her then chiefly agricultural exports; farm prices fell more rapidly than those for finished industrial products. Charges of ’soviet dumping * and 'use of forced labor' were advanced. Many countries raised discriminatory customs restrictions, and Russia was forced to intensify internal capital goods production. Her re-entry into world trade was blocked at the very moment she most needed foreign capital to aid the collectivization drive. 1 Alexander Baykov, Soviet Foreign Trade (Princeton: Princeton University Press, l9^)> P* 17• 2 ibid., p. 18. 141 Russian representatives in 1931 at the League of Nations pointed out that the difference between the soviet Un ion and other countries with respect to the possible intervention of the state in the economic sphere was not so great as might appear at first sight, given the prevalence in other countries of import and ex port restrictions, exchange controls, government (spe cial) monopolies, cartels . . The United States embargoed certain Russian exports and taxed Russian anthraeite coal. Russian imports from the United States fell from $103.7-million in 1931 to $12.6-million in 1932, and to $8.9-million in 1933* In retaliation Russia decreed on October 20, 1930 that where countries had introduced special restrictions, Russian trade with them would be reduced. Nevertheless Gersehenkron objects to applying the term dumping to Russia: It is difficult to apply the concept of dumping in its strict sense to the Russian economy. Besides, given an over-valuation of the ruble, all Russian exports appear to assume the form of dumpings but the danger of a vigorous underselling by Russia on. foreign markets, although possible, is not likely.^- 3 Mikhail V. Condoide, Russian-American Trade (Colum bus: Ohio State University, 194b), pp. 29-30. Stephen Enke and Virgil Salera had written; "As the Great Depression deepened during the early 1930's, it gave birth to a new mercantilism, or economic nationalism.” see Internat ional Economics (New York: Prentice-Hall, Inc., 194?), p. 61. fEey added on p. 65: ”Many governments subsidized exports . . . The United States authorized subsidies . . . subsidization of exports was usually regarded as a form of dumping." 4 Alexander Gersehenkron in "'The Annals of The Amer ican Academy of Political and Social Science,” The Soviet Union Since World War II, Vol. 2 6 3, Philip E. Mosely, Ed. (Philadelphia; The American Academy, 1949), P* 4. Russian prices were above world prices generally speaking. 142 Russian exports had averaged nearly 4 per cent of the total -world exports before 1 9 1 7. After 1924 exports fell to a little more than 1 per cent and in 1932 reached their maximum of 2.3 per cent of -world totals. This rise in depression years was at variance with the generall fall of world trade; but Russian imports also fell off drastically. She was forced at tremendous sacrifices to increase her ex ports because of her commitments abroad. So small was total Russian trade in the world, with imports in 1 9 2 5 -2 8 reaching 1. 1-1.4 per cent of world figures and dropping to 0.9 per cent in 1937» that Baykov wrote: It is clear, therefore, that the USSR could not materially influence developments in the world mar ket; on the contrary, it must reckon with their con sequences .5 World market rules. Not all writers accept this view point that it was precisely considerations of the world market that had forced Russian imports precipitously downwards. Par adoxically this required on Russia. fs part a great outpouring of exports, by the state nearly starving the population at home, in order to pay for credits and capital goods from abroad. Yanson gives the official Soviet view; The decline in Soviet foreign trade In 1932 was by no means due to the desire of the Soviet Union to curtail its trade relations. Under the restricting 5 Baykov, og. cit., p. 64. Baykov's approach was en tirely realistic. 143 trade and political measures of the capitalist coun tries, the^exports of the U.S.S.R. began to fall In 1931 . . .b Analysts who wrote later about the period managed to find any explanation but this quite reasonable political- economic one. Turin, for example, wrote: This contraction of Soviet exports was due not to the economic crises or any other currency diffi culties of the capitalist market (from which Soviet goods and prices were almost immune), but to the gen eral character of the whole Soviet National Economy.' Cressey added: Owing to the relatively self-contained character of soviet expansion, it was little retarded by the world-wide depression of the early 1930*3. This was very nearly Msocialism in one country” gone mad. As Baykov wisely wrote: Discussions of the Soviet foreign trade system . . . often lead either to a theoretical enumeration of all the potential dangers of this system with re gard to dumping, discrimination . . . or to an exag gerated expectation that, if the Soviet government so deeided, it could completely change the character of its economic relations and the amount of its trade b J. D. Yanson, Foreign Trade in the U.S.S.R. (London: Victor Gollanez, Ltd., 1934), p. 57. 7 s. P. Turin, The U.S.S.R. (London: Methuen and Company, 1948), p. 144. 8 George B. Cressey, The Basis of Soviet Strength (New York: McGraw-Hill Book Company, Inc.,T9^5), P* 125. Condoide also wrote: wThe state monopoly of foreign trade has made it possible for the soviet authorities to plan, produce, and fix prices without the possibility of foreign imports disturbing the production and price programs.*1 See op. cit., p. 26. These views constituted a nearly total <Iissociation of Russia from the world market and a reading into economic relations of factors that were not present. 144 ■with particular foreign countries. Needless to say either approach to the problem is fallacious . . .10 Most of these writers did not note that Russia, being mainly agricultural, was less affected by world depression. She was still cut off from much of the world market, e.g., the trade treaty with the United States did not come until several years later. Yet Russia suffered greatly notwith standing, as her efforts to gain capital credits indicated. These are the same writers who after 1936 were writing that Russia had achieved socialism, which to them in theory is an economy superior to capitalism, but one which they recog nize in practice cannot compete favorably in world markets. Russia requires the state monopoly of foreign trade to pro tect the internal economy. Depression within Russia. The impression has been spread widely that Russia not only avoided the great depres sion but went on to even greater heights of production. To the views of Russian writers that their country had become independent of the business cycles of capitalism, Gerschen- kron opposed the facts: . . . this of course does not mean that Russia did not suffer from the Great Depression. Russia was substantially affected by price and income devel opments in the outside world precisely because she was under the necessity of inporting given quantities of foreign machines ana metals and had to pay for them by foreign exchange, from her own exports ... Baykov, og. cit., p. v. For one of its outstanding features was that the prices of agricultural products and raw materials fell much more than those of industrial goods.H Russia was caught in the international price "scissors. Dohh who shortly was to call Russia ♦socialist1 wrote of "crop failures" in 1931 and 1932 that resulted in near mfam ine conditions in certain areas,” hut promptly ascribed this to a coinciding with unfavorable weather conditions.12 g© recognized, however, that prices of agricultural products on the world market had fallen greatly so that the terms of trade were turned to the disfavor of Russia "probably by as much as 30 per cent . . . consumption per head was re duced ..." A "goods famine" was created and, while collec tivization was intensified, peasants slaughtered their cattle rathern than turn them into the common pool. After showing that the harvest was bad Hubbard wrote that this condition combined with the cattle slaughter to force a "more rigid . . . rationing of foodstuffs . . . than ever."13 Concerning the Internal crisis Hubbard^ analysis is unsurpassed: If an economic crisis be defined as an unpredicted disturbance In the orderly deveGbpment of production and consumption, resulting either in a shortage of goods or a shortage of effective demand— that is, in the phenomena usually termed underproduction or over- H Gersehenkron, up. cit., p. *0. 12 Maurice Dobb, Soviet Economy and the War (Hew York: International Publishers, 19^3), PP• 23, 25• 13 Leonard E. Hubbard, Soviet Trade and Distribution .(London: The Macmillan Company, Ltd., 193&), P* 55• 146 production— then the economic history of the Soviet Union, since planning superseded the relatively free market of N.E.P., has been a succession of crises, ( for at practically no period during that time has there not been a shortage of something? in 1932, for instance, a real shortage of food of all sorts, in latter years shortages of boots, sewing thread, matches, etc. If planning is immune from some of the defects of capital ism, it seems to possess peculiar faults of its o w n .*4 As Yugbff was to demonstrate the planners lacked the ability to foresee. Pro-Russian writers would retort that the shortage itself is planned. But the Russian economy was securely linked to the world market. II. TURK 10 SELF-SUFFICIENCY Faced by unfavorable trade conditions abroad the sev enteenth Conference of the Communist Party in 1932 resolved: "We must make a sharp turn in order to free our country as completely as possible from dependence on foreign nations. **15 The theory of socialism in one country was merging with the worldwide nationalist drive for self-sufficiency, which lay at its base. Russian leaders sought to build up internal cap ital strength and a favorable trade balance. So unfavorable was the balance of trade that Russia was forced to accept foreign credits at very harsh terms. 1 ibid7, pp. 344-5. Hubbard remarked, f l So long as capital investment continues on the present scale an employ ment crisis is improbable.” What obtains beyond? Expansion abroad? William Henry Chamberlin. The Russian Enigma (New York: Charles Scribner*s Sons, 1948)/ p. lf£. 147 Her foreign indebtedness rose from 485 million gold rubles in 1928 (with the gold ruble then equal to 0.5146 American dollars) to 1/400 million gold rubles in 1932. Internally difficulties resulted from the world crisis. Baykov said: Some of the exported agricultural and industrial commodities Included foodstuffs and other consumers1 goods urgently needed for domestic consumption. Baykov continued: . . . the consumption of bread, sugar, butter, etc., was rationed; in 1931> 12.2 per cent of the en tire wheat crop was exported as well as 22 per cent of the country-s sugar and 37-7 P©2? cent of the butter production. Primitive "socialist** accumulation, or obtaining capital goods through an advantageous exchange of industrial products for agricultural goods, had now reached the point where Baykov could write of the drive for capital imports: It is Important to stress again that the export of foodstuffs, at a time when the population of the USSR was strictly rationed, was necessary in order to obtain the foreign exchange needed to pay for imports.^7 Such was Russia's "Independence” of the world market. At last Russia marketed two gold bond Issues in the United States, one for $l-iaIllion in 1932, another for $10- million in 1933» "by the Soviet-Ameriean Securities Corporation. Amtorg In July, 1933# was advanced funds by the Reconstruction Finance Corporation for purchasing cotton, and $4-million ^ Baykov, o£. elt., p. 51• ibid., p. 5 2. 148 worth of cotton, or 64,200 bales were purchased by the All- Russian Textile Syndicate, Inc. Import of capital. In this period nearly 90 per cent of imports were made up of producers' goods, so that the possibility of reducing imports could arise later. By 1932 a sharp fall in imports set in. A. P. Rosengolz, People's Commissar for Foreign Trade, on April 23, 1933, said: « ... we were obliged, in a number of cases, to buy the necessary means of production in capit alist countries, sometimes under very unprofitable conditions; we had not seldom to agree to compara tively short credits and put up with considerable overpayment for the credits granted, and these were very often based on artificially raised prices. How our hands are free ... We shall not agree to an increase of Imports without the removal of the former overpayments that took place . . .1° These were the real terms of the effect of world de pression on Russia. Concerning the structure of Russian trade, Litvinov noted two peculiarities and advantages for other countries: . . . the Soviet Union imports mainly manufac tured machinery, equipment and semi-manufactured (metal) goods, while it exports almost exclusively raw materials necessary to other countries; . . . A second specific trait is that we sell raw materials not for the sake of accumulating gold or foreign cur rencies, but for the nelargement of our imports.19 1^ See Yanson, og. cit., p. 31. 19 Ibid., p. 9 6. This was to shift radically by 1936-39 as Russian exports of machinery and other finished capital goods grew. 149 After Litvinov addressed the World Economic Confer ence in London in 1933, Stalin, speaking of the prospects of Husso-American trade, remarked: What Litvinov said at the Economic Conference in London still holds good (i.e., the readiness to give orders for one thousand million dollars). We are the biggest market in the world and are ready to order and pay for a large quantity of goods. But we need favorable credits and conditions; moreover, we must be sure that we can pay . • 4 In looking back over tills entire period Dobb ignored most of this process and started instead as if Russia with a powerful capital goods industry in 1939 had always been cap able of development economy by herself. In direct contrast to Stalin, Dobb wrote: ”The transformation had to be fin anced from Internal resources.”20 j j e considered that foreign capital aid was on a limited scale in the form of concessions and practically zero thereafter. His view is that Russia was independent of the world market, and he set out to apply this to the 1920's and 1930's. This approach was incorrect for both decades. By 1939 Russia had become a capital exporter and had set out to obtain a section of world trade. Why foreign trade. Prom foreign trade monopoliza tion the Russian state drew profits, which she used for the 3-9 ibid., p. 124. 20 Maurice Dobb, Soviet Economic Development Since 1917 (New York: International publishers, 1948), p. lBd. Dobb has held to this view in contradiction both to the facts and state ments of Russian leaders. 150 purchase of more capital goods from abroad. At this time Yanson, echoing Stalin, explained that, The seizure of markets, which other countries carry out, has never been the aim of Soviet foreign trade. On the contrary, the U.S.S.R. has imported the necessary raw materials and machinery for the needs of its construction and industry. The aim of Soviet exports is to cover payments for imports.21 He emphasized that there was an unlimited demand in the Russian home market. The capacity of the internal econ omy to absorb imports was truly great. Slowly, as capital construction at home grew the aim of foreign trade was to shift drastically, once the major capital shortage had been overcome. Most favored nation. In most of the trade agreements Russia extended most favored nation treatment, although trade continued on a plane of relative equality, given the condition of Russian weakness, even where no trade treaty existed. Two general types of treaties were used, one a credit from abroad for purchase of capital goods, the second a reciprocal lower ing of customs duties. Relations to America were to follow the latter type in the main. Agreements up to 1936 included provisions to charter tonnage under flags of other lands. Generally Russia pro nounced herself against wany kind of economic aggression, 21 Yanson, o£. cit., p. 171. ’ When Russia was weak she held to this view of balancing exports and imports. When she became stronger this approach was fundamentally altered. 151 any kind of economic attack, against discrimination."22 Still the presence of a foreign trade monopoly "de prives most-favored-nation treatment, when granted by the monopoly country, of value and significance."23 But where many states had set up near-monopolies of foreign trade this was not a decisive criterion. To a large extent Russian tar iffs are fiscal means, they are protective. There is, however, no guarantee in the agreements that Russia will increase pur chases from a country which extends her concessions. The spifcit of equality is limited. Retaliation and counter-measures against discrimin atory treatment arose. Moreover, Russia in some cases used bilateral agreements. For this period Russia had found no "higher" economic forms of trade relations than capitalism had developed over the centuries. III. FAR EASTERN MOTES TO THE RIGHT From 1926 to 1930 the Soviet state built a railroad from Siberia to Turkestan, the Turksib, partly to develop nearby industries, partly to oppose British penetration into Sinkiang. At first a leading official, Artemi Khalatov, 22 Ibid7, p. 35. Yanson favored retaliation. 23 Alexander Gerschenkron, Economic Relations With The USSR (New Yorki The Committee on International Economic Policy,' " 1 9 4 5), p. 3. He complained of how trade with Russia moved in fits and starts. 152 noted that the Turksib was to "prevent the penetration of western European capitalism into Sinkiang."2^ Another com ment was that with the opening up of transportation to "this lost country," it "will he increasingly attracted to the Soviet Union economically, particularly if, in addition to this great line, other lines are opened and if /other/ a roads are inproved." On October 31, 1931 a secret agreement was made with a local leader, in contrast to the earlier renunciation of all secret treaties. Sinkiang apparently has mineral wealth in lead, iron, copper, gold, coal and oil. under the agree ment Russia was to furnish goods and military supplies in return for "far-reaching trade concessions and privileges."2^ Russia was to send experts into the land, and in Decem ber, 1933» understanding was reached secretly for Russia to grant military aid to a Sinkiang leader. Dallin wrote, "On the other hand, Sinkiang promised Russia mining, oil, and gold concessions and the right to build a railroad from Chuguchak to Urumchi . . ."26 2^ David J. Dallin, Soviet Russia and the Far East (Hew Haven: Yale University Press, 194B), P» 9l• In 19^7 Russian economists could find no superior economic idea than this: to enter an area before possible rivals could. 2* * Ibid«» P* 96* This marked a complete transformation of earlier revolutionary policy; but it was isolated. 2^ rblfl»* P* 97• Russia once again, as under Czarism, had resumed the pursuit of concessions and special privileges, as well as the building of industries abroad. 153 Tannu Tuva to 1931* Given a Soviet-type constitution, Tannu Tuva was forced into the collectivization drive. Her foreign trade was monopolized and concentrated under the Soviet Siberian Trading Agency, with all her foreign trade going to Russia. Soon the collectives attempt was abandoned in the nomadic land, and cooperatives were established, but this hardly altered the "colonial character of the trade.I,27 As Preobrazhensky had proposed for peasants within Russia, so Russia through her monopoly of the Tannu Tuva market arbitrarily fixed prices for imported Soviet goods. The next move was to link the small province to the growing in dustries of the Kuznetsk basin in western Siberia. Outer Mongolia. Also "collectivized" by degree was the equally nomadic land of Outer Mongolia. Despite this legal act, all industry had less than 3*000 workers, and the collective experiment had to be given up in 1932. A pe culiar formula to explain the occurrence was evolved: that the country had entered upon a "non-capitalist, anti-imperial ist" development,2® which would lead to socialism later, but was not yet sovietized. ------ 2TTb’ £d":, pp. 86-8. 28 Ibid., p. 79. This should be compared to Lenin's declaration ""that between state capitalism and socialism there are no other historical rungs or stages; and secondly to the attempt by Russian economists in 19^7 to declare that Eastern European countries were in a non-capitalist stage of transition to socialism. 154 While Japan made threatening moves in the Far East, Sta,lin found time to declare, according to Izvestia of March 4, 1932: We don’t want a single spot of foreign soil; nor will we give up to anyone a single inch of our own territory* Launching by Japan in September, 1931 of the China ’ ’ incident” through northern Manchuria immediately endan gered the Chinese Eastern Railway. Train traffic was impeded, and Moscow apparently deciding not to challenge Japan, which was far more powerful than a province like Sinkiang, offered to sell the railway. Russian leaders may have reasoned that they would have lost the road anyway; and that through a sale they could reap a profit from an exchange of money or credits for a road which was not even theirs. China protested that under the treaty of 1924 the Soviet Government had bound itself not to make arrangements concerning the road without consulting China, and obtaining her consent. But times had changed since 1924. Tripartite negotiations between Japan, Russia and the puppet state of Manehukuo were begun, and in 1935 the road was sold for a small price. Russia lost her direct route to Vladivostok. China on March 11, 1935> in & note, declared: The Chinese Government, which is joint owner of the railway, regards the transaction as illegal and without binding force, and that as such the sale cannot affect Chinese rights and interests in whatever manner.^ 29 china’ Year Book (Peking and Tiensin: The Tientsin Press, 1935)/ P» 138. 155 Notedly while Russia was able to make certain quiet penetrations in the Par East, despite her strategic with drawal in Manchuria, in the west she called loudly for action against the “aggressors.w IV. HITLER IN POWER Growing nationalism in Russia found no serious objec tions to closer ties with Germany. When Russia completed her first armament program in 1932 a political estrangement started. German leaders seeing new forces within Russia declared: They had become nationally self-conscious again, and were seeking to regain the territorial posses sions and spheres of influence in the Baltic and the Balkans which had been lost by the Russian defeat in World War 1.3° This first reading of the signs of a regrowth of Russian ex pansion was studied most closely and accurately by astute German politicians. In April, 1931 an agreement for Germany to grant an additional credit of 300-million marks was made. The next year a similar agreement covering the first half of 1933 was signed, and later prolonged to the end of 1933 These credits were being accepted from Nazi Germany. At Berlin on May 28, 1932 the two powers signed a protocol regarding customs and tariff problems. Then on May 5j 1933 came Hlt- 30 Foreign Affairs. October, 19^6, p. 135* 31 Yanson, oj>. cit., p. 12. 156 ler's ratification of a five year extension of the pact of April 24, 1926. The Eastern school. Hitler on January 30, 1934, the anniversary of his coming to power, sought to allay openly expressed fears of Germany by Russian officials at a confer ence of their Central Executive Committee. The Nazi leader said: ... If Herr Stalin in his latest great speech expressed apprehension lest forces inimical to the Soviets be at work in Germany, I must correct this opinion here. Just as in Soviet Rdssia a German National-Speialist tendency would not be admitted, Germany will not admit a Communist tendency or even propaganda. The more clearly and definitely this fact is understood . . . the more naturally the two countries can look after the interests they have in common. This is why we welcome the desire for a stabilization in the East through a system of pacts, especially if the guiding considerations in this are less of a tactical and political nature and more of a nature to consolidate peace. The proposal for "stabilization in the East through a system of pacts" was to produce strange fruit more than five years later. Politically Russian leaders remained more impressed by Hitler's Mein Kampf; economically they continued their rations with the Nazis. As Germany rearmed the need for Russian military proving grounds lessened, but economic aid was a different matter,32 Nevertheless, as early as the spring of 1934 Hitler, 32 in his book Hitler wrote, "The fact of forming an alliance with Russia would be the signal for a new war. And the result of that would be the end of Germany." For once he was right. 157 while publicly fulminating against "Bolshevism," was already envisaging the possibility of an alliance: Perhaps I shall not be able to avoid an alliance with Russia. Perhaps it will be the decisive gamble of my life . . . But it will never stop me from as firmly retracing my steps, and attacking Russia when my aims in the West have been achieved.33 American writers as early as 1940 had a faint, idea that feelers for closer relations had gone out between the two countries as early as mid-1934. Within Germany the ‘ ’ eastern school” in the Foreign Office, headed by Baron von Maltzan, Broekdorff-Rantzau and later by Count von der Sehulenberg, Ambassador to Mos cow in the crucial years when the later two dozen pacts were in force, worked hard to cement closer relations with Russia. Von seeckt had been one of the military leaders of this school. It viewed conflict between the two giants of Europe as playing into the hands of Britain and the United States, which were regarded as extra-continental powers. Ribbentrop early came under the Influence of this group. Russian bonds on the stock exchange. In 1935 Germany granted Russia credit of 200 million marks at five per cent for five years. Czechoslovakia surpassed this in the same 33 Herman Rauschning, The Voice of Destruction (Hitler Speaks) (Hew York: G. P. Putnam's Sons, 1946), p. I3 6. This I s of" cardinal importance. It was also seen in part by Jos eph Alsop and Robert KIntner in their work, American White Paper (Hew York: Simon and Schuster, Inc., 1940), p. 52. Origins are all important in determining directions. 158 year by granting Russia a credit of 250-million crowns for five years at an interest rate of six per cent. A bonded loan, its “great innovation consisted in the fact that for the first time Russian bonds, which the Czechoslovak Government guaran teed, were admitted to the stock exchange in Prague. This was hailed in Russia as a great step forward.“34 In a speech of August 31, 1939, Molotov was to inform the Supreme soviet of the agreement with Germany in 1935* as part of the arrangements which he said should not be “surpris ing" to any one. By 1935* though* it was clear that Russia had entered more or less fully into basic international exchange unlike her pretentious statements concerning 'socialism within a single country.' The acceptance of her bonds abroad could not be adorned with proletarian phraseology. V. DRIVE OUTWARD While the concessions to Japanese interests in the Russian-held half of Sakhalin Island were wound up in the early thirties, Japan's great pressure on China made possible the use of Russia as a counterweight to Japanese expansion. American leaders pressed for recognition of Russia, and agree ment was reached in November, 1933. When President Franklin D. Roosevelt received the first Russian ambassador to the United 34 Gerschenkron, oj>. cit., p. 70. Since that time there has been a vast growth of Russian investments abroad. 159 States, the president informed him, ”a deep love of peace is the common heritage of the people of both our countries.” Trade treaty with the United States. In the agreement of July, 1935 the United States granted Russia tariff reduc tions. Russia was to increase her purchases up to $30-raillion for one year. This was the concession Russia was to make for receiving most favored nation treatment. Americans had had considerable experience in Russian trade from having parti cipated in concessions and having furnished experts and instructors for Russian industry. Short-term credits up to eighteen months were avail able, but not for longer periods. The United States refused to lift the eiribargo of the 1920's on imports of gold from Russia. The agreement of 1935 was renewed in 1936 and re placed on August 6, 1937 fey a - broader pact, which granted Russia privileges and considered that Russia would purchase more. However increased buying did not follow. In an exchange of notes Russia offered to purchase more goods during the coming year up to $&6-mlllion. As a concession for this increase of $10-million the United States removed the special duty on Russian anthracite coal, with imports not to exceed 400,000 tons. Russia imported equip ment and raw materials for heavy industry, machinery, some chemicals and even a few products such as cotton, sole lea ther and a little wheat for her Par Eastern regions. By 16 G 1938 imports of consumers1 goods reached only $l-million, in dicating the emphasis on producers* goods. The next year im ports of consumers* goods dropped below a half million dollars. Swedish credit. Sweden had agreed to grant a five year credit in 193^ of 100-mLllion kroner at 5i per cent for purchase of Swedish goods. "The utilization of the loan," Gerschenkron wrote, "was planned to be pari passu with the surrender of equivalent amounts of Russian bonds to the Swe dish government."35 Apparently for political reasons Rus sia did not ratify the agreement, but it was to come up again in 19^0, and after the second world war. League of Rations. Russia*s change of attitude to wards the League of Nations marks a sharp break with the past and a growing attempt to come to terms with capitalist nations. Possibly as important was her hope to use the League against Germany politically. By this time the Rus sian representatives were participating in League work. Russia had bound herself in her various pacts to observe the Covenant of the League. Of this Yakhontov wrote: Ideologically Soviet diplomacy was on the road to broader cooperation with the powers, and there fore it proved to be a rather simple matter to as*? cept the League’s invitation when it was issued.3° ------ 35’ fbTd'T, p. 69. 36 victor A. Yakhontov, P.S.S.R. Foreign Policy (New York: Coward-McCann, Inc., 19^5 )> p. llXH l6l Russia joined the League while Japanese pressure was mounting in the East. Litvinov delivered his first official speech on September 18, 193^* the third anniversary of Japan’s attack on the Chinese at Mukden. No longer did Russia's lead ers expose the League of Nations as a counter-revolutionary thieves’ kitchen. Concerning this transformation in Russian policy, it was noted: There is no question that since about 1925 and until August, 1939, the entire foreign policy of the Soviet Union has been directed toward a peace ful co-existence with the capitalist nations. It has taken the form of innumerable commercial trea ties and non-aggression pacts with every country that cared to join . . . and the joining in 193^ . . .of that very League of Nations which is de scribed in the program of the Russian Communist Party as* an “international organization of the cap italists for.the systematic exploitation of all the peoples of the earth and whose immediate efforts are directed to the suppression of revolutionary move ments in every country. **37 Convinced pro-Ru3sian thinkers sometimes explained the entry into the League as a skillful maneuver and not as a change of basic policy. Nevertheless, Russia’s en try was the most overt sign then available of a change in Moscow’s fundamental outlook towards the capitalist world. It meant a recognition of the new aims of playing power politics between capitalist states in order to maintain a favorable balance for Russia’s policy of rapprochement 37 James T. Shotwell, Ed., Governments of Continental Europe (New York: The Macmillan Company, 194677 p. 915* 162 economically and politically with other powers, of extending its security system in reliance on arrangements with friendly capitalist nations instead of upon workers abroad. The the ory of socialism within a single country had borne strange children abroad. However, full reliance was not placed in the League. Russia's press emphasized that joining of the League was no guarantee against war. Continued military preparations under the five year plans went forward. But Russian nationalism had emerged for all to see. people's fronts. Domestic policy as manifested in the five year plans of building up heavy industry matched the rightward shift which entry into the League constituted. Frequently in the conflicts over economic development sfcasr lin denounced equality and the "nonsense that money was un necessary" and that trade was a "dead letter." For example, Stalin stated in January, 193^: These people think that Socialism requires equality, equality in the needs and personal life of the members of society. These are petty bour geois views of our left-wing scatterbrains . . . The left-wingers do not understand that money and _ moneyed economy will remain with us for a long time.3© When Michael Tomsky, rightwing leader of Russian unions, objected to the trend toward further differentiation 3S Quoted ih David J. DalllnV.The Real Soviet Russia (New Haveni Yale Univecsity Press, 19^3)» P» 9^ 163 in wage scales he ms removed. On July 25, 1935 the Seventh Congress of the Communist International met in Moscow. It made the historic shift In policy to abandoning of emphasis on class struggle in favor of alliance with all anti-fascist forces in broad people's fronts. Both the British and American governments protested the proposals as Interference in their affairs. Dulles wrote of the action: Soviet Russia took the lead in demanding a united Front, calling upon the democracies to uphold collec tive security at whatever risk. But their conservative leaders appeared to fear Communism as a possibly even great er menace than Fascism. Chamberlain and Daladler followed the sorry road of appeasement, while Roosevelt, under iso lationist pressure, subscribed to a program of illusory neutrality.39 Dulles misses the vital significance of this major turn of Russian policy. Collective security replaced world revolu tion decisively, as socialism In one country (as a theory) had done ten years before. Reliance on agreements with capitalist states and use of Russian-controlled parties abroad to neutral ize their bourgeoisies replaced the policies of class struggle. "Communists*1 entered various capitalist governments. Stalinism moved Inexorably to the right internationally, with her close economic relations with fascist and other powers leading the way. 39 poster- Rhea Dulles, The Road to Teheran (Princeton: Princeton University Press, 19^3)> P* 2OT.. CHAPTER VII CAPITAL EXPORT RESUMES When warfare broke out between Italy and. Ethiopia, Russia heightened her economic relatbns with the fascist state by sending her oil. This revealed how Russian policy had shifted to the point where open supplying of a fascist power went on at key periods. Furthermore, Russia had emerged as a serious supplier of vital artlcles'.in world trade. True, this was in eertain commodities, particularly where western countries were concerned, but the economic aid came at stra tegic times when it could do the most good. The aid indicated the rapid rise of wholly new tendencies within Russian economy that were to lead to even more far-reaching arrangements with fascism. I. CAUCASUS OIL TO MUSSOLINI Protests by Ethiopia to the League of Nations against invasion by Italy availed little. In September, 1935 France and Britain in violation of the Covenant of the League to respect the territorial integrity of League members offered Mussolini territorial concessions in Ethiopia. Their condi tions were that British and French rights there were not to be prejudiced. Both countries kept the Suez Canal open to Italian vessels of war. Russia at first denounced the war as Imperialist on Italy*s part, and colonial by Ethbpia. Finally the League voted economic sanctions against Italy, stiffening the sanctions on December 12, but not including oil among materials under interdiction. Italy pro duced practically no oil. Claiming lack of unity for the idea of an oil embargo as her reason, Russia "justified the con tinued shipments of oil from the U.S.S.R. if others were sending oil too."l Oil worth twelve million rubles had been shipped in 193^* Halting of these contracted deliver ies, wrote Yakhontov, "would have been a unilateral act, and Italy, undoubtedly, would call it an unfriendly act, with all the possible consequences." The broadening of economic relations with fascism out weighed the Ethiopian cry for help. Caucasus oil greased and fueled Mussolini's war machine, as did the oil of other major powers. Yakhontov declared: There was very likely another consideration which influenced Moscow against taking a decision to stop shipments of oil to Italy alone. That was the impor tance to the Soviet State of not jeopardizing her trade opportunities with the rest of the world at a time when she was busily building her national economy and preparing intensively for war, which she considered a real danger.2 1 Victor A. Yakhontov, U.S.S.R. Foreign Policy (Hew York: Coward-McCann, Inc., 19^5)» p* 1^5• 2 hoc. cit. This nearly arrogant view is almost iden tical wittoi the statement by Molotov on August 31# 1939, in de fense of the main pact with Hitler: “We have, for instance, a nonaggression and neutrality treaty with fascist Italy ever since 1933. It has never occurred to anybody as yet to object to this treaty." However, Yakhontov does not explain how strengthening Italy economically was helping Russia prepare for war, except on Italy's side. Nor does it contravene the subordination in Stalin's thinking of political principles to economic gains, this time at Ethiopia's expense, later at other people's. Noble political sentiments were surrendered to sordid economic mo tives; the cash nexus had replaced socialist theory. The seeds of the subsequent pacts with Hitler were well planted and wa tered In oil and In blood. Molotov In a speech to the seventh session of the Cent ral Executive Committee of the U.S.S.R., as reported In Izves- tla of January 11, 1936, said in the strange jargon of the collective security period: In the Italo-Abyssinian war, only the U.S.S.R. took an attitude different in principle, alien to any notion of imperialism and devoid of any Intention of colonial conquest. Only the Soviet Union declared openly that It took for Its starting point the prin ciple of equality and Independence of Abyssinia, which, a proposa, is a member of the League of Nations, and that It cannot support any actions of the League or of any individual capitalist country Intending to des troy this Independence and equality. The export of Caucasus oil to Mussolini with which to crush Ethiopia thus gave Italy "equality” with Ethiopia; real equality (£) would have been gained had Russia sold to both sides, and at a handsome profit! Russia's aid to fascism In a war of conquest could not conceal the opening of a signific- ant export of the most vital capital and other finished ma terials needed for modern production and modern warfare. 16? II. YEARS OF GREAT CHARGE Matching a foreign trade policy that sanctioned aid to fascism were the decisive changes in internal economy. In a work on the export of state owned capital there Is in sufficient room for analysis of the Internal economy, which is therefore considered in a separate chapter.. There Is an added reason for this, in that by the year 1936 or even up to the opening of the second world war, there could be certain areas of confusion that impede clarity In viewpoint and pre sentation. Today, with the emergence of Russia from behind her borders that condition no longer obtains, and the more basic analysis stems from the more visible change. Excellent works on the Internal economy are now available. Nevertheless, for this phase of the rise of Russia as an Industrial power Internally and In the world economy the problems of reconstruction of industry and agriculture under state control were practically solved by the year 1936-37* The share of Industry in total production had risen from 42.1 per cent in 1913 to 77*4 per cent in 1937* State-owned and cooperative trade had reduced private trading to a mini mum almost too small for economic measurement. According to government figures, the only ones available, Industrial output In 1938 was 655 per cent of 1913* Agricultural output was double that of 1913, and labor productivity in all industry 168 was reportedly 3 .7 times as great as In 1913. None of these aggregates, however, Is broken down to Indicate how it is related to population growth and other major factors; nor is there any cross check of the totals. The return of capitalist norms. The early revolution had not only ended commodity production, wage labor, surplus value and private appropriation but had sought- to push out entirely the entrepreneur and the investor and all the norms of structure and conduct associated with capitalist society. NEP revived the basic features of capitalism, but held them under state control. When in 1928 NEP as a system disappeared and was replaced by "planning," the elements of capitalist pro duction remained, and commodity production as the ba.se of the system prevails to this day both in the internal trade and de cisively in Russians relation to the world market. The theory of socialism in one country which had emerged with rising Russian nationalism and had sought to prove that Russia could construct industry beyond the level of capitalism had in practice foundered. Economic relations with capitalism, begun under NEP, grew to the height of supplying fascist Italy with oil and asserting a new economic relation to eastern coun tries, as is demonstrated in this chapter. The institutions and cultural values of Czarist Russia, largely eliminated in the early years of the revolution, had by 1936 begun to reassert themselves in different form and on the far more mighty base of a fairly well developed modern industry. While some Russian leaders may have thought they could ignore the world economy, the new uses of Stakbanovlst piecework were not Russian inventions. They had had a long history elsewhere, and were the object of criticism by working class writers even before Marx had called them the typical form of capitalist wage payment. The Russian Revolution by the middle of the thirties, Sorokin wrote, "has very nearly liquidated i t s e l f ."3 Russia, he declared, "was gradually entering the post-revolutionary stage." This was clouded because Stalin and the Communist / Party continued. But the purge trials of 1936-38, by liquid ating the Old Bolsheviks, were to alter this party fundament ally and make Russia acceptable even to Nazi Germany as an economic and political partner. Both the family and religion were restored. Sorokin wrote of the revival of nationalist cultures The reaction to the first period of the Revolution went so far that most of the Marxian textbooks of Russian history were banned . . . These . . . were re placed by texts that differed little from the element ary textbooks of Russian history used before the Revo lution. Like the latter, they not only specifically mentioned but warmly praised illustrious Russian czars and princes, generals, economic organizers, Inventors and artists, religious leaders, and so on, as creative^ geniuses and eminent builders of Russian civilization. 3 pit!rim A. Sorokin, Russia and the United States (Hew York: E. P. Dutton and Company, Inc., 19^*0 * pT“ T8T. ^ Ibid., p. 189. 170 While the Russians were paying close attention to their national history, various analysts were not relating the changes in economy to this historical background. Was socialism achieved. Quoting with approval the Russian Constitution of 1936, Dobb declared that the "state capitalism of the early and middle * 2 0* 3" had given way to the five year plans of a "collectivist or socialist economy that had emerged by the closing years of the '30*s."5 Article 4 of the Constitution declared that capitalist economy had been liquidated and that the economic foundations of Russia consisted of "the socialist economic system and the socialist ownership of the tools and means of production." Article 5 distinguished two forms of "socialist" pro perty, "either the form of State property (the wealth of the whole people) or the form of cooperative or collective pro perty (the property of separate collective farms or of cooper ative associations)." Condoide also declared that Russia has a "socialist economy. "6 But others pointed out that Soviets were in effect legally abolished in the 1936 Constitution^ their powers had long since been stripped from them. Without workers control state property did not necessarily mean socialism. 5 Maurice Dobb, soviet Economic Development Since 1917 (Hew York: international publishers, 1946), p. 281“ ETabor- . ation of this issue is made in the concluding chapter. 6 Mikhail V. Condoide, Russlan-American Trade (Columbus: Ohio State University, 19^6), p. I* in When Joseph A. Davies, United States ambassador to Russia, wrote his book on Russia he was surprised, despite the various comments about socialism, that the Russian govern ment “announced the floating of a new defense loan of 4000 million rubles, bearing interest at 4 per cent. It was to be redeemed in full in 1957."7 Of this Davies wrote: ... it shows that frozen labor (capital) commands payment for use— contrary to the Communist idea that compensation shall be paid only for human labor, that no man shall be paid for the use of frozen labor (cap ital) because that is the vice of capitalism. Interest Is payment for capital, and here it is paid by the state Itself, In direct violation of the fundamental principle of Marxist philosophy. Not being an economist Davies was nearly unaware that the Investor had continued in state monopoly trusts, and that private capitalists were not vital for determining the existence of capitalist economy run by the state. Trotsky, who thought Russia form of warped workers* state, or transi tion society to socialism on its way back towards capitalism (If such a movement is possible), had written that the Russian state was like an individual capitalist: Mutatis mutandi,the Soviet government occupies In relation to the whole economic system the position which a capitalist occupies in relation to a single enterprise. 8 7 Joseph E. Davies, Mission to Moscow (New York; Si mon and Schuster, 1942), p. IbjJ. 8 x,eon Trotsky, The Revolution Betrayed (Garden City: Doubleday, Doran and Company, Inc. , 1937)» P . 43. Lenin had called this "compulsory syndicalIzatJbn, , under state control, with the workers being the final authority. By 1936 workers* power had been eliminated. 172 Davies In 1937 declared that Russia applied "capitalis tic principles in socialist production’ * * : The Russia of Lenin and Trotsky— the Russia of the Bolshevik Revolution--no longer exists. Through grad ual, stern, and often cruel evolution that government has developed into what is now a system of state social ism operating on capitalistic 'principles and steadily and irresistibly swinging to the right.9 III. EXPORTS EXCEED IMPORTS The need for imports was great, but since exports were too small to pay for them, Russia borrowed heavily abroad and increased her foreign indebtedness "in order to secure imports vital to the fulfillment of the five year plan."I° With her unfavorable balance of trade Russia was "forced to accept for eign credits in spite of the hard terms."!! Long-term credits were gained with a government guaranty covering up to 70 per cent of value of the imports. In this way by 1931 Russia owed abroad 1,400-million gold rubles, or about $720-million. 5 Davies, op.i - cit., pp. 394, 511* His use of termin ology is careless, nis meaning clear. Russia could not very well be both capitalist and socialist. 10 Alexander Baykov, The Development of the soviet Economic System (London: Cambridge University Press, 1946), p. 2b5. 11 Ibid., p. 50. See also Condoide, op. cit., pp. 62-3. Yet Dobb, who is convinced Russia is socialist, wrote in Soviet Economic Development Since 1917* "the possibilities of easing the bottleneck of heavy industry by importing capital goods from abroad was severely restricted by reason of the reluctance to grant loans to the U.S.S.R. . . • The means for Industrial construction had therefore to be found almost ex clusively from Internal resources.1 * See oj>. cit., p. 12. 173 The debt declined to ^50-million rubles at the end of 1933 as Imports were cut, exports increased, and gold shipped to cre ditor nations. As industry revived imports shifted to a "decline in the relative share of manufactured goods and the growing share of raw materials . . . The growth of Soviet manufac turing industry caused a curtailment of the export pf prim ary products and necessitated the import of raw materials of which the USSR was short," Baykov wrote. He continued; There is, therefore, no exaggeration in the as sertion of Soviet economists that the necessity to import equipment and raw materials for the develop- ment of Soviet industry was on the wane.I2 Only after Russia had secured the imports vital to fulfilling the five year plans, as explained previously, and internal industrialization had speeded up, "was a reduc tion effected in the physical volume of imports and concur rently in that of exports." Baykov thus wrote; Moreover, in the course of the second five year plan it proved possible to curtail imports more than exports thus achieving a favorable balance of trade. From 1935 onward a favorable balance of payments was also attained.13 By 1936 short-term credit indebtedness was reduced to 86-million rubles. The great pressure to expand exports so Baykov, op. cit., p. 6 3. !3 ibid., p. 2 6 5. Eclectic writers, selecting pieces of this data, have concluded that Russia is still an enormous market for exports. In fact she had, with achievement of a favorable balance of trade, moved to export capital. 17* as to have the wherewithal to pay for capital imports was now reduced. Moreover it was not possible to effect a struc tural change and have foreign trade operations transacted within Russia by the reform of July, 1935* This came at the same time as the abolition of rationing on the home market, now that agricultural exports were reduced greatly. By the next year the export, import and transport cor porations were given the right t© conclude transactions with foreign companies both abroad and within Russia under the general direction of the foreign trade commissariat. Some thirty export corporations existed; they also imported goods.^ Thus behind the People's Fronts politically, behind the aid to fascist Italy, and behind the new-found interest in the League of Nations was this new position of Russia as a cap ital exporter which had achieved a favorable balance of trade. This was a major turning point in Russian development, another of the key signs that Russia was moving into a position where she would be able to affect a good part of the world market. When several countries, particularly Germany, estab lished exchange restrictions in 1935» Russia issued a decree on January 16, 1936, ordering a reduction of exports to coun tries where free currency was difficult to obtain and shifting allocations of import and export orders. In that same year 1'^ Condoide, op. cit., p. ^3* The export corporations were already sending increased amounts of finished manufactured goods abroad. 175 Britain supplied a loan of 10-million pounds at 5^ per cent. By 1937 the value of Russia's exports exceeded the value of imports to the point where Russia had developed a working reserve of foreign exchange. Approximately 10,809,500 tons of freight in foreign trade passed through Russian ports in 1938# the exports outweighing the imports. Where the foreign indebtedness had been reduced by December, 1936 to 120-million gold rubles ($6l.8-million) by Aptfil* 1938, it was nearly liquidated. From that time forward to the agree ments with Hitler foreign credits were not asked publicly, and purchases were made in cash.15 Russia *s own fleet. With the gaining of a favorable balance of trade and of payments in 1935 Russia "became less dependent on foreign bottoms as Russian merchant mar ine grew."l6 Gross registered tonnage reached 1.2 millions by 1 9 3 8, slightly higher than the one million tons in 191^* Russia was now able to carry two-thirds of the imported freight and a quarter of the export tonnage, formerly carried by British, Greek and Japanese ships.17 15 Condoide argues that since 1936, "no foreign credits have been extended or asked." Ibid., p. 6 3. This ignores the secret credits from Hitler, the later public credits dur ing the second world war and capital exports since 1 9 3 6. ^ Baykov, o£. cit., p. 21. 17 James S. Gregory and D. W. Shave, The U.S.S.R. (New York: John Wiley and Sons, Inc., 19^)» P» $9®• Older mercan- tilism had stressed a country's need to carry its own freight. 176 "Sovfrakht** was the organization which chartered foreign vessels both In Russia and abroad, most of them for merly being chartered In the main world market in London. Shipping charters were deliberately spread among a number of countries to meet any difficulties that might arise in one market by shifting to another.1® Thereby Russia retained considerable bargaining power and trade maneuverability. Most trade with the eastern countries, of course, has been over land. IV. RISE OP CAPITAL EXPORTS The great change in both imports and exports has been pictured frequently, without, however, being properly linked to the emergence of Russia as a capital exporter. The descrip tions have been statistically thorough, but analytically weak. Where in 1913 ^5*2 per cent of cotton was imported, this had fallen to 2.3 per cent in 1936. All rubber had been imported in 1913, only 23.9 per cent in 1937* Zinc smelted abroad was reduced from 9 7 *2 per cent in 1913 to 1 3 *6 in 1934. Aluminum had not been produced domestically in 1913; by 1936 only 2.3 was imported. But the decisive overall fig ures was that where in 1913 ^ per cent of all machinery had to be imported, in 1935> 99 per cent was made in Russia. i® j. D. Yanson, Foreign Trade In The U.S.S.R^ (Lon don: Victor Gollancz, Ltd., 193 JOY p.“T6T7" Such maneuvers- bility lessened possible dependence on any one source. 177 Prom importing 1 9 .8 per cent of coal and coke in 19 13, Russia under the first five year plan discontinued coal imports and began to export coal to such advanced lands as Germany and the United States. Under the second five year plan, Yugoff noted: The government reduced or even entirely discontin ued the importation of automobiles, tractors, agricultur al machinery, electrical equipment, machine tools, iron and steel, cotton, -wool and paper. The foreign trade policy seeks in every way to reduce the total volume of imports . . .*9 Deeline of agricultural exports. As a result of the industrialization of the country and the memory of how badly Russia had been affected by falling agricultural prices dur ing the great depression, policy shifted to reducing agricul tural exports to an absolute minimum. Calling this "a funda mental change in the character of the Soviet export trade,*’ Yugoff said of the move: It is due to the industrialization of Soviet Rus sia and the deliberate effort under the five-year plans to export semimanufactured or completely finished ar ticles instead of agricultural products. 20 Before the revolution of 1917 agricultural exports constituted 7 0 .6 per cent and industrial exports 2 9 per cent of foreign trade. By the second five year plan this 19 Aaron Yugoff, Russia *s Economic Front for War and Peace (New York: Harper and Brothers, 19^2), pp." 105-6. 20 Ibid., p. 102. Czarism which had imported capital was called imperialist by Lenin, for at the same time Czarism exported capital, seized territory and held nationalities sub ject. 178 relation had been almost exactly reversed, agricultural ex ports dropping to 2 9 per cent and industrial exports rising to 72.8 per cent. Grains, once the leading export, were now in fourth place, roughly only 1 2 .2 per cent in 1933-37 of their average yearly export totals in 1909- 1 9 1 3* Industrial exports predominate. The whole character of Russian trade had shifted from export of grain and raw materials to the export of semi-manufactured and finished goods. A new relation to countries outside her borders was established. These neighboring countries were to become raw materials providers. It Is this trulyCqualitatlve change to a preponderance of industrial exports, not of goods gener ally but of capital or production goods, which marks the vast difference between Czarist and modern Russian exports. In foreign trade the five year plans represented an effort to make Russia "independent" of foreign sources of capital, but their result was to have her become a capital exporter abroad, a change which was to have profound effects on neighboring economies and. on world politics. By 1937, Yugoff wrote, "many commodities which Russia formerly Imported she now exports, such as coal, pig iron, agricultural machinery, trucks, fertilizers, cotton, furs and canned goods.Exports In 1937 included petroleum 21 ibidT, p. 1 0 6. The fuller list is too long to give here. 179 products, 35 per cent; metals, machinery and industrial prod ucts, 23 per centj chemicals, 10.3 per cent; and coal, 7.8 per cent. From 1929 to 1937 export of ferrous metals doubled and exports of machinery and equipment increased 500 per cent, reflecting the five year plans. What this new-found capital export position meant was shown most clearly in relation to trade with countries of the east. Trade volume. From 1918 to 1938 the total volume of both import and export trade reached 8 0 .2 billion rubles (about $l6-billion).^2 Russia's largest share of Imports was 3-6 per cent of world Imports in 1913, and 4.2 per cent of world exports. Her highest share after the fall of Czar ism was 2.7 per cent of world imports in 1931, when world trade as a whole had fallen precipitately. Trade started to decline under the five year plans until by 1938 Russia had approximately one per cent of world trade. While from these totals it would appear that foreign trade plays a "negligible part in the Soviet economy,"23 as Chamberlin put it, in an effort to achieve autarchy or self- sufficiency Russia's leaders had decisively altered the char acter of the trade. Agricultural exports had been reduced in favor of much smaller exports of capital goods. It was 22 condoide, oj>. cit., p. 64. 23 william Henry Chamberlin. The Russian Enigma (New York: Charles Scribner's sons, 19437, p. 178. 180 this shift and the creation of a capital export relation which was to prove significant for giving Russia an entirely al tered position in the world economy, and in world politics as well. Moreover, foreign commerce had "played a relatively small part in the business life” of the united states too in its early years of growth.2^ Russia was completing this pro cess, and was ready for an extension of domestic growth into expansion abroad. At the same time this expansion abroad was to show the limitations both of self-sufficiency and of the theory of socialism within a single country. The world trade figures are secondary to two fundament al economic phenomena, first, the country*s own industrial production internally, and second, how that production is reflected in world trade in relation to capital exports or imports. It is on this point that analysts of Russian foreign trade have not completed the linkage of Russia’s expanded internal production to her revived foreign capital export relation. Where in 1913 Russia had accounted for 2.6 per cent of Industrial production of major powers and the United States for 38.2 per cent, by 1937 Russia had risen to 13.7 per cent and the United states to 41.9 per cent. From fifth place In 1913 Russia had risen to second place in 1937* her 13*7 per cent of total industrial production exceeding England’s 24 Lawrence V. Towle, International Trade and Commer cial Policy (New York: Harper and Brothers, 1947)*p. 400. l8l 9.3 pea? cent, Germany’s 11.6 per cent, and Prance’s 5-7 per cent. With the exception of the United States Russia was already more powerful In her Internal industry than her pro ductive rivals among major powers, although her per capita production was behind them. Russia had clearly established the tendency to export capital, and at a time when capital exports by Britain and Prance and later Germany were falling. V. CAPITAL PROVIDER TO THE EAST Russia’s percentage of world trade was small, but in particular countries it was large in size and larger still in importance for the given country’s economy, and for char acterizing the direction of the trade. While Russia had generally disentangled herself from the crucial necessity to import capital goods from the west— a truly great historic shift In her entire modern development— her relation to the eastern countries, less developed than herself, was quali tatively changed to one of exporting capital to them. This relation has been studiously ignored by liberal writers who, when they mention the East, consider Russia is bringing these lands socialism. Condoide wrote of this period: In the East, the Soviets are chiefly seeking a market for their manufactured goods . . . the quality and type of goods produced by Soviet industry was such as to supply the needs and tastes of near Eastern countries. The guarantee of a steady market for raw materials of the East was held out to insure their 182 buying Russian industrial products. . . . Although the total foreign trade of soviet Russia is actually far below the levels of trade of Czarist Russia, the values of her Eastern trade are at present much higher.25 Yanson sought to distinguish the two: . . . contrary to the practice of capitalist countries, as well as of Czarist Russia, the trade of the U.S.S.R. with the countries of the East has no elements of appropriation or of the forced imposition of its economic and trade interests and the economic enslavement of these countries. The U.S.S.R. will buy the raw materials required for its industry, and will provide these countries with manufactured goods . . . based on mutual equality.26 The position of being a provider of manufactured goods was not one of ’ ’ mutual equality, 1 1 as events were to show. Organization of trade. The structure of trade relations with eastern countries was much different than with more ad vanced lands because of the ’ ’special character” of Russian trade with these nations. As Baykov pointed out: They supply agricultural and livestock products needed by the USSR and they are the principal market for finished industrial goods which the USSR exports.2T Having no competition to fear from eastern countries, Russia could afford to modify the monopoly of foreign trade as far 25 Condoide, op>. cit., pp. 6l-2. see also Handbook of Soviet Russia (Hew York: The American-Russian Chamber of Commerce, 1936), p. 3^7 j and Violet Connolly, soviet Economic policy in the East (London; Oxford UniversityPress, 1933), pp. 9-107 2^ Yanson, 0£. cit., pp. 135-137. Alexander Baykov, soviet Foreign Trade (Princeton: Princeton University Press, 19^6), p. fO. 183 back as NEP In 1921. Complete equality of treatment was pro vided In the early revolutionary agreements, and special rights and privileges were renounced. During NEP’s life tax relief was granted some eastern traders, need for ex port licenses was waived, transit rates were lowered and other commercial and technical preferences advanced. In that period eastern merchants carried on trade as did also mixed companies with capital provided by foreign merchants and partly by the Soviet state. Trade in the terri tory of the eastern countries was conducted by the mixed com panies and by the Russian trade delegations, and also special Russian economic organizations dealing in certain classes of goods. After 1926 Russia sought to apply the principle of balancing of export and Import trade. As late as 1937 this principle was extended to the balance of payments with Turkey, but was not strictly adhered to.2® Imports from the east. In eastern markets Russia purchased the primary products of agriculture and livestock, largely non-industrial commodities. Much of this was for processing by Russian industry.29 Prom India were imported jute and tea. The first European national to establish direct 2® Ibid., pp. 67-8. 29 Yugoff, op. cit., pp. 121-2. Russia, he wrote, “has had a policy oT giving preferential treatment and friend ly protection to these countries.*’ This was before 1939* 184 trading relations with China, Russia was the chief importer of Chinese tea. She also imported some foodstuffs and raw materials. Exports to the east. With the cessation of imports of agricultural machinery and motor vehicles as early as 1934, Dean remarked, "Russia even exported some vehicles to Eastern countries.”30 Baykov established that in exchange for raw materials and agricultural products Russia sold Eastern coun tries "the finished goods of its industry."31 These included textiles, sugar, paper, galoshes, and. oil products, iron, steel and agricultural machinery. After completion of the five year plans Russia raised this to a new level. Wow Russia "exported machinery and equipment for industrial plants. ’’^2 Thus along with electrical appliances, chemical and pharmaceutical products and other finished indus trial articles such as clothing and shoes, Russia supplied these countries with credit, sold them machinery and helped construct plants. Yugoff wrote: 3° vera M. Dean, The United States and Russia (Cam bridge: Harvard University Press, T948), p. 215- Yet Dean wrote that Russia could only import capital! 31 Baykov, Development of the Soviet Economic System, op. cit., p. 6 9. This is a normal Imperialist relation of "trading capital goods for agricultural products and raw materials. Participation in such a relation and process by Russia was to affect even her internal commodity economy: Profits from this trade went to swell internal capital ac cumulation. This too was a form of "socialist" accumulation of capital. Bordering directly on these countries, knowing their needs and extending them credit, the U.S.S.R. has played an important part in their trade. She has not only sold them the necessary machinery and finished manufactured goods, hut has given them tech nical. aid and aid in construction. The U.S.S.R. under took and carried out the task of building plants for the textile syndicate in Turkey, the leather, shoe, and textile trust in Mongolia_and Tannu-Tuva, cotton gins in Iran, and so on . . .33 Automobiles and trucks were being supplied to Turkey, Western China, Mongolia, Tuva and Iran. A large loan was extended to China in 1935* Petroleum was sold to India, along with soda and its products. Afghanistan, Iran and Iraq bought sugar, textiles and glass. Palestine purchased oil and wood. Timber, petroleum, coal and textiles were supplied to Egypt. To China Russia exported mainly oil, textiles, agricul tural machinery, tobacco and timber. From the time of the Marco Polo Bridge attack by Japan in 1937, Russia advanced large credits to China. She sent in more than five hun dred planes, aviation instructors and fliers,3^ established aviation schools with Russian instructors in Sinkiang and Szechwan, and erected a Russian air base near Lanehow in Kansu. In October, 1938 Russia advanced a credit of lion, a similar credit in February, 1939, and a credit for $150-million in August, 1939. Under this third loan Russia 33 Yugoff, 0£. cit., pp. 121-2. 31 * Davies, op. cit., p. 248. 186 was to supply trucks, airplanes, tanks, arms and ammunition. In exchange China agreed to deliver tungsten, antimony, tin, tea and other products. Approximately half of the latest loans had been utilized by June, 19^1, when Germany invaded Russia and deliveries halted.35 transition to colonies. In relation to countries of the east Russia was becoming their major capital provider for finished industrial products, while these countries were increasingly serving as sources of raw materials, markets and spheres of Influence. Meanwhile Russia was able to sell certain iron and steel articles to Germany, Belgium and Switzerland.36 Oil and oil products were also supplied. Manganese ore and coal was sold to the United States. Also exported to the west were fertilizers and matches. But It was In the Par East that Russia could expand most freely and with the least competition. She increased the Czarlst attempts at raising population In her own Orient, and by 1939 the section of eastern Siberia east of Lake Bai kal had grown from 2.6-million to 4.4-million persons. Gregory reasoned, concerning this growth: Should it be possible to establish a larger number of colonists in the par East there would be a greater expansion of both agriculture and Industry, well pladed 35 pacific Affairs, 19^2, pp. 329 ff • 36 Baykov, soviet Foreign Trade, op. cit., p. 6 6, and ff. * 187 to meet the needs of China and Manchuria . . . . • . . the expanding industries of the East can create strong economic ties between China and the U.S.S.R.37 With this foundation in export of capital to the east established it is possible to evaluate the arguments that the Soviet Union ceased being a transition economy In the Marxian sense and became transformed back into an expan sionist capitalist society during the phase of Stalin's rise from 1924 to 1928. The changes began as far back as that time. They were consummated only when internal expansion and growth had reached the stage where they spilled over into expansion abroad through the export of capital by the state. In the years 1924-28 Russia was not a capital exporter, ■ but the opposite. The resumption of Russian expansion, inter rupted for a few short years by the revolution of 1 9 1 7, came to exercise a decisive influence on policy, based on a quali tative change in the tendencies of Russian growth by 1936-39* 37 Gregory, og. cit., pp. 587* 608. Sumner Welles in his An Intelligent American*s Guide to the Peace (Hew York: The Dryden Press, 1945), noted on pp. 11-2: "The pioneer attitude of the Russians toward these neglected areas recalls the covered-wagon era in American history.” But Russia leaped the wagon stage to that of the airplane and, during the second world war, in openly moving industries to the east prepared for her coming struggle for the markets of the east through capital export. Socialism in one country or independence from the world market did not work out, as Russia set out to gain by seizure or other means a large section of that market. Maurice Edel- man wrote: "The Soviet Union stretched across a sixth of the earth's surface, is a limb of the world's economy; its pains or its health affect the whole world.1 " See How Russia Pre pared (Hew York: Penguin Books, 1940). 188 These are the crucial years and the determining ones for detecting overt changes in the basic structure of Russian political economy. VI. BUSINESS RELATIONS WITH EVERYONE At the session of the Central Executive Committee in 1936 Molotov declared that the development of economic rela tions with foreign countries, irrespective of their structure or program, was In conformity with Russian policy. Little mean ing was attached to the statement at the time. Yet it was, along with the internal changes, possibly the most signifi cant summary of the moves of theyear 1936 for Indicating the completion of;a. phase of internal reorganization and the preparation for vastly expanded economic relations abroad. Russia was shifting speedily to the capital provider relation to the east; her dependence on capital Imports was falling. Stalin was to make substantially the same statement the fulcrum of his offer to Hitler in 1939 for closer economic collaboration. These economic relations demonstrated with the surety of every Russian finished product exported the essential subordination of Russia to the world market and therefore the hollowness of the theory of socialism within a single country. The meaning of the change in policy was described, although not explained, by Troyanovsky: ... we are for international cooperaton not only in the political field but in the cultural and 189 economic fields as well. We are not for any kind of isolation. We do not want to be isolated in any international affairs. We want to develop our friend ly relations with other countries and we want to develop our foreign trade on a sound basis with other states and with the United States particularly.-50 Such was Russia^ emergence from isolation, grounded on her new foreign trade position, and the completion of the process of internal adjustment in economy and politics to busi ness relations with all nations, including fascist ones. 3S Quoted in Hans Heymann, We Can Do Business With Rus sia (New York: Ziff. Davis Publishing Company, 1945), p. 92. Alexander Troyanovsky, a former Menshevik, was once Ambassador to the United states. CHAPTER VIII EXPANSION OF 1939 The trade with the outside world and the growing desire of Russia to come out of Isolation and appear as an European power, just as she had already begun to emerge in Eastern Asia, had its base in major changes Internally. Out side observers found most of the process inexplicable until the great Moscow Purge Trials burst on the world in 1936-3 8. The elimination of the remaining old Bolsheviks which was accomplished by these trials had a direct relation to Russia return to trade and political dealings with world powers. A German write noted of the subsequent Hitler-stalin pacts: It took months to achieve the rapprochement between Germany and the Soviet Union. As for the Soviet Union, during recent years essential changes have taken place both in its structure and in its personnel. We must now regard them as unavoidable premises of the historic development. The removal from the social life of the Soviet Union of that upper layer who go by the name of Trotskyists, and were on that ground removed, was indubitably a very essential factor in the rapprochement between the Soviet Union and Germany” ^ 7^ While Davies and others reported their belief in the confessions of serving as spies and agents for Germany, made 1 The Nazi newspaper, Frahkfurther Zeitung, August 29, 1939, six days after the main Stalin-Hitler agreement, in an article, "as to the Pre-History of the Germano-Soviet Russian pact/* written by its "Moscow Correspondent" two days before. Only the relation of the trials to expansion is discussed here. 191 ostensibly by such leaders as Bukharin, Zinoviev and Kamenev, the historical fact is that of all the German General Staff records subsequently captured in the war, not a single one has been offered by the Russians to prove the allegations. Many writers consider that a bloody counter-revolution occurred during the purges with the slaughter of all the old revolutionary leaders. 2 Meanwhile outside Russia as part of his bid for capital and credits from abroad Hitler had con jured up the Anti-Comintern pact of November 25, 1936. This treaty, the German generals later told Allied interrogators, - was named Anti-Comintern when the Russian government announced the Comintern was independent of its government, it contained two secret articles in an addendum which not even Marshal Her man Goering had known about, and which bore directly on the subsequent pacts with Hitler: Article I - Should either of the High Contracting States become the object of an unprovoked attack or an unprovoked threat of attack by the TJ.S.S.R., the other High Contracting State engages itself to enter upon no measures of a kind which would have the effect of re- 2 John Scott. Europe in Revolution (Boston: Houghton Mifflin Company, 194-5) / although a member of the "i was told by a high official" school of foreign correspondents, remarked that an official had informed him: "We have had three revolu tions in Russia--one in 1917* o&e in 1927 when we got rid of Trotsky, and one in tlie period between 1936 and 1938." See p. 26. From this Scott concludes that inefficiency was elim inated and, "Socialism in the Soviet Union worked"! This is of a piece with the work of Sidney and Beatrice Webb, Soviet Communism: A New Civilization (New York: Charles ScribnerTs~Sons, 193b) . Value of their book can be measured by the statement: "In the GPU correctional camps they teach not only reading and writing, but also political wisdom. See p. 590. 192 lieving the position of the U.S.S.R. Should the case indicated in the foregoing para graph arise, the High Contracting States will immediate ly consult oh what measures to take for the safeguard of their common interests. Article II - During the continuation of this agree ment the High Contracting'States will not, without re ciprocal concurrence, conclude any sort of political treaties with the U.S.S.R. which are not in keeping with the spirit of this agreement .3 Japan was to use these articles to declare to Germany in 1939 that the Anti-Comintern pact was violated. Shortly afterwards Japan’s cabinet fell. Nonintervention in Spain. Invited along with other nations to join in the Nonintervention Committee for Spain during the civil war there which had broken out in the summer of 1936, Russia on August 2 3, 1936, "deploring the tragic events for which Spain is the theater," joined the committee. Russia raised an embargo on all shipments of war materials to both sides, unlike her previous one-sided supplying of oil to Mussolini. To complete the virtually nonsensical spectacle Germany and Italy entered the committee on September 9. Portugal followed swiftly. These countries sent much aid to General Franco. As in Ethiopia where she pleaded everyone was aiding fascism and she could not be an exception, so In Spain the Russians argued they had no alternative. Yakhontov put it apologetically, "the Soviet Union had no choice but to join 3 Foreign Affairs, October, 19^6, pp. 137-8. 193 the International body, formed to check the Spanish Civil War from developing into an all-involving one."1 * Loyalist chiefs charged that neutrality by the committee and America was a de facto blockade in favor of Franco. Later Russia protested Portugal's supplying of Franco, and sent in some supplies to her own forces in Spain. TO the end of the Spanish Civil War she retained a representative on the nonintervention Committee. But the damage had already been done. From Ethiopia to Spain Russian policy had moved steadily to the right. Such was Russian "collective security" in practice, in February, 1939 Britain and France recognized Franco. The war was over on March 26. I. A PLACE IH THE SUN Emergence of Russia as a political force in Spain opened many eyes to the great power generated in the east. Davies noted that the Belgian Minister De Tellier considered, "it was entirely possible for Hitler to tie up with Stalin." He reasoned, "The U.S.S.R. wanted peace above all things else and to get it . . . would pay even the price of an agreement with Hitler. "5 But It remained for Ivan Maisky, Russian ^ Victor A. Yakhontov, U.S.S.R. Foreign Policy (New York: Coward-McCann, Inc., 194-5), P» "lBUI fEus Russia and fascist Germany served on the same committee. 5 Joseph E. Davies, Mission to Moscow (Hew York: Si mon and Schuster, 194-2), pp. 73, 82. 19^ Ambassador to Britain, to indicate to Davies on March 13, 1937, how Russia was changing: It was no part- of their policy, he said, to strive after economic autarchy; they strove for independence, not for economic exclusiveness, and they had already achieved the position where, in the case of war, the U.S.S.R. could, for an indefinite period, carry on on the basis of a self-supporting economy.° While Davies Interpreted this as a reason why Russia sought aid through collective security and the League of Na tions to prevent the outbreak of war, the statement appears to indicate that by March, 1937 a policy of self-sufficiency had come’to naught. In its place, Russia had through many economic accords found the means to erect a powerful economy. Germany’s recognition of the new Russian power was made in its clearest form by Admiral Raeder: I believe that Stalin is our greatest enemy--a statesman at home and abroad . . 7 i consider it ex tremely probable that In 1937 and 38 Stalin came to recognize, through the efforts of the United States ambassador, as described by Davies In ’ Mission to Moscow,” that Russia could play an important part in a subsequent conflict between the Anglo-Saxon races and Germany, and that he thereupon began to speed up his armaments. The pact with Germany was of a kind which would help him toward the realization of the first part of his scheme--Eastern Poland, the Baltic countries, Bessarabia and perhaps the Balkans and the Dardanelles. The gains of 1939-40 were indeed great . . .7 8 Ibid., pp. 126-7. 7 office of U. S. Chief of Counsel for Prosecution of Axis Criminality, Nazi Conspiracy and Aggression (Washington: U. S. Government Printing Office,- 1946"), January 10, 1944, Document C-6 6; hereinafter referred to as Nazi Conspiracy. The Germans saw most clearly the genesis of Russian expansion. 195 Raeder added in hia brilliant analysis: The Fuehrer very early had the idea of* one day settling accounts with Russia, doubtless his general ideological attitude played an essential part in this, in 1937-38 he once stated that he intended to Eliminate the Russians as a Baltic power; they would then have to be diverted in the direction of the Persian Gulf . . For this phase of the presentation of expansion it is note worthy that Hitler wished only to shift the direction of Russia's expansion from northwest Europe to southern Asia. The corollary of the absence of Communism as a policy within Russia was becoming clear early in 1938, as Davies wrote: ... these people here are going to wield an increasing and enormous force both in European and world affairs. That is so because of the enormous man power and the wealth that is here . . .9 Or, as Crankshaw phrased it in nationalist terms: For twenty years the celebrated Russian colossus played no official part in the ordering of Europe and the world. She had not the strength. Then, in the middle nineteen-thirties, she was heard to pro claim, in effect: “Russian power is now reborn."!0 II. TRADE PACT OF 1938 Beyond the propaganda of ideological hate grew the economic relations between Germany and Russia. Trade talks between the two opened in the beginning of 1938 as Molotov 8 lo e. cit. 9 Davies, oj>. cit., p. 318. 1° Edward Crankshaw, Russia and the Russians (New York: The Viking Press, 19^8), p. 200. 196 made known in a speech on May 31, 1939: At the beginning of last year /I.e., in 1938-JM7 on the initiative of the German Government, negotia tions were started for a trade agreement and new cre dits. Germany offered to grant us a new credit of 200,000,000 marks. As at that time we did not reach unanimity on the terms of this new economic agreement, the matter was dropped. On May 3-^j 1938 the German and Russian governments quietly decided to extend the schedule of deliveries under existing trade agreements until January, 1939* Exclusion from Europe. In later years the Russians were complaining bitterly that according to a captured report from the German Ambassador to Britain, Herbert von Dirksen, British officials on July 10, 1938 had declared they wanted to "keep the Soviet Union out of deciding the destinies of Europe." 11 Ten years later Russia was to resent this reac tion to her expansion as strongly as in 1938, serving warn ing that never again would she accept continuation of a power-less position. Russia was excluded from the Munich conference at the end of September, 1938, as was the principal immediate victim, Czechoslovakia. As the Russians saw the Germans move into central Europe and prepare to push down the Danube they offered to assist the Czechs, but the major powers ignored Russia. 11 U» ST Hews-World Report, February 20, 19^8. Coming onto the European scene at a time when Germany was upsetting the British-French balance of power, Russia was too dangerous a factor to be permitted to exercise sway. 197 "The western Powers," one writer said, "had abruptly termin ated Russia’s return to Europe by banging the door In her face."!2 Hitler himself had Informed Count Galeazzo Clano, Italian foreign minister: ... in future meetings of the powers it will not be possible to exclude Russia. In the German- Russlan conversations (of April-August, 1939-JM) the Russians' made it plain, with reference to Munich and other occasions from which they had been excluded, that they would not tolerate this any more. 13 Russia’s interest in outer expansion politically goes back then at least to 1938. Confronted with the rising Rus sian power, Hitler declared the rapprochement had really begun on an extended scale the year before: Since Autumn, 1938, and since I have found out that Japan does not go with us without conditions, and that Mussolini is menaced by the weak-headed king and the treacherous scoundrel of a Crown Prince, I have decided to go with Stalin . . .1^ At Yalta in 19^5 Stalin stated that Russia would never have entered into a nonaggression pact with Germany had not the Munich attempt to appease Hitler occurred, and had Bri tain and France consulted Russia on the fate of Czechoslovak ia.15 By the time of the Munich pact Russia had come out of 12 Foreign Affairs, October, 19^6, P- 38. 13 Hazi Conspiracy, op. cit., August 12, 1939» 1871-PS. I1 * - Ibid., speech to generals, August 22, 1939, L-3. 15 James F. Byrnes, Speaking Frankly (Hew York: Harper and Brothers, 19^7), p. 2 8 3. 198 isolation and sought to wield influence in European politics. III. THE START OP SECRET TALES The beginning of the fateful secret negotiations between Germany and Russia was marked by an agreement to "reduce to tolerable proportions the attacks against each current in the public press of the other.The Russian emissary Kandalaki who managed to see Hitler in the fall of 1938 had disappeared in a purge, but was replaced by the Counselor of Embassy in Berlin, Georgi Astakhov, who was to play a leading role in the astounding drama that was to unfold. In his speech of May 31, 1939 Molotov had declared: At the end of 1938 the German Government again proposed economic negotiations and a credit of 200,000,000 Marks, the German side expressing readi ness to make a number of concessions. Russia assented, and the negotiations which had resulted on May 3-4 in extending their trade agreement until January, 1949, led on December 19* 1938 to an extension of trade re lations for the following year. In January, 1939 a German trade delegation went towards Moscow, but upon reaching War saw received Instructions to return. A3 Molotov said on May 31, 1939: At the beginning of 1939 the People*s Commissariat of Foreign Trade was informed that a special German representative, Herr Schnurre, was leaving for Moscow for the purpose of these negotiations. Subsequently, 18 poreXgn Affairs, October, 1946, p. 141. 199 the negotiations were entrusted to Herr Sehulenburg, the German Ambassador in Moscow, Instead of Herr Sehnurre, but they were discontinued on account of disagreement. To judge by certain signs, it is not precluded that the negotiations may be resumed. In February, 1939 the Russian Military Attachd in Germany informed German General Keitel, t f If in the course of events Poland collapses, we cannot be expected to remain indifferent to the fate of our fellow Russians and Ukrain ians in Poland.”17 German leaders immediately understood the meaning of Russia’s ^'negative" interest in part of Poland, behind the cloak of aiding peoples. Russia had made her first concrete move in the west to establish to Germany that she was interested in territorial gains. When Keitel reported the Russian Attache’s declaration, Hitler ordered it kept quiet. IV. STALIN ‘ 3 OFFER On March 11, 1939, a date which proved to be of world- historic significance, a few days before Hitler occupied Czechoslovakia, Joseph Stalin in his report to the eighteenth party congress of the Russian Gommunist Party laid down his first major overture for an agreement with Hitler Germany. At the time the proposal was seemingly securely hidden behind denunciation of the western powers. Treading his way to a ------ IT joEn"“scott, Duel for Europe (Bostons Houghton Mifflin Company, 19^2), p. 4. 200 new relation with, expanding Germany ostensibly to head off a peeipitate German dash towards the East, and yet hopeful of reaching some kind of accord with the west, Stalin opened his momentous report with a drumfire against the west: The majority of the non-aggressive countries, particularly England and Prance, have rejected the policy of collective security . . . and have taken up a policy of non-intervention, of 'neutrality.' Formally speaking, the policy of non-aggression might be defined as follows: "Let each country de fend itself against the aggressor as it likes and as best it can. That is not our affair. We shall trade with both the aggressors and with their victims I But actually speaking, the policy of non-intervention means conniving at aggression, to unleashing war-- ~ consequently to the transformation into world war Stalin then stated the west had let Germany have Austria, the Sudeten region, left Czechoslovakia defenseless and begun spreading statements about the "weakness of the Russian Army . . . urging the Germans to march further east." But "instead of inarching on further to the East, against the Soviet Union, they have turned to the West, if you please, and demand colonies." Then came the core of the speech: The foreign policy of the Soviet Union is clear and explicit. These are its main points: 1) We stand for peace and for the strengthening of business like relations with all countries. This is our posi tion and we will adhere to it as long as these countries maintain identical relations with the Soviet Union, as long as they make no attempt to violate our country's interests. 1®' parenthetically it may be observed that Stalin understood thoroughly the fatal consequences of Russian par-* ticipation in non-intervention in Spain: conniving at a Fran co victory, while supplying both Hitler and Mussolini (who in turn supplied Franco) and denying aid to the opposition. 201 Moreover, In explaining that "politics is politics" is an expression of "bourgeois diplomats," Stalin was in forming the German fascist leader that Russia's position was that equally old bourgeois phrase, "business is busin ess." According to captured German generals, interrogated after the war, Moscow let Berlin know informally that this utter ance was spoken with Germany particularly in mind.19 On his part Ribbentrop had informed Stalin on August 23, 1939: A spring speech of Stalin had contained a sentence which though Germany was not specifically mentioned, had been understood by Hitler as a hint on the part of Stalin that the soviet Government considered it possible or desirable to establish better relations also with Germany. p Stalin answered, "that was the intention." With one solitary sentence Stalin had made his historic point. To the Germans this was at least the fourth sign of a Russian desire to emerge in Europe. The others were the reduction of propaganda attacks in the fall of 1938, followed by the trade pact of December 19, 1938, and the Russian Mil itary Attache's expression of Russian interest in partitioning Poland. Hitler was not slow to respond. It would be wrong to call Stalin's speech "the master ^ Foreign Affairs, October, 19^6, P* 141. 20 prederich Gaus, five point affidavit submitted on March 15, 19^6 to the Wuremburg Tribunal. This is point 4. Gaus is the former legal advisor.to the German Foreign Office and later Ambassador Extraordinary. 202 plan” of Russian foreign policy, as John Scott did. 21 Sta lin’s largely negative report on how to avoid entangelements securely hid the positive policy of expansion under the gen erality of strengthening of "business relations with all countries." The rest was skillful propaganda, far to the rigjht and more nationalistic than earlier pronouncements. An other five months of secret moves were needed before the out lines of a master plan would become visible, and then only dimly as even war against Poland was shrouded in mystery. Stalin’s speech expressed part of the desire to increase business relations3 it nowhere stated the basic program or plan for accomplishing this politically and militarily. Russia was quite probably sincerely Interested in increased trade with various countries. Thereby she could have open loopholes for alternative courses of action and for shifting arrangements, for remaining outside the main conflict while contending pow ers weakened one another. But Stalin had made one significant alteration in approach: Differences with Germany were second ary ideologically if Germany did not attempt to interfere in internal Russian affairs.22 21 scott, Europe in Revolution, op. cit., p. 6 7. 22 The eighteenth congress also decided to rewrite the 1919 program which had said expansion abroad would be the end of the revolution if nationalities were subjectedi Stalin also suggested a change in the Marxian theory of the state, declaring that it could not wither away until full communism was reached, so long as capitalist powers continued outside Russia. 203 Czechoslovakia falls. Aware of Stalin's offer, Hit ler a few days later dismembered Czechoslovakia completely. Russia protested. Britain and Prance which had guaranteed Czechoslovakia at Munich remained silent. Russia's proposal for a great power conference on the issue was called pre mature" by British leaders. A British counter-proposal for isstiing a joint declaration against aggression went unsigned because of Poland’s refusal to sign a document with Russia. Poland's opposition was based partly on her parti cipation with Germany in carving up Czechoslovakia the pre vious autumn when Poland had seized Teschen. Still Stalin had indicated a possible road to the west, leaving the way open for business relations with both sides, with the "aggressor and his victim." Britain and Prance saw the new influence of Russia in Europe and her possible use against an overly speedy expansion by Germany. The contrast between Russia's exclusion from Munich and the ensuing fev ered days of negotiations for Russia's hand was wellnigh startling. Russia was to take full advantage of her position to raise up one by one her general demands for expansion be fore a single shot was fired. It is for this reason that the negotiations are pictured in some detail. When Britain decided to guarantee Polish borders on March 31 a trade delegation under R. S. Hudson, secretary for Overseas Trade, was sent to Moscow, and discussions were 204 opened with Ivan Maisky, Russian ambassador to Britain. Davies caught the sense of the developing situation: . . . The reports which have "been published by the German general staff in the technical magazines, describing the power and effectiveness of the Rus sian army, seem to have dulled Hitier*s taste for the Drang nach Osten ... Hitler is making a desperate effort to alienate Stalin from France and Britain. Unless the British and French wake up, I am afraid he will succeed. If he does, he can turn his attention to western Europe without any concern to an attack from behind.^ The British trade delegation under tie, accomplished less and returned home, officially that trade conversations would in harmony with keeping the business door ers, but the British had failed the first customer, to make a good offer. Germany moves against Poland. Hitler countered the vacillating generalities of the western powers with simple practical steps. Step number one was Poland. ... it seemed to the German Foreign Office that the community of interest between Russia and Germany In the polish question must be a more compelling con sideration in Moscow than the prospect of having Rus sian forces move to the rescue of Poland, a neighbor for whom the soviet leadership cherished, according to the Germans, the deepest political distrust. The Foreign Office believed, moreover, that Moscow had never given up the idea of recovering for Russia Po land Ts eastern reaches.24 Hudson offered 11t- Russla announced resume. This was open for all trad- test of a good 23 Davies, 0£. cit., p. 439. Foreign Affairs, October, 1946, p. 141. 205 Beyond the touted ideologies of the two huge powers lay a naturally defenseless body of land. Hitler knew that Stalin would not aid Poland but was ready to accept a por tion of that country. By April 3 the Nazis had set up "Fall Weiss" or Case White, the plan for operations against Poland. This was amplified on April 11 to provide "that the operation can be carried out at any time from 1 September 1939 onwards.”25 Davies again gave warning notice that Hitler had to "close his eastern door before he made his attack on the western front. ”26 Agreement with Russia, the Nazis realized In their contest over policy, would mean loss of use of the Bolshevik bogeyman. Ribbentrop, then tinder the influence of the "East- ern school," now headed by Schulenburg, Ambassador to Moscow, declared it was he who had convinced Hitler of the need to go with Stalin. Italian Foreign Minister Galeazzo Ciano de 25 Nazi"Conspiracy, op. cit., C-120. It Is well nigh remarkable that James F. Byrnes, Secretary of State at one time of the most powerful country in the world, and with his torical facilities that included captured German documents at his command, could say In his work, Speaking Frankly, "It was not until the summer that Hitler evidently decided lie would need the support of Russia to make his projected attack on Poland.” Hitler had come to this decision many months be fore. see op. cit., pp. 283-4. 26 Davies, op. cit., pp. 440-1. Trotsky noted that, "an agreement with Hitler would signify security of frontiers” for Stalin; for Hitler it would signify Russia "could sys tematically supply Germany with almost all raw materials and foodstuffs she lacks." Quoted in David J. Dallin's, The Real Soviet Russia (New Haven: Yale University Press, 1944), p. 5^* 206 clared In May, 1939 that Germany and Italy had discussed normalizing relations with Russia "to neutralize Russia and thus prevent her from participating in the encirclement of Germany by the Great Powers."27 Russia*s slightest move towards the west was to drive Germany to make countermoves above and beyond the western offers. Indirect aggression. On April 11 Britain informed Russia of her willingness to include Russia In an anti- aggression pact but that Poland and Rumania had refused to open their borders to Russian troops as the Russians had demanded. Without troops entering, Russia declared, defense was impossible. This wa3 putting the desire to expand in brilliant "defensive" language. Russia in reply to another attempt at guaranteeing Poland's borders said she saw no reason to aid countries that feared her. Moreover, the governments of the Baltic states feared Russia more than Germany. Recognizing this, Russia Introduced the formula of "indirect aggression" to give her the right to gain "automatic" fulfillment of any agreements concerning the Baltic without consultations with the west. Otherwise, 2? Galeazzo Ciano, The Giano Diaries (Garden City: Doubleday, Doran and Company, 194b), speech of December 16, 1939* Mussolini at that time told Marshal Goering: "A rap prochement between Germany and Russia was necessary to prevent encirclement by the democracies." See Raymond James Sontag and Beddie James Stuart, Nazi-Soviet Relations, 1939-1941 (Washington: U. S. Department of State, 1948), p. 33. 207 Germany could infiltrate them as she had Czechoslovakia, undermine them and destroy them, the Russians said. They had a sound understanding of the technique, in effect Rus sia was asking the right to determine for herself when war had begun. Britain rejected this, and Poland refused to per mit entry of Russia's forces, considering this would mean her death. Hitler was moving well beyond such diplomatic nice ties. Concerning Fall Weiss, he said on April 11: Intervention by Russia so far as she would be able to do this, cannot be expected to be of any use for Poland, because this would Imply Poland's de struction by Bolshevism. To a cablegram from President Roosevelt on April 15 as to the need for organizing collective negotiations on the ad vance of fascism, Russian President N. Kalinin replied with a request for calling of a "peace conference." With both Ru mania and Poland refusing entry of Russian forces, the Rus sians demanded a triple military alliance with Britain and France. V. SECRET HEG0TIATI0NS Of the west Russia demanded a full defense alliance. Towards Germany Russia began carrying out in secret the policy laid down by Stalin's speech. In a memorandum of April 17 German state secretary Weizsacker wrote of the first moves: Hazi~~Conspiracy, op. cit., C-120. 208 The Russian Ambassador visited me today ... He dwelt at length on . . . the fulfillment of certain contracts for war matdriel by the Skoda Works. Al though the items involved are manifestly rather insig nificant, the Ambassador regarded the fulfillment of the contracts as a test, to determine whether . . . we were really willing to cultivate and expand our economic relations with Russia.29 Delivery of war materials was the test proposed by the Russians. In their discussion the Russian ambassador said, according to Weizsackers Russian policy had always moved in a straight line. Ideological differences of opihion had bardly influ enced the Russian-Italian relationship, and they did not have to prove a stumbling block with regard to Germany either. Soviet Russia had not exploited the present friction between Germany and the western democ racies against her, nor did she desire to do so. There exists for Russia no reason why she should not live with us on a normal footing. And from normal, the relations might become better and better. Caucasus oil to Italy was being offered as proof that ideology was secondary to economics. But the offer was made, unlike what Trotsky, Davies and others were saying, on the basis of an economy was expanding beyond Its borders. On April 28 Hitler abrogated the Munich pact, the Polish Pact of 193^ and the Naval Agreement of 1935 with Bri tain. Next day Britain approved conscription. Poland was isolated. Learning of British and French proposals to Rus sia, Hitler ’ ’ abandoned his previous approaches to Poland and determined to out-bid the western powers.”30 Wooed by two 29 sontag and Stuart, op. cit., pp. 1-2. 30 Foreign Affairs, October, 19^6, p. 40. 209 sets of major powers Stalin In raising his demands to both was to reveal the profound extend of Russia’s ambitions. Litvinov * s ouster . On May 3 Maxim Litvinov, chief representative of the policy of "democratic fronts” for "collective security" was removed as Foreign Commissar. Vyacheslav Molotov, leading proponent of an "agreement of accommodation with Germany," replaced him. Hitler said of this: I was convinced that Stalin would never accept the England offer. Russia has no interest in main taining Poland . . . Litvinov’s replacement was decisive. I brought about the change toward Russia gradually . . .31- Dr. Karl Schnurre, chief German economics expert, meeting with Stalin's personal negotiator, Georgi Astakhov, informed him that the Germans were now carrying out the Soviet supply contracts with the Czechoslovakian Skoda Works, as requested on April 17- According to schnurre*s memorandum of May 5* Astakhov: was visibly gratified . . . and stressed the fact that for the Soviet Government the material side of the question was not of as great importance as the question of principle. He inquired whether we would not soon resume the negotiations which had been brok en off in February.32 Wazf~Conspiracy, op. cit., August 22, 1939# 79&-PS. Davies remarked"! "Litvinov1 s retirement augurs difficulty for the British diplomatic negotiations." See op. cit., p. W . 32 sontag and Stuart, op. cit., p. 3- 210 Alexander Barmine, the former Russian diplomat, wrote an article in May, 1939 for the French newspaper, Paris Soir, analyzing the developing impasse. At the time no European source dared publish his observations: There is every reason to believe that Stalin has long been seeking an alliance between the U.S.S.R. and the German Reich ... in the greatest secrecy . . . Concerning Polish territories east of the Curzon line, Barmine continued: These territories are inhabited by more than ten million people whom the U.S.S.R. would have the right, geographically and ethnologically, to claim as citiz ens, if she exacts payment for her benevolent neutral ity in a European war through a partition of Poland. Barmine while exposing the Russian interest in Poland was assuming a Russian right to eastern Poland, i.e., accept ing as "right;" the Russian expansion he saw so clearly. Hid den in a non-European publication, his exposure went unnoticed. As the west made no further headway with Russia over Poland and the Baltic, Germany moved to outbid the west. French Am bassador Coulondre reported on May 9, "the rumor has spread through the whole of Berlin that Germany has made or i3 going to make proposals concerning a partition of P o l a n d . " 3 3 Astak hov informed the Germans of Russia’s pleasure over the practiced reserve of the German press, which had been noticed abroad. With attention concentrated on the developing drama in northeastern Europe, Russia signed a trade agreement with 33 French Yellow Book, VIII (New York: Reynal and Hitchcock, 19^0), p. 57* 211 fascist Italy that went unremarked at the time. In the Far East on May 11 Japan reopened fighting on the border of the Mongolian People’s Republic. Political bases. Captain von Rintelen, a leading Ger man agent in the United States during the first world war, and who had become a British citizen, told Joseph E. Davies on May 17 s ... it was entirely possible that Germany and Russia would get together because of their mfttual economic interest ... It was of vital importance to the western democracies.* Jie added, that Britain close with Russia at onee.34 Von Rintelen meant "close" a pact. That same day Astakhov in a discussion with scbnurre mentioned the Treaty of Rapallo ... he commented on the Anglo-Soviet negotiations to the effect that under the present circumstances the result desired by England would hardly be achieved. To substantiate his opinion on the possibility of a change in German-Soviet relations Astakhov repeatedly referred to Italy and stressed that the Duee, even after the creation of the Axis, had implied that there were no obstacles to a normal development of the political and economic relations between the Soviet Union and Italy.35 Fruit wa3 beginning to bloom from Russia’s supplying of Caucasus oil to Mussolini and the signing of a new trade pact. In Moscow Schulenburg reported that Molotov had told 34 Davies, op. clt., pp. 445-6. 35 sontag and Stuart, op. cit., p. 5* 212 him that sending of the economics expert, Schnurre, -would have shown how serious the Germans were, and adding: The Soviet Government could only agree to a re sumption of the negotiations if the necessary 'polit ical hases1 for them had been constructed. Schulenburg replied, that a successful conclusion of the economic discus sions would also help the political atmosphere . . . I asked Herr Molotov what he meant by the construc tion of political bases . . .3o Molotov replied that both governments would have to think about this. Russia was asking Germany to make its offer. Bank in Berlin on May 21 Weizsacker wrote Schulenburg that the Germans must "now sit tight and wait to see if the Russians will speak more openly. "37 In turn Schulenburg advised caution "as long as it is not certain that possible proposals from our side will not be used by the Kremlin only to exert pressure on England and Prance. Coulondre, French Ambassador to Berlin, reported: One of the immediate objects that the advocates of a reconciliation with the U.S.S.R. hoped to gain appeared to be the possibility of persuading Russia to play the same role in an eventual dismemberment of Poland that the latter country had played with re gard to Czechoslovakia. The ultimate object appeared to be to make use of the material resources and man- ------ J6"IFI(T: , p. 6. 3 7 ; Ibid., p. 7. The American writers, Joseph Also£ and Robert“Klntner had written that Molotov had said, "closer trade relations were all very well, but what Stalin most de sired was closer political relations. 1 1 See American White paper (Hew York: Simon and Schuster, Inc., 1^40), p. $g.~ 213 power of the U.S.S.R. as a means to destroy the Bri tish Empire. This was on May 22. Here was "Eastern School" think ing at its height. Where Poland had seized Teschen, Russia was to seize half of Poland. The scale was grander, the means larger, the ends vaster. Still, up to this time Hitler considered it possible for Russia to ally with the west. VI. UNITY OF POLITICS AND ECONOMICS Russia on May 24 issued a communique on remilitariza tion of the Aland islands, lying between Sweden and Finland. She insisted that the islands which the Finns controlled and wished to fortify, remain unfortified. Russia had begun to demonstrate in yet another area her growing interest in the world outside her borders. Ribbentrop informed the French Ambassador: The Fuehrer will come to an understanding with Russia; it may be that we shall witness a fourth partition of Poland.38 World revolution. Ribbentrop in a summary of the discussions, submitted to Hitler on May 29, wrote of pos sible agreement with Russia: I would consider as a conslditlon that the aggres sive promotion of the idea of world revolution no longer be an element in the present soviet foreign 38 French Yellow Book, op. cit., Document No. 123* 214 policy ... If this condition is met . . . as certain signs might indicate— I could imagine that such a conversation could lead to useful results.39 Russian nationalism and her chauvinist demands were a quite convincing sign of fundamental changes in Moscow. Weizsacker noted on May 30 in a memorandum on a conversation with Astak hov: Herr Molotov had stated that politics and economy could not he entirely separated In our relations; a certain connection between the two did actually ex ist ... Among our German political merchandise, however, one item did not exist, namely a special liking for Communism . . . the Chargd interrupted with explana tions as to how Russian relations with Italy and par ticularly Turkey, as well as other countries could be normal or even very good, although in these countries Communism was not favored at all. He strongly em phasized the possibility of a very clear distinction between maxims of domestic policy on the one hand and^,- orientation of foreign policy on the other hand . . . u For Astakhov to speak thus towards a German, trained in the theory that foreign policy is the continuation of do mestic policy, was ideologically ironical, though diplomatic ally correct. But the Germans, moving fast, shifted their cumbersome machinery, with Weizsacker on May 30 informing Schulenburg that a major decision had been reached: Contrary to the policy previously planned, we have now decided to undertake definite negotiations with the Soviet Union. Since the Russian request presents a question of policy the Reich Foreign Minister had also been considering It and he had taken thp matter 39 sontag and Stuart, op. cit., p. 12. 40 Ibid., p. 15* 215 up with the Fuehrer.2 ^ Weizsacker informed Schulenburg that the order concern ing the Skoda Works would be considered, that expansion of economic relations could be discussed in Moscow, but that po litical questions were being taken up directly in Berlin. ^ Loc ~cit. Russians request was for continuance of her trade mission at Prague, technical pretext for the conversations. The Russians were asking an elementary eco nomic fact: Would Germany supply them with war matdriel as part of an economic agreement after political bases, in cluding division of Poland, had been constructed? Weizsacker said, yes. Ribbentrop at this time declared, ”lt is I who sugges ted to the Fuehrer to conclude a pact with Russia. He started by refusing, then he rallied to my idea.*1 See Raymond Cartier, Les Secrets de la Guerre Exposd par Nuremberg (Paris: F. Brouty, J. Fayar and Cie., lsB- 6), p. 107. CHAPTER IX THE BASIC EXPANSIONIST DEMANDS OF 1939 Of the several possible ways of picturing the origin, growth and development of Russia's expansionist demands few compare with her own statements. Many of these were made in secret. Others, surprisingly, were delivered publicly and are sufficiently well known so that little question as to their meaning Is open, once the economic basis of the demands is established. I. MOLOTOV'S FIRST SPEECH In his first report as Foreign Minister to the Supreme Soviet on May 31, Molotov declared of British and French pro posals for an agreement: . . . While guaranteeing themselves from direct attack on the part of aggressors by mutual assistance pacts between themselves and with Poland, and while trying to secure for themselves the assistance of the U.S.S.R. in the event of attack by aggressors on Po land and Rumania, the British and French left open the question whether the U.S.S.R. in its turn might count on their assistance in the event of its being directly attacked by aggressors, just as they left open another question, namely, whether they could participate in guaranteeing the small States border ing on the U.S.S.R. and covering Its north-western frontiers . . . For ostensibly “defensive” purposes Russia was repeat ing her desire for entry into and bases In Poland, Rumania, Lithuania, Latvia and Estonia. Molotov continued: 217 Thus the position was one of inequality for the U.S.S.R. This was a reflection of the Russian insistence on recognition as a power. Molotov complained about proposals received from the west: . . . They provide for assistance being given by the U.S.S.R. to the five countries which the British and French have already promised to guarantee, but say nothing about their giving assistance to the three countries on the north-western frontier of the U.S.S.R., which may prove unable to defend their neutrality in the event cf attack by aggressors . . . Already then, "five countries” were encompassed in the evolving Russian policy, with the Russians insisting that agreement should first affect the three Baltic states. In what was Russia’s major warning to the west, Molotov declared: wWe stand for peace and against aggression, but we must remem ber Stalin's admonition that we cannot be used to pull the ehestnuts out of the fire for others.” Molotov ridiculed the spectacle of a small country insisting on remaining neutral when it could not defend its neutrality, and would be prey for "indirect” or other aggression. Extending the policy proposed by Stalin on March 11, 1939, Molotov said: While conducting negotiations with Great Britain apd France, we by no means consider it necessary to renounce business relations with countries like Germany and Italy. At the beginning of last year, on the initiative of the German Government, negotia tions were started for a trade agreement and new credits. Germany offered to grant us a new credit of 200,000,000 Marks. As at that time we did not reach unanimity on the term3 of this new economic agreement, the matter was dropped. At the end of 2 1 8 1938 the German Government again proposed economic negotiations and a credit of 200,000,000 Marks, the German side expressing readiness to make a number of concessions. At the beginning of 1939 the people’s Commissariat of Foreign Trade was informed that a special German representative, Herr Schnurre, was leaving for Moscow for the purpose of these negotia tions. Subsequently, the negotiations were entrusted to Herr Schulenburg, the German Ambassador in Moscow, instead of Herr Schnurre, but they were discontinued on account of disagreement. To judge by certain signs, it is not precluded that the negotiations may be re sumed. I may add that a trade agreement for the year 1939 of advantage to both countries was recently concluded with Italy ... Wo clearer warning could be given Britain and France by this succinct summary of Russo-German moves from the Rus sian side, except for the secret informing of Germany that a part of Poland was acceptable. But even this was not un known to the western powers. Russia had already presented demands for influence and bases in at least eight eastern European countries, including Poland. For the time being Rus sia did not find it necessary to demand from the west a share of Poland directly. Wot a word of criticism of trade relations with fascist Italy came from either right or left in any country. Economic ties with Germany and Italy were one of the pillars of Russian policy; no intention to give them up was expressed. II. GERMANY 0UTMANEWERS THE WEST Germany again was to make the best Interpretation of what Molotov’s speech constituted, schulenburg, the extremely 219 discerning leader of the "Eastern School,1 1 analyzed the broad problem in a report to Weizsacker on June 5: It is obvious that Japan would not like to see even the smallest agreement between us and the soviet Union. The less our pressure becomes upon the west ern boundary of Russia, the stronger the might of the Soviet Union will make itself felt in Eastern Asia. The Italians really ought to welcome a German- Russian arrangement; they themselves have always avoided clashing with Moscow, and the Reich could take a strong stand toward France if Poland were kept in check by the soviet Union, thus relieving our east ern boundary . . . Russia’s explosive pressure, schulenburg was saying, extended across the two continents of Europe and Asia and vitally affected both the expansion of Germany and Japan in a kind of inverse relation, as events were to show. Schulen burg continued, informing Molotov’s deputy, Vladimir Potem- king: There were no points of friction, no controversial issues, between Germany and the Soviet Union. We had no border incidents to eliminate and no dispute to settle . . . At this time Germany had rushed to conclude treaties with the Baltic countries, as is shown in a few paragraphs. Thereafter schulenburg noted that he had informed the Russians: . . . through our nonaggression treaties with the Baltic countries, Russia has received from us, free of charge, increased security and thereby a German political down payment. The canny ambassador, referring to Molotov's speech, wrote that Molotov mentioned three conditions, which must be met under any circum stances in order to achieve the English-French-soviet alliance. In none of the three points is it stated 2 2 0 that the demands of the soviet Union refer exclusively to Europe. The Par East is not named, to he sure, hut it is not excluded either . . Long before almost anyone else schulenburg appreciated how widespread were Russian interests, extending far beyond eastern Europe into Asia. The "political down payment" of which he spoke was a swift overt act whereby Hitler stole a march on the western powers in early June by signing nonaggres sion pacts with the Baltic states. Up to that time these states had been "guaranteed" by Britain and Prance. This appears, to have been the decisive day for Hitler to turn the tide of negotiations with Russia in Germany’s favor, for the flouting of the western guarantee showed Ger many’s power and willingness to outbid the west. The worsening situation of the west was explained in a statement by Winston Churchill who criticised the stand of British Prime Minister Neville Chamberlain: The Russian claim that the Baltic States would be included in the triple guarantee is well-founded, it is certain that if Lithuania, Latvia and Estonia were invaded by the Nazis or subverted to the Nazi system by propaganda and intrigue from within, the whole of Europe would be dragged into war. Why not then con cert in good time, publicly and courageously, the mea sures which may render such a fight unnecessary?2 1 Raymond J. Sontag and Beddie J. Stuart, Nazi-Soviet Relations, 1939-19^1 (Washington: U. S. Department of State, 194b), pp. .15=50. 2 Morning Post, June 8, 1939* Churchill did not state that thereby the Baltic states would be turned over to a newly carved out Russian sphere, nor did he offer to consult the small states concerning their own fate. This was a super- Munich. In his later recognition of the incorporation of the Baltic states into Russia, Churchill remined consistent with this power-political view of dividing up spheres of influence. The Strang mission. As British-French negotiations deteriorated, London announced in early June that it was send ing William Strang as special envoy to Moscow. No more un fortunate selection would have been possible. Not only wa3 Strang’s low rank of Counselor of Embassy an insult to the newly protocol conscious Russians who considered even an Am bassador like schulenburg not high ranking enough to compare with the economics expert Schnurre, but Strang had been in Rus sia before in minor capacities.3 When Strang arrived In Moscow on June 13 the Russians practically Ignored him. His very presence was proof that British proposals were not serious. By this time proposals by the west could not well be acceptable to the Russians. Chamberlain sought no real alli ance, hoping to push Germany against Russia and that in the process Britain could again achieve dominance over the Euro pean balance. Moscow was now sure it could obtain from Ger many most of what Britain refused to give, and without war. Astakhov let the Bulgarian minister in Berlin know on June 5 Counselor of Embassy in Moscow from 1930 to 1933, Strang had handled well the Metro-Vickers defense of British engineers convicted of sabotage in Russian Industry. There by he embarrassed the Russian government which had prepared the case clumsily, and was pleased to see Strang depart the country. 2 2 2 1^ that Russia was consdering three possibilities, one of them being a "ra.pprochement with Germany": This last possibility, with which ideological con siderations would not have to become involved, was closest to the desires of the soviet Union . . . the Soviet Union did not recognize the Rumanian possession of Bessarabia . . . the Charg& had also referred to Mein Kampf ♦ If Germany would declare that she would not attack the Soviet Union or that she would conclude a nonaggression pact with her, the soviet Union would proba.bly refrain from concluding a treaty with England. The Bulgarian Minister who promptly reported the con versation to the German Foreign Office said that he had told Astakhov: The situation had also changed with respect to other countries, since Mein Kampf had been written, noted that Russia hersel'f '"had helped Rumania to the Dobruja," for which the ChargA tried to lay the blame exclusively on the Czarist Government.^ Russia was now presenting claims to Bessarabia, when the early revolutionists in contrast had renounced such claims. III. POLITICAL BASES With the sending of Counsel of Embassy Hllger to Moscow in the middle of June the Germans informed the Rus sians they were for expanding and strengthening economic re lations and that they would send Schnurre to discuss details. This would reopen the negotiations broken off in February, now that various obstacles were removed, e.g., Poland. Hil- ger noted that Germany expected Russia to re-examine proposals ^ sontag and Stuart, op. clt♦, p. 21. 223 for raw material deliveries "in order to establish a balance of give-and-take under the future treaty."5 Thus the dis cussions had reached the stage where provisions of a treaty were placed on the agenda. Meanwhile Britain and France rejected Russia's pro posal that it decide through "automatic action" and not "con sultation" what to do should Germany enter the Baltic area. Britain and France declined to accept this view. Berlin treaty. Hitler indicated that if the Russians did not accept the bases of economic discussions of the pre vious January no further talks would occur, but agreed to delay stating this to the Russians. Events were to shift Hitler's attitude. Molotov and Schulenburg discussed the his tory of mutual relations, with schulenburg informing the Rus sian that the Berlin Treaty of 1926 was still in force. Another British offer was rejected by Moscow early in July. More than thirty offers and counter-offers were made by both sides. Russian leader Andrei Zhdanov's article in the form of a letter to pravda on June 29 demanded a . full guarantee to the Baltic states. Zhdanov wrote that Britain had extended a guarantee to Holland and to Lithuania without asking their consent. In far-off Hamburg the French consul general cabled his government: 5 Ibid., p. 2k. 22k If some agreement is not shortly concluded between London, Paris, and Moscow, the Soviet Government will be prepared to sign a pact of nonaggression with the Reich for a period of five years.^ To Molotov’s anxious inquiry Schulenburg insisted that later treaties of Germany bad not abrogated the Berlin Treaty of 1926. The ambassador urged that Schnurre would be the one best able to conclude the economic negotiations. Exploiting the steadily mounting tension, Hitler sent one of his economic representatives to London to discuss secondary economic problems. Apparently this was the spur that the slow Russo-German trade talks required. On July 21 Tass announced the resumption of negotia tions with Germany for a new trade agreement. But two days later Moscow suggested military staff talks start with the west. Stalin was playing both sides of the business relations street. The confident British government announced on July 27 It would sign a pact with Russia shortly! Possibly under the influence of this British statement and Moscow’s dual actions the German foreign office had schnurre indicate in seven points to Astakhov three possible stages of agreement. Three stages and seven points. The economist Schnurre came directly to the point: State One: The reestablishment of collaboration in economic affairs through the credit and commercial ° French Yellow Book, VIII (New York: Reynal and Hitchcock, 19^)> P* 18T7I 225 treaty which is to be concluded. Stage Two: The normalization and improvement of political relations. This included, among other things, respect for the interests of the other party in the press and in public opinion, and respect for the sci entific and cultural activities of the other country. The official participation by Astakhov in German Art Day at Munich, or the invitation of German delegates to the Agricultural Exhibition in Moscow, as suggested by him to the state Secretary, could, for instance, be included under this heading. Stage Three would be the reestablishment of good political relations, either a return to what had been in existence before (Berlin Treaty) or a new arrange ment which took account of the vital political inter ests of both parties. Concerning stage three, schnurre continued: This stage three appeared to me vitthin reach, because controversial problems of foreign policy, which would exclude such a relationship between the two countries, did not, in my opinion, exist in the whole area from the Baltic sea, to the Black Sea and the Far East. In addition, despite all the differ ences in Weitanshauung, there was one thing in common in the ideology of Germany, Italy, and the soviet Union: opposition to the capitalist democracies.* Russia by this time really had far more in common with Germany than with the western powers, namely an interest in all of eastern Europe. This was only point one of Schnurre*s statement. In his other points Schnurre noted that Astakhov and the Russian minister, E. Babarin accepted rapprochement with Germany: 2. . . . Astakhov . . . emphasized . . . The Soviet Union had been forced to feel itself most ser iously menaced by the National Socialist foreign pol icy . . . Our assumption that the Baltic countries and Finland, as well as Rumania, were in our spherfe of interest completed for the soviet Government the feeling of being menaced. 7 Sontag and Stuart, o|>. clt., pp. 32-36. 226 In positive terms Astakhov was saying that if Germany agreed to leave these countries in the Russian sphere of in fluence, Russia no longer would feel menaced. After explain ing that Molotov himself had called the Anti-Comintern pact camouflage for an alliance aimed against the west, Schnurre said: 3 • . . . I could imagine a far-reaching compromise of mutual interests with due consideration for the problems which were vital to Russia . . . What could England offer Russia? At best, participation in a European war and the hostility of Germany . . . What could we offer . . .? Neutrality and staying out of a possible European conflict and, if Moscow wished, a German-Russlan understanding on mutual interests. To Astakhov's questions about German political aims In the Baltic states, Rumania, Poland and former Austrian lands of Galicia and parts of Ukrainian countries, Schnurre replied: 4. . . . Astakhov . . . As to Poland, he stated that Danzig would return to the Reich in one way or another and that the Corridor question would have to be solved somehow In favor of the Reich . . . I con fined myself to the statement that no German-Russlan clash of interests would result from all these ques tions . . . For the first time In the negotiations, according to these records, Astakhov had given Russian approval of German's wish for part of Poland, schnurre continued: 5. . . . I took advantage of this opportunity to explain in detail our opinion concerning the change in Russian Bolshevism during recent years . . . The importance of the Comintern had been over shadowed by the Politbureau, where an entirely different policy was being followed now than at the 227 time when the Comintern dominated. The amalgamation of Bolshevism with the national history of Russia, which expressed itself in the glorification of great Russian men and deeds (celebration of the battle of Poltava, Peter the Great, the battle on Lake Peipus, Alexander Revski), had really changed the internation al face of Bolshevism, as we see it, particularly since Stalin had postponed world revolution indefin itely. in this state of affairs we saw possibilities today which we had not seen earlier, provided that no attempt was made to spread Communist propaganda in any form in Germany. Germany saw Russia was following "an entirely diff erent policy" in recent years, expressing itself in the movement from world revolution to extreme Russian national ism. The possibilities Germany "had not seen earlier" arose, apparently, from the Russian desires for part of Poland and influence throughout eastern Europe.7 in point 6 the commerce and credit treaty was discussedj and In point 7 Schnurre re marked that Moscow was seeking to delay decisions whose Im portance' they understand "completely." To implement the stages and points Weizsacker in in forming schulenburg of Schnurre's discussion with the Russians wrote; In any development of the Polish question, either in a peaceful manner as we desire it or in any other way that is forced upon us, we would be prepared to safeguard all Soviet interests and to reach an under standing with the Moscow Government . . . in the Baltic question too . . . we will adjust our stand with regard 7 paradoxically, it is the western powers who after the second world war and a still greater nationalist expansion by Russia persist In calling her revolutionary and communist when facts point the other way. 228 to the Baltic in such a manner as to respect the vital Soviet interests in the Baltic.8 Germany was replying to Russia’s offer to recognize German rights to part of Poland if Germany would do the same for Russian claims in the Baltic states. Other areas would be considered later. IV. THE POLITICAL THOUGHT Clarification of the terms for adjustment of interests was speeded up by Germany now that an Allied Military Mission was on its way to Moscow. Ribbentrop on August 3 wrote schu lenburg of a conversation with Astakhov: . . . there was no problem from the Baltic to . the Black Sea that could not be solved between the two of us . . . there was room for the two of us on the Baltic . . . I dropped a gentle hint at coming to an agreement with Russia on the fate of Poland * • • * . . . the choice lay . . . with Moscow.9 Moscow was to choose to come to an agreement "on the fate of Poland," to divide "room" on the Baltic and to con sider problems from the Baltic to the Black Seas. It was an historic choice. But Molotov complained that Germany still would not participate with Russia in any international confer ences, citing Munich as an example of exclusion, schulenburg replied that Germany was finding new ways. When the Baltic states were mentioned Molotov asked if this included Lithuania. 8 Sontag and Stuart, op. cit., p. 36. 9 Ibid., pp. 37-8. 229 Allied Military Mission. On August 5 a British, and French military mission, consisting of lesser generals, left London on a slow British warship bound for Russia, to replace the political negotiators who had made little headway. Two days later Sir William Strang departed from Moscow, schulen burg wrote his government: I hope the three Germans will arrive soon who are to visit the agricultural exhibition here at the invi tation of the Soviet government . . . Should not the Soviet Government be invited to the Eastern Pair at Koenigsberg?10 By visiting each other’s fairs and exhibitions and re ducing their press criticism, the two countries were proving their "sincerity" to one another. Astakhov informed Schnurre in Berlin of the need to separate an economic from a political agreement at least formally: The question informally discussed between us, as to whether a political thought should be Inserted in the preamble to the credit agreement, had also , been examined in Moscow. it was held more appropri ate not to connect the trade and credit agreement with language of a political nature. This would be anticipating the future.11 Schnurre agreed. On August 11 the Allied military missions arrived. Red Army leaders on the following day said that to render military assistance to Poland it would be 10 Ibid., p. 44. 11 Ibid., pp. 45-6. 2 3 0 necessary to pass over Polish territory to reach Germany. Poland would not permit such transit.12 While Britain and France were still seeking military guarantees from Russia, Germany in her offers had made no such demands. Instead she had offered economic concessions, credits, a share of Poland and spheres of influence in eastern Europe. Telegram from Moscow. In a conference with Count Ciano in the presence of Rihbentrop, Hitler on August 12 declared: . . . in future meetings of the powers it will not be possible to exclude Russia. In the German- Russian conversations the Russians made it plain, with reference to Munich and other occasions from which they had been excluded, that they would not tolerate this any more. Molotov's statements to Schulenburg had had their effect. A telegram from Moscow came and was read to Ciano, with Hitler stating: The russians agreed to the sending of a German political mediator to Moscow. The Reich foreign minister added that the Russians were completely informed about Germany's intentions against Poland . . . by order of the Fuehrer. The Fuehrer remarked that in his opinion Russia would not be willing to pull chestnuts out of the fire for the western powers. Stalin's position is 12 concerning the Polish refusal, the British Hew Statesman and Nation of August 26, 1939 wrote: "Adherence to an aTIiance whose leaders he /stalin/had every reason to distrust may have seemed more risky than a nicely balanced policy of detachment." Only In the sense of Immediate mil itary participation could Russia have had such a policy. But the British journal had little inkling of how "detached" Russian policy was. endangered as much by a victorious Russian army as by a defeated Russian army. Russia is, at the most, Interested In enlarging her access to the Baltic a little. Germany has no objection to that. Besides, Russia would hardly take the part of Poland . . .13 Seemingly Hitler was unaware that Russia was interested in far more than "enlarging her access to the Baltic a little. Actually Germany did not inform Italy how far she had gone to meet Russian demands; Ciano's later statements showed this. From Berlin schnurre informed Schulenburg that Astakhov had received instructions to discuss "Individual groups of ques tions . . . by degrees or . . . by stages. Poland could be included. V. HITLER * S SIX POINT OFFER Hitler who had first limited the talks to the economic level apparently began to fear that negotiations between the west and Moscow could represent a danger. Through Ribbentrop he decided to make Stalin a far-reaching six point offer: 1. The ideological contradictions . . . were in past years the sole reason why Germany and the U.S.S.R. stood opposed to each other . . . differing world out looks do not prohibit a reasonable relationship . . . This was an extolling of the benefits of economic relations. Nazi Conspiracy and Aggression, Office of U. S. Chief of Counsel for Prosecution of Axis Criminality (Wash ington: U. S. Government Printing Office, 1946), I07I-PS. 14 Sontag and Stuart, op. cit., p. 48. 232 2. There exist no real conflicts of interest . . . . there is no question between the Baltic and the Black Seas which cannot be settled . . . In such matters political cooperation between the two countries can have only a beneficial effect. The same applies to German and Soviet economy, whieh can be expanded in any direction. 3• ... German-Soviet policy today has come to an historic turning point ... of decisive importance . . . for generations ... It has gone well with both countries previously when they were friends and badly when they were enemies. K. . . . Germany and the U.S.S.R., as a result of years of hostility in their respective world out looks, today look at each other In a distrustful fa shion . . . even during this period the natural sym pathy of the Germans for the Russians never disappeared. The policy of both states can be built anew on that basis. 5* The Reich Government and the soviet Government must . . . count It as certain that the capitalistic Western democracies are the unforgiving enemies . , . They are today trying again . . . to drive the U.S.S.R. Into a war against Germany. In 191^ this policy had disastrous results for Russia. It is the compelling Interest of both countries to avoid for all future time the destruction of Germany and of the U.S.S.R., which would profit only the Western democracies. Hitler may have been warning that as Czarism was de feated In war and then overthrown, so the Stalin government could suffer the same fate in a war. 6. The crisis which has been produced in German- Polish relations by English policy . . . makes a speedy clarification of German-Russian relations desirable . . . and possibly of clearing up jointly the terri torial questions of Eastern Europe . . Molotov received the offer with the greatest interest ! !5 Ibid., pp. 50-1. Wevile Henderson on August 15 wrote from Germany, "Mr. Weizsacker . . . professed to be lieve that the Russian assistance to the Poles would not only be entirely negligible, but that the U.S.S.R. would even in'the end join in the Polish spoils." see Failure of a Mission (New York: G. P. Putnam’s Sons, 1940j. 233 and Schulenburg reported that the foreign minister had asked if a nonaggression pact would he concluded, if Japan would he influenced to improve relations with Russia, and if Germany would agree to an arrangement over the Baltic states. Speed was necessary, both sides recognized, because of the timetable for Pall Weiss: Attack on Poland was to open on September 1. In negotiations with the west Russia had asked for a joint guarantee of the Baltic states; in those with Germany Russia played down such a view. Where she could not raise her fuller demands to the west without arousing an outcry and showing that the basic aims were expansionist and not at all defensive, in relation to Germany Russia could be more frank. By asking Germany to give up piecemeal the Baltic area as a sphere of influence, Russia was indicating she wanted the entire area or most of it within her own sphere. Germany offered a pact of twenty-five years, a joint guarantee of the Baltic states, and help in improving rela tions with Japan. Russia fs draft of a pact. By mid-August Hitler was willing to grant Russia territorial concessions in Poland as the price of neutrality, along with credits and conces sions, including improving Russo-Japanese relations.16 Molo tov Informed Schulenburg that step one was the conclusion of poreTgn Affairs, October> 19^6, P* ^1- 23^ the trade and credit agreement. The second step was to be the conclusion of a nonaggression pact or reaffirmation of the neutrality pact of 1926, *’ with the simultaneous conclusion of a special protocol which would define the interests of the signatory parties in this or that question of foreign policy and which would form an integral part of the pact.“^7 Ribbentrop agreed, writing: I am also in a position to sign a special protocol regulating the interests of both parties . . . for instance, the settlement of spheres of interest in the Baltic area, the problem of the Baltic States . . . . . . German foreign policy has today reached a historic turning point . . . you must keep in mind the decisive fact that an early outbreak of open German-Polish conflict is probable and that we there fore have the greatest interestoin having my visit to Moscow take place immediately.1^ With the trade treaty of August 19 being completed, Germany was declaring that a political agreement was needed without delay to permit Germany to have the go-signal for unleashing Pall Weiss against Poland by September 1. Molotov delivered a draft of a pact to Schulenburg, and discussed a German draft, indicating that Russia favored a pact along the lines of nonaggression treaties it had with the Baltic states. Hitler wrote of the development of negotiations: In connection with the commercial treaty we got into political conversation, proposal of a nonag gression pact. Then came a general proposal from 17 sontag and Stuart, op. cit., pp. 59-60. 18 Ibid., pp. 60-1. 235 Russla.19 VI. COMMERCIAL TREATY, AUGUST 19 Molotov’s step one, the commerce and trade agreement, was signed In Berlin on August 19. A Russian radio broadcast gave the terms on August 21, as did Izvestia: The Trade-Credit agreement provides for a German credit of 200,000,000 marks to the U.S.S.R. for seven years at 5 per cent for the purchase of German com modities during two years from the date of signature of the agreement. The agreement likewise provides for the delivery of 180,000,000 German marks1 worth of Soviet commod ities to Germany during the same period, that is, for two years. The price for Russian aid In the coining attack on Po land, aside from Polish territory proper, was relatively low. Total trade of 380 million marks was to be almost TOO per cent above the figures for 1938. Economics had triumphed again over Russia's "anti-fascist* 1 Ideology. Stalin's warning of willingness to do business was realized with Germany. The pact continued earlier agreements. On May 3—1 4- , 1938 the two powers had extended their trade agreement until January, 1939j and on December 19, 1938 had extended agree ment through 1939* Further parleys halted in January, 1939, and again in February, languishing until Astakhov on April 17, in accordance with Stalin's business relations speech of March 11, made overtures for renewal of the conversations. Interest in division of Poland was expressed as was a desire for a sphere of influence in Eastern Europe. 236 Trade figures. From 1930 to 1938 trade between the two countries had declined steadily. In 1931 Germany export ed 762,700,000 Reich Marks (RM) worth of goods to Russia, and imported 303*500,000 RM worth, plus gold and silver worth 247.400.000 RM, for a total trade of 1,314,700,000 RM. For 1937 the corresponding totals had fallen to 117,400,000 RM, 65.100.000 RM and zero, for a grand total of 182,500,000 RM. During the first nine months of 1938, corresponding figures were 21,000,000 RM, 34,700,000 RM and zero, for a total of 55.700.000 RM.^9 Russia's share of Germany's imports fell from 5-8 per cent in 1932 before Hitler to less than one per cent (.09 per cent) in 1938. The first trade agreement of August 19 obligated Russia to supply 180,000,000 marks’ of commod ities (approximately $72-million) in two years. However small the totals they were an enormous rise from the $4,535,000 of estimated Russian exports for the first ha,If of 1939* Dallin was in error in stating that, "ultimately, this commercial agreement remained on paper."20 The agreement 19 The two powers set 4.2 RM as equal to one American dollar in 1941. Russian exports fell from $106-million In gold in 1930 to Germany to $17,700,000 in 1938 at the topmost estimates. 20 David J. Dallin, Soviet Russia's Foreign Policy, 1939-1942 (New Haven; Yale University Press, 1943)., P• "57• 237 represented no revolution in trade relations and was less than a. single month's deliveries of the United States to Ger many after the war. But coming at the height of Russian nego tiations with Britain and France, and when Hitler sorely re quired a guarantee in the east so that he could unroll Fall Weiss, the agreement granted Hitler badly needed additional supplies for his war machine and political assistance in ex ploiting the resources of Eastern Europe, and other countries. Under conditions of economic blockade Russian aid was to prove of great importance. Earlier agreements with pre-Hitler Germany were signed on May 8, 1921 in Berlin, and at Rapallo on April 17, 1922. In those days such treaties were subordinate features of Soviet economy and politics. In August, 1939 they marked ma jor changes. A basic shift in the fundamental development of Russian society was being completed for all the world to see, bringing to fruition the tendencies towards expansion. Dr. schnurre clarified the contents of the agreement: 1. ... It Is a credit based on bills of ex change . . . drawn for each individual transaction and have an average currency of 7 years. The Interest Is 5 per cent. Under a secret final protocol, one-half per cent of this is refunded to the Russian special accounts in Berlin, whereby the actual Interest rate is reduced to 4^ per cent. This ^ ’ secret final protocol*' was yet another kind of pact, symptomatic of Germany's highly involved foreign ex change system, which Russia was to amplify later. 238 2 . The credit will be used to finance Soviet orders in Germany . . . /for/ industrial products . . . They consist of machinery and industrial instal lations . Machine tools up to the very largest dimen sions form a considerable part of the deliveries. And armaments in the broader sense (such as optical sup plies, armor plate and the like) will, subject to ex amination of every single item, be supplied in smaller proportions. Furnishing of wat materials from the Skoda words had, on the previous April 17, been the test the Russians pro posed of a possible change in Germany’s relations with her. 3. The credit will be liquidated by Soviet raw materials . . . annual interest will likewise be paid from the proceeds of Soviet merchandise . . 4. . . . It was made a condition . . . that the Soviet Union bind itself to the delivery, starting immediately, of certain raw materials as current bus iness . . . The Russian commitments of raw materials . . . amount to 180 million Reichsmarks: half to be delivered in each of the first and second years fol lowing the conclusion of the agreement. It is a question, in particular, of lumber, cotton, feed grain, oil cake, phosphate, platinum, raw furs, petrol eum, and other goods which for us have a more or less gold value. This "more or less gold value" was what made the Rus sian commodities so important to Germany at the time. 5. Since these soviet deliveries made as current business are to be compensated by German counter- deliveries, certain German promises of delivery had to be made . . . 6. From the welter of difficult questions of de tail . . . the following might also be mentioned: guaranteeing of the rate of exchange of the Reichs mark. The complicated arrangement arrived at appears In the confidential protocol signed on August 2 6 of this year . . . Yet another pact, the confidential .protocol is dis cussed below in its chronological place. 239 7 * . . . Since the political climate is favor able, it may well be expected that it will be ex ceeded considerably in both directions . . . 8. . . . The movement of goods . . . might there fore reach a total of more than 1 billion Reichsmarks for the next few years . . . 9. Apart from the economic import of the treaty, its significance lies in the fact that the negotiations also served to renew political contacts with Russia and that the credit agreement was considered by both sides as the first decisive step in the reshaping of political relations.21 With economic agreement as the base, political relations could arise. VII. PERSONAL CONTRACT WITH STALIN Russia’s draft of a nonaggression pact with five ar ticles provided for a continuation largely of the 1926 accord for five years, not the twenty-five Hitler had suggested. It was to be "valid only if a special protocol is signed simul taneously covering the points in which the High Contracting Parties are interested in the field of foreign policy."22 To a telegram from Hitler, Stalin on August 21 replied; I thank you for the letter. I hope that the Ger man-soviet nonaggression pact will mark a decided turn for the better in political relations between our countries. The people of our countries need peaceful relations with each other. The assent of the German Government to the conclusion of a nonaggression pact provides the foundation for eliminating the political tension and for the establishment of peace and collaboration be tween our countries. 21 sontag and Stuart, op. cit., pp. 83-5. 22 ibid., pp. 65-6. 240 The Soviet Government 3ms authorized me to inform you that it agrees to Herr von Ribbentrop’s arriving in Moscow on August 23. J. Stalin.23 To the Allied military missions Russian leaders in sisted in a meeting of August 21 on the right of Russia’s forces to enter Eastern Poland in the event of war. Poland would not accept this. In Berlin Japanese Ambassador Hiroshi Oshima told Weizsacker on August 22 that the pact would re inforce Russia in Asia and arouse difficulties in Tokyo be cause of the earlier Anti-Comintern pact of 1936. This earlier agreement 3md stipulated Germany would consult Japan before signing any agreement with Russia. "While Weizsacker noted tliat because of the plan for Pall Weiss Germany had no time left and had been forced to make a sweeping offer, Hitler spoke twice on August 22 to his leading commanders. He,crystallized the German view: Since Autumn, 1938, and since I have found out that Japan does not go with us without conditions, and that Mussolini is menaced by the weak-headed king and the treacherous scoundrel of a Crown Prince, I have decided to go with Stalin . . . Stalin and I are the only ones tliat see only the future. So I sliall s3mke hands with Stalin witMn a few weeks on the common German-Russian border and undertake with him a new distribution of the world. Hitler gave economic reasons for moving for war: For us it Is easy to make decision. We have no thing to lose; we can only gain. Our economic situa tion is such, because of our restrictions, that we cannot hold out more than a few years. Goering can confirm this. We [have no other choice, we must act . . . 23 ibid., p. 69. 241 In a reporter's summary of the talk, Hitler said; Goering has stated that the four Year Plan had failed and that we were at the end if we were not victorious in the coming year. The enemy had another hope, that Russia would become our enemy after the conquest of Poland . . . I was convinced that Stalin would never accept the England offer. Russia, has no interest in main taining Poland . . . The personal contract with Stalin is established. We need not be afraid of a blockade. The East will supply us with grain, cattle, coal, lead and zinc. It is a big arm, which demands great efforts. I am only afraid that at the last minute some Schwein- hund will make a proposal for mediation. Destruction of Poland in the foreground . . . I shall give a propagandistic cause for starting the war . . . Russian supplies could crack any blockade. In the reporter's summary, Hitler reportedly declared: The new warfare corresponds to the new border status. A wall from Reval, Lublin, Kaschau to the Danube. Estuary. The Russians get the rest. Rib bentrop has received instructions to make any offer and to accept any demands . . .2* Reaction of the general3. A partial record of reac tions of the commanders to the speech is given by Gisevius: A good many of them were quite pleased with the effect Hitler's surprise pact had produced . . . Other generals were indignant beyond wordsj but one thing was clear--once more the master of craftiness had turned the trick. His rear was protected, the danger of a second world war had been banished, and Poland had been divided before the first shot was fired,25 Ha.zi~Conspira.cy, op. cit., 798-PS, L-3» 1014-PS. 25 Hans Bernd Gisevius, To The Bitter End (Boston: Houghton Mifflin Company, 19^7), P* By no means had the pact "banished1 1 the second world war, but, unlike what many pro-Russian writers were to assert at the time and to this day, Poland was divided before a shot was fired. The Russian Revolution had degenerated into participation in conquest and dismemberment of other nation alities. Yet it should be remembered that the Bolshevik pro gram of 1919 had envisaged that such actions would mean the end of the revolutionary movement I c h a p t e r X PACTS OP AUGUST 23-24, 1939 £ r ~ ' Tass on August 21, 1939 announced a political pact was to follow to Mdlspel the possibility of war." Technically negotiations with the Allied military missions were still in progress. After four months of rejecting Russian demands, both Britain and Prance on that last day offered to accept the con ditions . They were too late. By accepting Stalin’s demands earlier and more fully, Hitler had outbid the west. A fascist in the Kremlin. After three hours of dis cussion with Stalin and Molotov, Ribbentrop telephoned Hitler: It transpired that the decisive point for the final result is the demand of the Russians that we recognize the ports of Libau and Windau as within their sphere of influence. The signing of a secret protocol on delimitation of mutual spheres of influence in the whole eastern area is contemplated . . .1 The discussion of the eastern areas revealed further the Russian desires and aims. Stalin sought German aid to gain improved relations with Japan; with Ribbentrop informing him next year that he considered all of them, along with Italy, "logical elements of a natural political coalition."2 1 Raymond J. Sontag and Beddie J. Stuart, Nazi-Soviet Relations, 1939-1941 (Washington: U. S. Depa.rtment~of State, 1946J7 PP* 75=5. 2 Ibid., Ribbentrop letter to Stalin, October 13, 19^0. 244 Stalin assertedly declared, according to Ribbentrop*s account, “It was ridiculous, for example, that a few hundred British should dominate India.M3 Calling the Anti-Comintern pact an action directed against the west, Ribbentrop Informed Stalin that a current joke in Berlin was, “Stalin will yet join the Anti-Comintern Pact.** After drinking toasts to Hitler, Molotov remarked: . . . It had been Stalin who— through his speech of March of this year, which had been well understood, in Germany— -had brought about m e reversal in polit ical reiatxons. Ribbentrop concluded his report with a statement that Stalin had said, "He could guarantee on his word of honor that the soviet Union would not betray Its partner." I. FIFTEEN-YEAR NONAGGRESSION PACT Agreement was reached August 24 but dated August 23. Proceeding from the neutrality pact of April, 1926, the agree ment had seven articles. Nonaggression against each other was provided in article 1, no aid to third powers acting against either was declared in article 2. Article 3 provided for consultation on common Interests, Article 4 that neither should participate in groupings aimed at the other. Disputes were to be settled through exchange of opinion or arbitration, under article 5. Artiele 6 specified the pact was to run ten 3 ibid.7 pp. 72-76 2^5 years and be extended another five if neither party denounced the agreement before ending of the ten years. Ratification was provided in article 7. The ten year pact was supposed to "strengthen the cause of pedee between Germany and the U.S.S.R.," not necessarily with the rest of the world. Secret protocol. As soon as the pact was published Communist Parties and various liberals insisted the agreement contained an "escape clause" making it inoperative if Hitler attacked Poland. Stalin had not Informed them of the "secret protocol" or "secret additional clauses" published in Europe in 19^6. Without mincing words the protocol reported con versations over the "boundary of their respective spheres of influence in Eastern Europe "had led to agreement: 1. In the event of a territorial and political rearrangement in the areas belonging to the Baltic states (Finland, Estonia, Latvia, Lithuania), the northern boundary of Lithuania shall represent the boundary of the spheres of influence of Germany and the U.S.S.R. In this connection the interest of Lith uania in the Vllna area is recognized by each party. 2. In the event of a territorial and political rearrangement of the areas belonging to the Polish state the spheres of influence of Germany and the U.S.S.R. shall be bounded approximately by the line of the rivers Narew, Vistula and San. The question of whether the interests of both parties make desirable the maintenance of an inde pendent Polish state and how such a state should be bounded can only be definitely determined In the course of further political developments. In any event both Governments will resolve this question by means of a friendly agreement. 3. With regard to Southeastern Europe attention 2k6 is called by the Soviet side to its interest in Bess arabia* The German side declares its complete polit ical disinterestedness in those areas* 4. This protocol shall be treated by both parties as strictly secret.4 Russia had accepted part of Poland and most of the Baltie states, and had stated her interest in land in south eastern Europe. Under the secret protocol no ’ ’ escape clauses” could have existed. Nonaggression was in reality joint ag gression I By signing the secret supplementary protocol for division of Poland alone, Russia and Germany had violated dozens of treaties. Hitler in a letter to Mussolini explained his view of what the pacts meant: . . . through these arrangements the favorable attitude of Russia in case of any conflict is assured, and the possibility of the entry of Rumania into such a conflict no longer existsi . . . through the negotiations with Soviet Russia a completely new situation in world politics has been produced which must be regarded as the greatest poss ible gain for the Axis.5 Dr. Alfred Seidl, Ribbentrop;1 s defense counsel at the Nuremburg trials six years later, had entered into the record of the International Military Tribunal a statement that before Poland was invaded, ”it was also agreed that ^ Ibid., p. 78. In his apologetic book, The soviet Power (New York: Modern Age Books, 19^0), Hewlett .Johnson, Archbishop of Canterbury, wrote: ”The conversations contained no plans for partitioning Poland between Germany and the soviet Union.” See p. 335* 5 sontag and Stuart, op. cit., pp. 80-1. 247 Stalin would never accuse Germany of aggression 'because of its actions in Poland.*1 Since this occurred before Po land was invaded and was, according to Dr. Seidl, a verbal agreement by Stalin, it could have been made only on August 23 or 24. II. MOLOTOV EXPLAINS HISTORY Marshal Kleraenti Voroshilov informed the Allied mil itary missions that it would be fruitless to continue dis cussions. On August 25 Britain guaranteed Poland’s borders and signed a mutual assistance pact with her.6 Preparations for the ’ ’ already started ’Incident Weiss,"’ the plan for war against Poland, were ordered "stopped at 2030 hours be cause of changed political conditions."7 For a moment on August 25 the war hung in the balance. Rate of exchange. A confidential protocol was signed on August 26, guaranteeing the rate of exchange of the Reichs mark used as the basis for scheduling shipments between Germany and Russia, schnurre reported. It was separate from the agree- 6 Davies declared that this illustrated the "tragic mis judgment of strengths in Europe. Chamberlain placed his confidence in Beck’s (polish--JM) government and passed up the Soviet strength.” See Mission to Moscow (New York: Si mon and Schuster, 1942), p. 458. 7 see German Naval War Diary in Nazi Conspiracy and Aggression, U. S. Chief of Counsel for Prosecution of^Axis CriinlnairSy (Washington: U. S. Government printing Office, 1946), C-170. 248 ment on reducing interest payments by Russia from 5 to 4^ per cent. The only quoted rate was 4.2 Reichsmarks to one American dollar. Molotov *s speech of August 31* Molotov in his second major speech as foreign minister practically explained the main details of the arrangements. The only missing links were some vital economic ones, for even the secret agreements were guessed at, although not understood as a manifestation of basic expansion economically and politically. In his speech on August 31 to the Supreme Soviet, Molotov said: . . . The Anglo-French-Soviet negotiations lasted four months . . . they made it clear . . . that the Soviet Union has to be seriously reckoned with in international affairs . . . . . . the British military mission arrived in Mos cow without any mandate at all (general laughter) . . . The decision to conclude a nonaggression pact between the U.S.S.R. and Germany was adopted after military negotiations with France and Great Britain had reached an impasse . . . . . . despite the differences of outlook and po litical systems, the Soviet Government endeavored to maintain normal business and political relations with Germany . . . This is the truest statement in the whole speech. Mol otov recalled Stalin*s statement of March 11 on "strengthening business relations with all countries1 ’ and not pulling the chestnuts out of the fire for other powers: It can now be seen that on the whole Germany correctly understood these statements of Stalin and drew practical conclusions from them (laughter) . . . In the spring of this year the German Government made a proposal to resume commercial and credit ne gotiations . . . agreement was signed on August 19. 2^9 This was not the first commercial and eredit agree ment concluded with Germany under her present govern ment. But this agreement differs favorably not only from the 1935 agreement but from all previous agree ments, not to mention the fact that we had no economic agreement equally advantageous with Great Britain, Prance or any other country. The agreement is ad vantageous to us because its credit conditions (a seven-year credit) enable us to order a considerable quantity of such equipment as we need. Obtaining of capital goods was held up as an advantage so great as to make this economic agreement differ from earlier ones. It was the largest single agreement of its kind for Russia. Molotov did not mention that German war materials were included. In all their negotiations the British and French had not proposed an economic pact as the basis of political agreement. The Germans did this immediately, and political relations could be improved. Molotov continued: . . . people ask with an air of innocence how the Soviet Union could consent to improve political rela tions with a state of a fascist type . . . But they forget that this is not a question of our attitude toward the internal regime of another country but of the foreign relations between the two states. They forget that we hold the position of not interfering in the internal affairs of other countries . . . Yet together with Germany Russia had agreed to inter fere in Poland and to divide that country, the Baltics and part of southeastern Europe. Molotov then declared: We have, for instance, a nonaggression and neutral ity treaty with fascist Italy ever since 1933- It has never occurred to anybody as yet to object to this treaty ... We have nonaggression pacts also with Poland . . . But this was not to prevent the coming bloody attack. 250 Molotov ma.de it clear that Russia had sought better political relations even earlier. He used Hitler’s expression that war between Russia and Germany benefited other powers. Then he criticized those who sought escape or denunciation clauses in case of attack on a third country, meaning Poland. Molotov said no such provision existed in other pacts. But the escape clause did not exist for a more substantial reason than these precedents, namely the secret agreement to split Poland. Molotov noted, "there are wiseacres who construe from the pact more than is written in it. (laughter) ...” His conclusion was a reaffirmation of the Russian intention to seek a place in the European sun: This pact, like the unsuccessful Anglo-French-Soviet negotiations, proves that no important question of international relations, and questions of Eastern Europe even less, can be settled without the active participation of the soviet Union, that any attempts to shut out the Soviet Union and decide such questions behind its back are doomed to failure.e Russia demanded recognition as a great power. Molotov was informing the world that whereas the west sought to in volve Russia in war without giving her major concessions, Ger many had given the concessions without requesting Russia’s military intervention. The Supreme soviet unanimously voted to ratify the pact and approve the government’s foreign policy. That same day Hitler issued his first order for the war against 6 Vyacheslav M. Molotov, The Meaning of the Soviet- German Honaggression Pact (Hew York: Workers Library Pub - Ushers, August 3I , 1939) • 251 Poland, thereby nullifying the words of Molotov that the pact serves "the cause of universal peace." III. EFFECT OF THE AUGUST PACTS Many writers have done wondrous jobs of divining the content of the secret agreements and guessing Russian moves. But taking all their foresight together, their reporting re mains tied to one event at a time and never to spotting the trend of development. As storytellers they are excellent; as interpreters of history they are shortsighted, failing to lay bare. Russia fs historical development towards expansion. The London Dally Express, two ds.ys after the pacts, came close to listing in detail the division of spheres. John Scott and Joseph E. Davies did likewise later, with Davies recognizing the efforts at a restoration of Czarism's geographical and political boundaries and influence. Ribben trop and Hitler in their war speeches of June 22, 19^1, long before the secret agreements were published in 19^6, had ex plained their existence. Article 3, the consultation clause, was to force Ger many and Russia to remain in constant touch over problems arising from the Baltic to the Black Seas. A particularly pitiful reaction to the pact was that of the various Com munist Parties who awaited an escape clause, calling for continued negotiations with Britain and France, and then moving over to acceptance of the new line of aid to Hitler. 252 Not consulted "by Germany as had been stipulated under the Anti-Comintern pact, Japan was to move into great govern mental difficulties. She recognized that Stalin’s hand in the Far East had been strengthened by Germany’s guarantee in the west. Hitler in 19^1 declared, ’ ’Only once have I allied my self with the devil— with Stalin . . . All the world will forgive me when I bring Stalin back in chains to Berlin.”9 From the German standpoint the declaration of one of its leading newspapers concerning the major pact was a sound demonstration of Germany’s recognition of major changes with in Russia: . . . The removal from the social life of the Soviet Union of that upper layer who go by the name of Trotskyists, and were on that ground removed, was indubitably a very essential factor in the rapproche ment between the soviet Union and Germany.10" Here, if nowhere else, was evidence that it was not the so- called Trotskyists who, according to the earlier purge trials, had "plotted” with German fascism, but Stalin himself! Breathing space. Stalin has best expressed the theory that the pacts were signed to gain breathing space (peredyshka). In his first war speech on July 3, 19^1* Stalin declared: What did we gain by concluding the Nonaggression pact with Germany? We secured our country peace for 9 The Times of London, November 4, 19^0, June 23, 19^1. 10 Frankfurter Zeitung, August 29, 1939* 253 a year and a half, and the opportunity of preparing its forces to repulse fascist Germany should she risk an attack on our country despite the Pact . . . If Russia gained breathing space, Poland lost all breathing. Germany won Russian neutrality, grain and aid in the rape of Poland, actions far from mere waiting. John Scott wrote: Reluctantly, Stalin was compelled to act to stave off a war brought on by ‘capitalist encirclement’ and give himself another year or two to build more tanks and planes. Lenin had made the same decision in 1918 at Brest-Litovsk . . At Brest-Litovsk in 1918 Germany seized territory * from helpless Russia at gunpoint. In 1939 in pacts with Hit ler, Stalin joined Germany in dismembering non-Russian lands throughout eastern Europe. Par from taking a brea.thing space, Russia plunged in at breakneck speed to seize lands and peoples and natural resources. Lenin, heading a weakened Russia, was forced to sign one of history’s most crushing treaties, worse than Versailles. Stalin, completely unde- 13- John Scott, Europe in Revolution (Boston: Hough ton Mifflin Company, 19^5)* P» 13• In his The Road to Teheran (Princeton: Princeton Uni versity Press,”T?435Y "Foster Rhea Dulles declared that Sta lin “was buying time in order to build up Russia’s defenses so that she could singlehandedly, if necessary, safeguard her own national interests. See p. 219. William L. Shirer in Berlin Diary (Hew York: Alfred A. Knopf, 1941), wrote that “maybe" Russia can ride out the “chaos1 1 and bring communism to Europe, see p. 180. Had Stalin openly joined the Anti-Comintern pact, as Ribbentrop had joked on August 23-24, 1939 and Germany was to suggest on November 12-13, 1940, Stalin could not have made more obvious his deadly opposition to revolution anywhere. 254 feated and not even at ‘ war, was not forced to sign at all. His action was, as the Germans had said, Moscow’s ’ ’choice." It was a part of the new policy of expansion. Russia driven by the west. Britain and Prance, some writers reason, drove Russia, into Hitler’s arms. For example, The Economist wrote, "the faets of the past twelve months offer no evidence to deny that the Western democracies' policy, faute-de-mieux, has been to encourage the Drang nach Osten."^ This was only one side of the story of Allied weak ness and indecision and error, but it did not consider Russian i expansion. Davies, after detailing how Russia sought to avoid war for years and negotiated at length with Britain and Prance, wrote, “They were driven to a pact of nonaggression with Hit ler. “13 This ignored the secret negotiations withHitler, as it did Russia’s main reasons for negotiating with both the Allies and Hitler, i.e., her newfound expansionist power. Walter Lippman had part of Davies’ view when he wrote: Stalin . . . made his agreement with Germany in order to avoid having to figb-t Germany, and out of the partnership he got at no cost all the best stra tegic frontiers which it is possible for Russia to have . . .1^ 1^ See soviet RU33ia Today, May, 1939» P» 7* 13 Davies, op. cit., pp.' 495-6. 14 Walter Lippman, The Cold War (Hew York: Harper and Brothers, 1947)- 255 Poland paid the "cost," and other countries after her. LIppmann's view has no connection -with the reality of land grabbing which established that Communism in Russia was dead. In its place a march beyond Russian boundaries along old historical paths had resumed. Russia had evolved this full policy of expansion at least by the time of Munich in Sep tember, 1938. Dallin in noting that Trotsky had criticized the pacts which would make Russia '"Hitler’s commissary,” called this ”irresponsible criticism, for Stalin had no other choice.”15 Worse, Trotsky shortly was to Insist on -unconditional defense of Russia and even to offer to serve in the Red Army, and to call for a Russian victory. IV. DRANG NACH WESTEN Despite the pacts, many analysts have written that Russia's aim was to avoid war in order to continue with the internal construction of socialism. But the facts of history indicate that the pacts represented a studied plan of expan sion on Stalin's terms, terms he had laid down to the Allied negotiators as well as to Hitler. Socialism In one country was dead; Russia was convinced her subordination to the world market could be counteracted not by attempts at self-sufficiency 15 David J. Dallin. The Real Soviet Russia (New Haven: Yale University Press, 1944J, p. 256 but by seizing whole segments of that market through pacts, pressure, threats and conquest. Economic accord. Russia's emergence as a major econ omic force in eastern Europe remained misunderstood by most writers in 1939 as it did later. However the size of Rus sian investments abroad ean hardly be ignored much longer. Duranty wrotes Soviet industry had run down badly during the Purge, and most of its machines and tools needed replacement or repair. It was already beginning to produce such things for itself, but of all machin ery imported in the last ten years, more than 60 per cent was of German origin.1* 3 The main thing here was that Russia was "beginning to produce such things for itself,” and for other countries too, while still importing much capital from the west. Both processes of import and export of capital went on simultane ously. Russia was more than a mere recipient of industrial imports. War was to give her the occasion to extend and deepen her tendencies towards capital export and domination. The change in lines of march. Russia's "march to the west" has come to the fore as the general meaning of the pacts. Thereby Russia has reversed an entire historical process of importing technique, culture and capital from abroad. This has gone far beyond the "close economic sym- l6' Walter Duranty, The Kremlin and the People (New Yorks Reynal and Hitchcock, Inc., 19*H)» P» 169* 257 biosis" with Germany up to 1 9 3 9 After 1936, with her gaining of a favorable balance of trade and resumption of export of capital to eastern countries, Eussia had altered the lines of march outward. She moved into a position where, with the fall of Germany, she could replace Germany as the leading capital exporter to eastern Europe. Concerning this alteration, possibly the basic change in the lines of development of major powers to have arisen in the twentieth century, Carr wrote: The early Bolsheviks were also whole-hearted in ternationalists who believed that the 'workers had no country* and regarded the Russian revolution merely as part of a European or world-wide revolution. But when, in the middle 1920's, the objective of 'social ism in one country* replaced world revolution, the emphasis gradually changed. In the 1930's it became fashionable, both in the Soviet Union and abroad, to assert the continuity of Russian history and the glories of the Russian past; and it was possible with a slightly fanciful ingenuity to detect an analogy between the ideals of Bolshevism and the messianic conceptions of the old Slavophils . . . Prom this point of view the popular comparison between Peter the Great and Stalin is hardly apt. Eaeh inaugurated an epoch--Peter that of European penetration of Rus sia, Stalin that of Russian penetration of Europe. 1° "While Carr considered this was still Bolshevism al though in altered form it would appear that the revolution was definitely over by 1939, as the Bolsheviks had predicted. 17 Foreign Affairs, January, 19^2. 18 Edward Hallett Carr, The Soviet Impact on the Western World (New York: The Macmillan Company, T9WJ7 PP* IO5-6. Carr overemphasizes Russia's influence on the west. It is far sounder to say that both are evolving towards more state controls, Russia having completed part of the process structurally but not in terms of efficiency. Basic to the march beyond the borders is an expanding econ omy, fundamentally different in that it exported capital, from that inaugurated in 1917. Carr does not remark fully the economic expansion and the eastern tendencies. Where Lenin has said the revolution had to expand or die through revolutionary means, Stalin had expanded by arrangements with the counter-revolution to commit the same crimes of pil lage and conquest, resting on the export of capital, which the old Bolsheviks had spent their lives opposing. Like an exploding meteor resurgent Russian national ism, reborn only a little over a decade before, had turned into a rabid expansionist force, filtering, feeling, penetra ting, crawling, pushing and sometimes rushing into every pos- ! ' ■ sible bolder area, and beyond. It is one of the idst remarkable phenomena of history. To limit its description and its socio-economic characerization to the propaganda catchwords about Reds and Communists is to violate historical sense. With Russia having signed the pacts, the die was cast for war. Poland, an entire nation, was the Rubicon. On September 1, 1939 world war was to burst forth. Hitler's weatherman was right. Autumn rains came too late to aid the Poles. Seventeen days after the Wehrmacht the Russian army was to roll across her borders on a dusty road westward. V. POLAND IS DRAWN AND HALVED Twelve hours after ratification of the pacts by both 259 Reichstag and Supreme Soviet, Germany seized Danzig. In his speech to the Reichstag on September 1, Hitler developed „ further the German view that "essential changes" were going on in Russia and added coolly, "I approve of every word in the speech made by Mr. Molotov. Britain and France declared war on September 3 as Poland began to reel under the air and land blows of the Nazi Wehrmacht. So fast did the Germans move that they imperiled the secret Russian position. But Stalin by a propagandistic masterstroke was to muddle through and skil fully conceal Russia’s real role in Poland for some time. Propaganda and reality. Russia's relations with Po land in September constituted a shrewd mask for her real policy. The Nazis had moved so quickly that they expected to reach the agreed on line of demarcation ahead of schedule, and possibly have to exceed it. They urged the Russians to make their move to enter the eastern reaches of Poland. Molotov in replying on September 5 recognized that temporary moves across the demarcation line might have to occur, but declared that "through excessive haste we might injure our cause and promote unity among our opponents."20 The same problem existed within Russia where the pact had ^ Nazi"Conspiracy, op. cit., 2322-PS. 20 Sontag and Stuart, op. cit., p. 87- 260 to "be sold to the Russian people, for many years fed mater ial that characterized Germany as the main enemy. Molotov on September 9 sent "congratulations and greetings” to Ger many on the "entry of German troops into Warsaw."21 But the Russian government admitted it was surprised by the rapid . German military successes, according to Schulenburg: Molotov came to the political side of the matter and stated that the Soviet Government had intended to take the occasion of the further advance of Ger man troops to declare that Poland was falling apart and that it was necessary for the Soviet Union, in consequence, to come to the aid of the Ukrainians and the White Russians ’threatened* by Germany. This argument was to make theintervention of the Soviet Union plausible to the masses and at the same time avoid giving the Soviet Union the appearance of an aggressor. This course was blocked for the Soviet Union by a DNB report . . . military action was no longer necessary on the German eastern border . . .If, however, Germany concluded an armistice, the Soviet Union could not start a 'new war.’22 Meanwhile Britain halted issuance of export licenses to the Russian trading agency in London, and informed Russia again of her naval blockade of Germany. When Britain detained several ships loaded with rubber bought by Russia, the Krem lin postponed the departure of twelve British ships carrying Russian timber worth $5~iaillion. Moscow was relieved when Ribbentrop said no armistice was ready to be signed and promised to furnish the Red Army 21 Ibid., p. 89. 22 rbid., p. 91. 261 information regarding the Polish Army: As soon as the exact outcome is known in the great battle in Poland now approaching its end, we shall be in a position to give the Red Army the information it asked for regarding the various parts -> of the Polish Army.23 Pravda. of September 14 and DNB and Izvestia of the next day were to carry similar articles giving the political motivation for Russian "intervention." While the Russian press praised the Germans, Poland was being severely lashed. With the political situation in Europe irretrievably altered on September 15 Japan offered to 1 iquidate military operations in Manchuria. An agreement was signed immediate ly. It appeared for a time that Stalin’s policy had won him peace both in the east and west. Nevertheless within Japan the cabinet was forced to resign as the aftermath’’ of the pacts'. Ribbentrop supplied the information concerning the Polish Army which Molotov had requested, writing: . . . we assume that the Soviet Government will take a hand militarily, and that it intends to begin its operation now. We welcome this. The Soviet Government thus relieves us of the necessity of an nihilating the remainder of the Polish Army by pur suing it as far as the Russian boundary. Also the question is disposed of in case a Russian interven tion did not take place, of whether in the area lying to the east of the German zone of influence a political vacuum might not occur . . . without such an intervention on the part of the Soviet Government 23 ibid.", p. 92. 262 there might he thejpossibility of the construction of new states there. ^ By "political vacuum" and "new states" Ribbentrop was ferring to governments possibly created by Polish workers. Stalin was welcomed into Poland to offset such a development! Ribbentrop objected to having the Germans "blamed" for Russian intervention and suggested a joint com munique, which would have made Stalil appear openly as Hit ler’s accomplice. Molotov informed the Germans that his government would declare that the Polish state had collapsed and it was necessary to protect its Ukrainian and White Russian brothers. This was to be the "reason" for intervention. He conceded that the first Russian suggestion for putting blame on Germany for intervention by Russia was "jarring" but asked that the Germans "not let a trifle like this stand in our way. "25 Another "trifle" was Vilna, Lithuania, with Molotov asking what was to become of the controversial city. End of socialism in one country. On September 17 Kremlin representatives handed the Poles a note declaring the Polish Government no longer existed and that all treaties concluded with it were invalid. This annulled the Russo- 24 ibid., pp. 93-4. 25 Ihid., pp. 95-6. 263 Polish nonaggression pact which should have continued until 19^5• Then followed the propaganda claims about the Ukrain ian and "White Russians who had to be "protected” by Russian forces. In his radio broadcast of September 17, 1939, Molo tov added: The Government expresses the firm conviction that our Workers’ and Peasants1 Red Army will this time too display Its combative might, consciousness, and discipline and that it will perform its great emancipatory task with new feats of heroism and glory. All this "emancipatory” heroism was to be accomplished • against a prostrate Poland! Moreover, the entire intervention to the mutual demarcation line was staged so as to appear to the outside world as a means of halting not the Poles but the Germans, who might otherwise advance towards Russia. The Russians told the Germans that they would start bombing soon. Schulenburg assured a doubting Stalin that German mil itary forces would withdraw to their side of the line. But Stalin’s fear was quite probably based on the idea that any further advance by Germany would mean the end of the war, and necessitate Russia starting a "new war" to obtain her share of Poland. Both powers prepared drafts concerning how and why they were meeting in Poland without warring on one another. Stalin's draft, amending the German one, placed the reason for Russian moves on the "collapse" in Poland. He was the shrewd er if less courageous propagandist. 2 64 At dawn on September 18, 1939 the Red Army entered Poland. Hitler's weather bureau was right: The fall rains had not come to the stricken land in time to slow down its quartering again. Advancing towards Stolpce a unit led by a half dozen Russian tanks ground across the now extinct fron tier . One tank knocked down the huge sign on the border which stated, ’ ’ Workers of the World, Unite.” The Russian Revolution had come full circle. Class struggle was re placed by military expansion; unity of the laboring classes by unity with Hitler. In declaring that ’ ’socialism” wa.s now a purely Russian nationalist matter, Dallin wrote, ”in reality, ’Socialism in one country’ had already been abandoned in 1939*"^ Others echoed Molotov and his reasons for Russia’s entry, ranging from confusion, to getting Ea,stern Poland before Hitler could, to safeguarding Russian neutrality, to securing protective strips, to protecting Ukrainian and White Russian peoples; and similar ’ ’ reasons.” A month before, in advance of a single shot being fired, Stalin and Hitler had secretly divided Po land. 26 Dallin, op. cit., p. ^0. He contradicts this on p. Jk in writing that Russia established Soviet regimes and nationalized the local economy of Poland and the Baltic states. 27 The number of writers who swallowed the Russian propaganda bait is legion. Many are bitterly anti-Russian. It is merciful not to give all of them their just due in the light of the bloody facts of the death of Poland in 1939• 265 VI. MOSCOW, CAPITAL OP EASTERN EUROPE Oiiee her troops were deep into Poland and moving to wards Latvia and Estonia, Russia requested Turkey to send its Foreign Minister to Moscow for discussions.' Turkey mean while had earlier in the year signed preliminary agreements with Prance and Britain. Already Russia was bringing press ure on Rumania over Bessarabia. For Britain and Prance to aid Rumania under their formal guarantee would require passing through the Dardan elles into the Black Sea. Russia no longer wished to permit such entry but to close the passage to all non-Black Sea powers. Turkey's foreign minister arrived on September 26, and demands were put to him without d e l a y .28 neverthe less, on October 19 Turkey signed agreements with Britain and Prance; but they did not obligate her to go to war against Russia. A German military mission arrived in Moscow on Sep tember 19 and agreement on the temporary boundary In Poland was reached In a few days, unknown to the outside world. No residual Poland. On September 20 Molotov informed Schulenburg that it was time to establish the structure of 28 Da,vies reported: f , I was told that Russia's de mands on Turkey included a military base that would control the Dardanelles similar to those In the Baltic.” See op. cit., p. ^68. Russia's wishes in the south were rising. 266 the Polish state. Schulenburg informed his government: . . . Molotov hinted that the original inclin ation entertained by the Soviet Government and Stalin personally to permit the existence of a residual Poland had given way to the inclination to partition Poland along the Pissa-Narew-Vistula- San Line. The Soviet Government wishes to commence negotiations on this matter at once, and to conduct them in Moscow . . .29 Poland's chance to remain as a buffer state disap peared when Stalin changed his mind. By September 22 the Russians had reached the demarcation line. That same month the Nazi editor of the Contra,-Komintern announced the mag azine was suspending, and that it would appear under a new name to attack Germany’s real enemies, not Bolsheviks but Jews. Hitler had surrendered a chief propaganda point of * - anti-Bolshevism, and in so doing had distinguished between anti-Bolshevism and anti-semitism. Naval collaboration began with studies by German naval leaders of the cession of submarines, outfitting of auxiliary cruisers at Murmansk and calling at Russian ports. Stalin finally eliminated any chance of Poland’s sur vival as a, nation in a meeting of September 25. According to Schulenburg, Stalin said: 29 sontag and Stuart, op. cit., p. 101. Information about the secretprotocol to divide Po land was leaking out. On September 23 the official Dienst aus Deutschland wrote, '"an agreement about the line of de- marcation was already in existence when the Government of the U.S.S.R. gave the order to the Red Army to cross the borders.” Other leaks occurred, but were largely unnoticed for various reasons. 267 In the final settlement of the Polish question anything that in the future might create friction between Germany and the Soviet Union must be avoid ed. Prom this point of view,’ 1 he considered it wrong to leave an independent Polish rump state. He pro posed the following: Prom the territory to the east of the demarcation line, all the Province of Lublin and that portion of the Province of Warsaw which ex tends to the Bug should be added to our share. In return, we should waive our claim to Lithuania. This would give Russia naval bases on the Baltic. Stalin . . . added that, if we consented, the Soviet Union would immediately take up the solution of the problem of the Baltic countries in accordance with the Protocol of August 23, and expected in this matter the unstinting support of the German Govern ment. Stalin expressly indicated Estonia, Latvia, and Lithuania, but did not mention Finland.3° Russia was not waiting for negotiations over the Bal tic states. On September 27 Russia demanded an alliance with Estonia. Stalin^ real policy In relation to small states with unfortunate geographical proximity to Russia was unfolding inexorably: with Poland as a start, he was apparently intent on their elimination from the map. 36 sontag and Stuart, op. cit., p. 103* CHAPTER XI BURST BEYOND THE BORDERS The high point in Russo-German relations was reached when Ribbentrop came to Moscow on September 27, 1939. Sta lin^ nearly bloodless expansion of Russian territory seemed tov mean that Russia*s policy was justified and that some deep wisdom had succeeded in keeping the German juggernaut at bay in Poland. Formally Ribbentrop was carrying out the provisions of the consultation clause of the main pact of August. I. PACTS OF SEPTEMBER Ribbentrop landed at the Moscow airfield which was decorated with intertwined swastika and hammer-and-sickle flags* The Russian band played the Nazi antI-Communist hymn, the Horst-Wessel Song! In two sessions on two days Germany and Russia signed a Friendship and Frontier Pact, secret protocols, a declaration asking peace, and exchanged two letters on economic collaboration. Consultation flowered. Friendship and Frontier Pact. A "Treaty of Mutual Friendship and'Convention on the Subject of the Frontiers" divided Poland. Article 1 set the new demarcation line and referred to a map, described in a protocol which followed out the secret protocol of August 23• In article 2 Germany 269 and Bussia agreed to ’ 'eliminate any interference by third Powers with this decision.” Each was to effect needed state reorganization s .in its part of Poland, and to regard this change as a reliable foundation for further "friendly rela tions." Thus perished Poland: "The new frontier between Germany and Russia was drawn with a thick red pencil— partly by Stalin himself--on a map which was then signed by him and Ribbentrop.Hl Russia's plans to create an autonomous Soviet (?) Polish republic in Eastern Poland were accepted. Germany agreed that Russia could have the oil deposits in Eastern Galicia. In return Russia contracted to supply Germany with 3 0 0 ,0 0 0 tons of oil yearly from the area. More secret protocols♦ A confidential protocol to the September 28 treaty provided for an exchange of nationals in the newly won areas, with full protection for "property rights of the emigrants.1,2 Nearly one hundred thousand Germans left Western Ukraine and White Russia, but only some six thousand Ukrainians and White Russians chose to go back to Russia.^ Molotov's repeated mention of Lithuania had its reflec- 1 Foreign Affairs, October, 19^6, p. 1^3• ^ Raymond J. Sontag and Beddie J. Stuart, Nazi-soviet Relations, 1939-1941 (Washington: U. S. Department of State, 1946), p. 1^67“ 3 John Scott, Duel for Europe (Boston: Houghton Mifflin Company, 1942), p. “50. 270 tion in a second secret protocoln The Secret Supplementary Protocol signed on August 23t 1939t shall be amended in item 1 to the effect that the territory of the Lithuanian state falls to the sphere of Influence of the U.S.S.R., while, on the other hand, the province of Lublin and parts of the province of Warsaw fall to the sphere of influence of Germany (cf. the map attached to the Boundary and Friendship Treaty signed today). As soon as the Gov ernment of the U.S.S.R. shall take special measures on Lithuanian territory to protect its interests, the present German-Lithuanian border, for the purpose of a natural and simple boundary delineation, shall be rec tified in such a way that the Lithuanian territory situated to the southwest of the line marked on the attached map should fall to Germany. Further it is declared that the economic agreements now in force between Germany and Lithuania shall not be affected by the measures of the Soviet Union referred to above.^ Germany had accepted Stalin's suggestion of taking more of Poland in exchange for giving most of Lithuania to Russia. A small tip of Lithuania adjoining East Prussia was held by Germany. Yakhontov admitted Russia was accused of invading Poland "in accord with Hitler" and that when occupation zones were agreed on, "accusations were made of a 'new partition of Poland,' agreed upon 'by Hitler and Stalin* at the time of the signing of the Nonaggression Pact.”5 Yakhontov denied.this had taken place.* Revolution or Counter-revolution? A third secret supplementary protocol of September 28 laid down a brutal ^ sontag and Stuart, op. cit., p. 107. 5 victor A. Yakhontov, U.S.S.R. Foreign Policy (New York: Coward-MeCann, Inc., 19^5)/ P* 221. policy of repression for Poles residing in both the Russian and German spheres of influence: Both parties will tolerate in their territories no Polish agitation which affects the territories of the other party. They will suppress in their terri tories all beginnings of such agitation and Inform each other concerning suitable measures for this purpose.6 Prom this agreement for Gestapo and GPU to "inform each other" the Polish underground was to suffer greatly. The illusion that the expanding Red Army somehow eliminated capitalism in Poland dies a hard death. As Polish capital ists., many of them compradors for foreign investors, and landlords fled, peasants were left in de facto possession of the land, workers in possession of factories. John Scott wrote: Local pea.sant committees confiscated landlords' lands and property and distributed them to the poor peasants. Church property met the same fate. Small business was let alone for several months.7 Trotsky hailed the Russian entry, declaring: . . . the commanding staff of the Soviet army called upon the peasants and workers to seize the land and the factories. 6 soritag and Stuart, op. cit♦, p. 107. 7 scott, op. cit., p. 53* 8 Leon Trotsky, In Defense of Marxism (New York: Pioneer Publishers, 19^1, P* $7• While admitting that Rus sia had "strangled a socialist revolution" in S-fialn, and fail ing to see that this reflected a basic alteration within Russia towards counter-revolution, Trotsky wrote that^in Poland Russia "gives an impulse to the social revolution through bureaucratic methods.” See p. 55* 272 Land and factories Lad been seized by workers and peasants themselves. Workers did not remain in possession of the factories for long, as Russian occupation and economic forces took over and harnessed production to Russian economy, as is shown later. Molotov was to declare the following month that the Russians were undertaking no Sovietization in their sphere of influence. Stalin found it expedient to permit land division and for peasants to retain the seized land. Thereby he hoped to gain Polish peasant support against forces, whether German or Polish, which might attempt to reestablish the old ruling powers. But this was hardly social revolution, especially since Russia had secretly destroyed the Polish state by a secret agreement with fascism, secretly had plotted to seize half of Poland’s resources no matter what workers and peasants did, had agreed in advance with Hitler not to permit any work ers1 or other ’ ’residual1 1 Polish state, and to inform Germany of any workers' or other movements against her in the eastern zone. Land division by the Polish peasants and not by the Red Army was far removed from land nationalization, which Marx had called a capitalist reform. But land division, in distorted form, had become a minor part of Stalin's military strategy of buffer states and peoples. At the comparatively cheap price of 737 Red Army men killed and 1862 wounded, Stalin had gained 64 per cent of Poland's land area (244,000 square 273 kilometers), against Germany's 36 per cent (145,000 square kilometers). Hitler received 55 per cent (17,700,000) of the population, Stalin 45 per cent (14,700,000). II. PEACE ON HITLER'S TERMS The Russian and German governments issued a joint de claration containing an extraordinary proposal to have the ■western powers recognize the new power-political relations in Eastern Europe. Now that they had "finally settled ques tions that arose as a result of the dissolution of the Polish State," Germany and Russia called for "liquidation of the present war." Britain and Prance would "bear the respon sibility for the continuation of the war," the joint de claration said.9 The captivating bait was ignored. Both powers had asserted that Poland's disintegration under military hammer- blows wa,s a firm basis for peace. Consultation regarding the war appears to have been a compromise, with Communist Parties collaborating with Germany and the GPU informing the Gestapo, while Russia remained out of military conflict. Nevertheless Russia's agreement to help Hitler in a "peace" offensive was a tremendous propaganda victory for 9 Nikolai A. Voznesensky, The Economy of the USSR During World War II (Washington: Public Affairs Press, 1948), p. 9, noted: "The second World War began as an imperialist war of Gernan monopoly capitalism." Yet it was with fascist Germany that Stalin in 1939 was laying the blame for the war solely on the western powers. 274 Germany. It set the new line in all countries for the Com munist Parties . These groupings now did a double. flip-flop back to the policy of opposing their national governments, until June 22, 1941. Economic notes. In a note on economic questions Molo tov on September 28 asked Ribbentrop to arrange negotiations to implement trade relations. An "economic program1 1 was to be drawn up to raise trade to "the highest volume atta.ined in the past.1 1 When Ribbentrop accepted, Molotov sent an other note: Implementing my letter of today about the formula tion of a common economic program, the Government of the U.S.S.R. will see to It that German transit traffic to and from Rumania by way of the Upper Silesia-Lemberg- Kolomea. railroad line shall be facilitated in every respect. The two Governments will . . . make arrange ments without delay for the operation of this transit traffic. The same will apply to the German transit traffic to and from Iran, to and from Afghanistan, as well as to and from the countries of the Par East. Furthermore, the Government of the U.S.S.R. de clares that it IS willing, In addition to the quantity of oil previously agreed upon or to be agreed upon hereafter, to supply a further quantity of oil commen surate with the annual production of the oil district of Drohobyez and Boryslav, with the proviso that one half of this quantity shall be supplied to Germany from the oil fields of the aforesaid oil district and the other half from other oil districts of the U.S.S.R. As compensation for these supplies of oil, the U.S.S.R. would accept German supplies of hard coal and steel piping.10 Molotov was referring to oil fields just captured from Poland. Two advances beyond the August agreements were con- 1° Sontag and Stuart, oj). cit., p. 109. 275 temp1a.ted, "formulation of a common economic program” and use of Russian facilities for transit traffic which would open up the whole east to German trade. Germany was to use this to heat the British blockade in the west. Ribbentrop concurred “with satisfaction." A trade agreement crowned the efforts of September 28 to raise the exchange of goods to the maximum level of the past. Germany gained a slight advantage in the proposed economic relations. Her supplying of industrial materials was to stretch over a. longer period of time than Russia^ supplying. In coming months the lag in German deliveries was to become a, source of friction. The "Order of Lenin" to Ribbentrop. Ribbentrop was decorated in Moscow with the highest award of Russia, the Order of Lenin, for his brilliant work in arranging the pacts and dividing Poland. In the fall of 19^6, seven years later, Ribbentrop heard the Russians and other Allies accuse him of participation in starting the war. To the International Mil itary Tribunal, Ribbentrop in his fight for life declared of the charge of aggression: The only difference is that they (the Allies--JM) think in terms of continents, we in terms of corridors . . . The conduct of war in 1939 was not considered an international crime. Otherwise I could not explain Stalin*s telegram at the end of the Polish campaign: "The friendship of Germany and the Soviet Union is sealed in the blood that has been shed commonly, and has all the prospects of being enduring and steadfast." Stalin sent the telegram at the end of December, 1939> 276 in response to birthday greetings to him from both Ribben trop and Hitler. When the Russian Judge Rudenko at Nurem- burg cast his vote to hang Ribbentrop for starting an ag gressive war, he approved the, death sentence for a man given the Order of Lenin by Russia for his work in helping Stalin and Hitler partition Poland. A year after the verdict the victors in world war two had fallen out. One thing wa.s true in the telegram: Blood had been shed, but it was mostly Polish. While to the outer world it appeared that Russo-German military collaboration was complete--Trotsky1s illusions about proletarian revolution being beside the facts--it can be seen that far more important was what had happened to Russian policy. In twenty-eight fast-moving days Poland was drawn and halved and no more. Moscow had become the center of eastern Europe. Poland was the scene of the first major Russian expansion since the revolution. It was not to be the only scene for long. The pattern of expansion was a pattern of conquest. As Ribbentrop was leaving Moscow airport, the Russian guard of honor raised their right hands in a rough imitation of the Heil Hitler salute. III. THE BALTIC IS A RUSSIAN LAKE With Poland’s collapse the full import of the electri fying emergence of Russia was felt throughout eastern Europe. At the end of September, a German trade delegation arrived, 277 and Russian and German /troops took positions along their new frontier in Poland. Winston Churchill said in a broadcast of October 1, 1939: We could have wished that the Russian armies should be standing on the present line as the friends and al lies of Poland, instead of as invaders. But that the Russian armies should stand on this line was clearly necessary for the safety of Russia against the Wazi menace . . . Thus (at some risk of being proved wrong by events) I will proclaim tonight my conviction that . . . Hitler and all that Hitler stands for have been and are being warned off the East and South-East of Europe.11 Churchill had been fooled brilliantly; he had already been proved wrong by events in Poland. Like Churchill many others had not grasped the meaning of the world-historic turn Russia had made in sweeping across her borders by secret ar rangement with Germany. Linking the new expansion to old Czarism, the Russians referred to lands gained as "recuperated areas."12 Stalin was to repeat this in 1945 in declaring that Russia’s participation in war against Japan had rectified the losses suffered in the war of 1904-05. Meanwhile the German navy on October 3 reported the possible gaining of "bases in Nbrway with Russian help." Tip of Lithuania♦ Molotov informed Schulenburg that Russia was willing to cede Vilna, to Lithuania. In the talk 11 Reported proudly in The Soviet Union Today (The American-Russian Institute, 1943), p. "75• 12 Walter Duranty, The Kremlin and the people (new York: Reynal and Hitchcock, Inc., 1941), p. 172* 278 "Molotov asserted spontaneously that the soviet government •would never tolerate pressure on Bulgaria."13 Schulenburg had mentioned rumors of Britain and France intending to as sault Greece and overrun Bulgaria. Germany sought to have Russia’s gaining of Lithuanian territory not make Germany appear the "robbers," and asked a delay over Lithuania. An additional protocol of October concerning the boun dary in Poland was negotiated on October 4. Meanwhile under Russian pressure German leaders admitted the Russians had traded a part of Poland for most of Lithuania. In the outer world Britain’s Communist Party, operating on the new line, was calling for negotiations to restore peace immediately. The French party did likewise. Hitler on October 6 proposed the sa.me thing to the Reichstag. Russia may have actually believed that the peace campaign would succeed before her main goals were realized. The need of taking advantage of new-found areas of ex pansion and the possibility of confronting a peace conference with a territorial fait accompli in the East apparently com bined to push Russia to the second main stage in her new cam paign of conquest. The Baltic lands were to be "recuperated" but in a manner different from Poland, which had been crushed by German forces. The three countries held a vital position on the Baltic sea, they were economically richer per capita than Russia and had no small amount of gold in London and 279 Hew York. Ho social and economic changes. Under the terms of the German-Russian agreements, Latvia and Estonia were not to have their social and economic orders changed, hut Moscow could send in troops. Ribbentrop in his war speech of June 22, 19^1 said: In Moscow, on the occasion of the delineation of spheres of interest, the Soviet Government declared to the German Minister of Foreign Affairs that it did not intend to occupy, holshevize or annex any states situated within their sphere of interests . . . Poland was an exception hut was not bolshevized, although an nexed. Reminded by the Baltic states of Germany's guarantee to them in June, Germany merely advised her nationals to leave. While Rihhentrop was in Moscow on September 28 the Russians had rushed to the Estonian border and signed a Pact of Mutual Assistance. Russia gained the right to main tain naval bases and military flying fields on the Estonian islands of Bagoe and Oesel, leased and operated by Russia. In Article 5 of the pact Russia guaranteed that the accord "must not affect In any measure the sovereign rights of the contracting parties, in particular their economic systems and state organizations." Estonia was the first pub lic evidence that Russian expansion was not for the revolu tionary destruction of capitalism. Ihe Russian press gave high praise to the pact. But for a long time Communist Party ranks were surprised by the Russian promise of no sovietization. 2 8 0 On October 5 Latvia signed a similar pact guaranteeing no change in economic and political organization. An agree ment of October 18 trebled the scheduled volume of trade. Russia was moving slowly in her recuperated territories, even permitting use of such words as sovereignty. A pact was signed with Lithuania on October 10. At first it provided that Vilna was to be returned to the tiny land. Russia was permitted to maintain land and air forces on Lithuanian territory, for which she agreed to aid the Lithuanian army with equipment and military supplies. A week later the two countries signed a new trade agreement, doubling the existing volume of trade. Vilna was turned over to Lith uania on October 27 and the Red Army withdrew, for the time being. Pinland waits. By October 5 Russia had turned her attention to Pinland. Russia's main emphasis was no longer on the Aland Islands but on the Karelian isthmus so near Leningrad and the Hanko and Rybachi peninsulas. Before the war Pinland had rejected Russia's insistent demand for "joint ownership” of a number of small islands in the Gulf of Fin land. This was an early indication of Russia's interest in expansion. With Russia already holding Estonia's Baltiski Port, possession of the Hanko peninsula would have given Russia domination of the entire Baltic. Rybachi peninsula and Petsamo in'..the.--North were vital, 281 too. Petsamo was useful both as a port and for her valuable tin mines. Finland was determined to make no concessions ex cept for a few islands near Leningrad in return for territor ial compensation in Eastern Karelia and near the Arctic Ocean. At this time the United States sent notes to Moscow express ing a hope for continuing of peaceful relations between Finland and Russia. America was sending notes. Russia was acting speedily, according to the German Hava.l File of October 5* putting pres sure on German nationals and making demands on them. Finland complained to the Germans that Russia had upset the entire balance of power in the Baltic region. Germany's minister reported that a Russian wan with Finland would interrupt shipments of food and timber and copper and molybdenum, and asked that the Russians be urged to restrict their demands to the islands. Population shifts. To explain population removals as part of the policy of "national integration," Germany according to Hitler's speech of October 6 had come to an agreement with Russia on an exchange of peoples. Estonia alone had 100,000 Germans. Forced shifting and moving of peoples on a large scale had begun. Dual trade talks. Trade terms were discussed in Mos cow on October 9. Schnurre who prepared the materials for 282 the conversations considered it might be possible to "set up plants in Russia," that Russian supplies would be "at the ex pense of their own Russian consumption," and that the talks should ascertain "to what extent our imports heretofore made from Iran, Afghanistan, Manchuria, and Japan, can be trans mitted via Russia. ; 0 - * - 3 The dream of setting up plants in Russia was not to be realized. Stalin was far too shrewd to permit such a thorough subordination of Russia economically, although cap ital goods were accepted. Russia would assist in transmitting eastern goods right up to June 22, 19^1, and make deliveries even at the "expense of their own Russian consumption," as they had done before under the five year plans. Russia’s manses thus paid for the pacts with Hitler in lowered living standards. Later they paid in blood. At the same time, starting on October 10 Russia negotia ted with Britain for an exchange of timber for British tin, rubber and zinc. It appeared that normal trade relations might continue, but discussions were broken off when the Finnish crisis broke at the end of November. The German Naval File noted on October 11 that the Russians intended no damage• against German economic warfare and that the trade with Bri tain would eventually benefit Germany. Russia in mid-October protested British blockade moves. -LJ Sontag and Stuart, op. cit., pp. 119-120. 283 Since most of the trade with Britain would have had to go by ship, it is important to note that the Naval File on October 10 had reported Russia's offer of a well situated base near Murmansk to Germany. Espionage against Russia in neut ral states was ordered discouraged by the Germans. In the south the Russians were still seeking to put pressure on Turkey to close the Dardanelles. Molotov, Schu lenburg reported, had mentioned suggestions made to Bulgaria for an agreement, but Bulgaria had rejected the proposal. Where Russia was balked In the south, she had in the north accomplished within a few months after her pacts with Hit ler most of the demands the Allies had refused in the months of negotiations from April to August. "The Russian Bear,” wrote Davies, "has taken a handsome revenge for being thrown out of Munich. Bloodless conquest of the Baltic was over. Friction with Washington developed when the Russian State Ba.nk acquired a legal claim to the gold reserves of the Baltic states by buying up with paper rubles all the gold of their central banks. Washington froze reserves of the three states and continued to recognize their old diplomatic representatives. IV. STALIN NEGOTIATES In the second round of negotiations with Finland Stalin 1^ Joseph E. Davies, Mission to Moscow (New York: Simon and Schuster, 19^2), p. 464. 284 carried on the conversations alone, Vaino Tanner, Social Democratic member of the Finnish delegation, declared in an interview published on October 27 in the Copenhagen Social- Democrat. Russia repeated her demands for leasing of the port of Hanko, use of the port of Lappohja, cession of five islands in the Gulf of Finland and of 2,761 square kilometers in the north. She asked for agreement that both powers would not enter international alliances aimed at the other, demilita.riz- ing of their common border, permitting Finland to fortify the Aland Islands alone, and readjusting the northern frontier. For a lone negotiator Stalin was thorough. Finland presented counter-proposals. Economic warfare. Events were breaking all along the new common frontier with Germany. On October 24 the Naval File recorded that Russia would not permit passage of western warships through the Dardanelles. Next day the Naval File noted: "Departure of German vessels from Murmansk; English and other ships are kept back by the Russians until the Ger man ships are safe." Russia was breaching the Allied blocka.de. Economic negotiations with Germany reached the stage on October 24 where agreement on delivery by Russia of one million tons of fodder and grain within two months was reached. Russia was also to deliver grain, petroleum and its by-prod ucts, phosphates, platinum, manganese, and cotton and flax. It is estimated that in the first five months of war, from 285 September, 1939 through January, 1940, that Russian economic aid to Germany, despite the size of the promises, was not more than |10-million, a negligible figure.**-5 gut transit traffic had begun. On October 25 the Russians in Berlin started negotiations for machinery, plant and manufactured articles. Apprehensive of the appearance of German warships in the Finnish Gulf, Molotov suggested and won acceptance of a restriction of German economic warfare in the Baltic to West of 20° East, according to the German Naval File of October 26. This kept part of the Baltic open for Russia to trade with Britain, permitting Russia to buy and sell to both sides. That same day the Naval File recorded a Russian re quest for delivery of war materials, and the need for granting the request in view of the decisive aid Russia was giving. Ugly offspring of Versailles. Russian style elections were held in conquered Eastern Poland. Red Army troops voted in the elections, incorporation into the White Russian and Ukrainian Soviet Republics was approved.-^ ^ Neue~~Zurcher Zeitung, June 24, 1941; The Times of London, Janua.r19 41. By October 26, Neville Chamberlain, like Churchill on October 1, had been sufficiently baffled by propaganda into informing the House of Commons that occupation of Eas tern Poland by Russia was a necessary defense measure! Trot sky hailed as progressive the electoral program of including the conquered a.reas within Russia, seizing of estates and nationalizing, although workers did not rule. See op. cit., p. 131. 286 Molotov revea.led to the Supreme Council of Russia, on October 31 much of what had been happening with the ending of abnormal relations bynsigning of the nonaggression pact with Germany: .Instead of enmity . . . we now have a 'rapproche ment 1 . . . there was one swift blow to Poland, first by the German army and then by the Red Army, and no thing was left of this ugly offspring of the Versailles Treaty. Covering up the traces and tracks of entry, he added: It is known that our troops entered the territory of Poland only after the Polish state had collapsed and actually ceased to exist. Then followed the most significant part of Molotov's third major speech: We stand for the scrupulous and punctilious ob servance of pacts . . . and we declare that all non sense about Sovietizing the Baltic countries is only to the interest of our common enemy and of all anti- Soviet provocateurs. At the time "our common enemy" was Britain and Prance. Russia had broken her pact with Poland by simply invading the country. Yet Molotov had scored a positive point, that Russia was not interested In revolutionizing economy outside. Fin land was warned not to submit to anti-Russian pressure; the British blockade was again denounced, and the recent economic negotiations with Germany praised a,s preparing the broad basis for development of trade. Russian naval aid. The German Naval pile reported on November 2 that the Russian Navy had helped with a northern 287 base, provisioning of merchantmen in. Murmansk and aid in the return of the Bremen. Russia sought aid in shipbuilding and more war materials. The Germans decided to make available a ship hull, but rejected a suggestion that Russian submarines be purchased in exchange. Repatriation. On November 3 an exchange of nationals in Poland was consummated, although this did not appear to affect some 600,000 Volga Germans, whom the Russians later evacuated into Siberia. Under terms of the exchange agree ment of November 17, 115,000 persons from Russia’s zone were transferred to Germany. A million Ukrainians, Ruthen- ians, White and other Russians in western Poland were to be sent eastward. Hitler foresees Pan-Slavism. Hitler explained to his top commanders on November,23, 1939 what he thought of Russia’s goals and of the pacts: . . . Let one think of the pact to assure our back. Now Russia has far-reaching goals; above all, the strengthening of her position in the Baltic. We can oppose Russia only when we are free in the west. Fur ther, Russia is striving to increase her influence on the Balkans and is striving toward the Persian Gulf. That is also the goal of our foreign policy. Russia will do that which she considers of benefit to her. At the present moment she has retired from interna tionalism. In case she renounces this, she will pro ceed to Pan-Slavism . . . Instead of calling Russia "communist,° Hitler noted that Russia had "retired from interna.tiona.lism" and that the 288 next stage was "Pan-Slavism.1 1 This was to come the following spring. Prom internationalism to nationalism had taken Stalin from ten to twenty years. Prom nationalism to Pan-Slavism took only six months. The Naval Pile wrote on November 25 that the expansion of Russian interests in the Gulf of Per sia was supported by Germany and that for the first time in fifty years a. one-front war was possible. This was Germany’s gain from the pacts. V. BLUNDER IN FINLAND The inevitable frontier incident occurred, as it is still described intransitively, on November 26, when Moscow charged Finland had opened fire on Russian troops.^7 Moscow accused Finland of violating her ’ nonaggression pact with Rus sia. When Finland would not admit her "guilt," Russian forces poured across the border on November 30. Thus was Finland transformed into a mortal enemy of Russia, unlike what Lenin had done in 1918 when he gained Finnish neutrality in the military intervention by granting her independence. Wars are not always declared. Instead of decla.ring war, 17 During the negotiations, said Valno Tanner, "the atmosphere in Moscow was not only friendly throughout, but often outright playful." As the experts argued, Stalin pulled a pencil from his pocket, drew a line on the map, and asser- tedly inquired, "I say, gentlemen, you wouldn’t mind giving us a tiny strip like this, would you?" The Finns minded. Statements by George Bernard Shaw, Hewlett Johnson and Stafford Cripps that Russia was defending her security were hailed by Soviet Russia Today, February, 19^0, pp. 19-33- 289 Russia unraveled a new wrinkle in modern infiltration tech niques. Overnight she formed a new Finnish government of Finnish Stalinist exiles in Moscow. These gave birth to a "people’s regime,” which proclaimed the Finnish government was no more, and from its new capital at the minute fishing village of Terioki concluded a "peace” treaty with Russia. In theory Russia never was at war with Finland: She was merely aiding the new Finnish "people's government" to eliminate domestic trouble makers. Russia informed the League of Na.tions she did not consider herself at war with Finland. Establishment of a pro-Russian regime was for Stalin a comparatively new method, far removed from calling on work ers in capitalist lands to overthrow their governments. Now class war was subordinated to military moves and territorial conquest by nationalist Russia. When Lenin early In the revo lution had sought to form governments there was a phase of revolutionary activity going on, preparing for the seizure of power. This did not exist in 1939* Nevertheless to the out side world, not privy.to the pacts, the attack on Finland, far more than the skilfully disguised rape of Poland, was the first really significant public proof that Russia's entire foreign policy had undergone a fundamental transforma tion from revolution to expansion along older lines. The League expels Russia. While Russia sought terri torial and economic concessions, she at no time presented any 290 demands for changes in Finland's economic and social organ ization. The so-called People’s Government accepted Russian demands. To make the regime appear strong Russia awarded it not the originally proferred 5,529 square kilometers for seri ous concessions but 70,000 square kilometers of useless area. But the Finns fought. Within Russia, it was reported, the population did not support the northern adventure wholeheartedly. Protests by America were implemented by the "moral em bargo" put into effect on December 2, and remaining effective until January 21, 19*1-1. When the Finns appealed to the League of Nations, Molotov denied Russia was at war against the legal government. In mid-December the League expelled Russia, and Russia denounced the League as an instrunssht of the Anglo- French bloc. Anti-Russian feeling began to mount and for a time Russia was near to having forced creation of that anti- Russian bloc she was sure was being formed against her in the past. Tension with Italy mounted, as the Italians, feeling the pressure of Russia in the Balkans, let lapse on December 31 their trade agreement of May, 1939• In Britain the Labor Party’s Daily Herald on December 7 called Russia "imperialist." But German naval leaders exulted that Russian sheltering of the Bremen at Murmansk had permitted Germany to humiliate the Bri tish navy when the ship appeared in the Elbe estuary. Germany was the leading force pushing for peace in Finland, principally because deliveries both from Finland 291 and Russia were falling off. Stalin, realizing that Russia was being brought into sharp and open conflict with the west, was ready to make peace. On March 12, 1940 peace was signed. Finnish peace terms♦ Russia's peaee terms showed how far she had gone along the path of conquest. Ceded to Russia were all of Karelian isthmus, including the city of Viipuri, its bay and islands, and territory west and north of Lake La doga. Ladoga became a Russian lake. Russia received parts of the Rybachi and Sredni peninsulas and a number of islands in the Gulf of Finland, a thirty year lease to Hanko penin sula and several islands in the area, with the right to set up naval bases. Free transit for goods was granted Russia. Any resembalance to revolution has yet to be found in these actions. Yet Trotsky, believing the Red Army had kind led civil war, once actually wrote: The Red Army is expropriating the big landowners and is introducing workers' control, preparatory to expropriation of the capitalists His mistake was only slightly worse than Stalin's colossal blunder in the northern snows. Russia stopped short of com pletely overruning the country apparently for fear of war with the west. Time was running out for Stalin's "pacts" policy, as Germany did not approve of the Finnish war. 18 see David jr. Dallin, The Real Soviet Russia (Hew Haven: Yale University Press, 1^44), p. 47T He could find no difference between Trotsky and Stalin on Finland. 292 Finland showed how Russian expansion had slowly moved into older, well defined channels, and had gone beyond the secrecy with which Stalin had veiled his real policy. In Po land secret agreements for partition led to seizure. In the Baltic states indirect aggression and secret pacts led to es tablishing friendly though non-Communist Party regimes. Sta lin's •people’s government*1 had failed in Finland when the Finns fought. Russia retreated rather than Invite a western war declaration, but made great gains In area. Whole stages of increased Russian controls had to come before the decision to incorporate the Baltic states was taken. Stalin may have known that annexation of Finland would have meant an end to the pacts with Germany, as Hitler told Molotov in November, 19^0. The Finnish fiasco also demonstrated how Russia had aroused the hatred and fear of surrounding small nations. Finland moved to seek aid from Germany, which was thereby granted an entry there as a gift. Molotov announced the people’s regime had dissolved. One of the war’s shortest- lived phantom regimes had committed political suicide. Refer ences to the paper regime were deleted from Russian books. Now the Baltic was a Russian lake. Later that year Russia was to demand of Germany a guarantee of nonintervention in Finnish affairs. Hitler refused. Stalin’s new policy of territorial expansion by military eaaquest had reached its high point in area and its low politically from the viewpoint 293 of the workers Russia once claimed to represent. VI. DESIRES IN THE BALKANS Publicly emphasizing Russia’s new interest in the Bal kans, Communist International in an article at the beginning of December, 1939 demanded that Rumania sign a mutual assis tance treaty "similar to the agreements reached between the Soviet Union and the Baltic States.” Moscow’s plans for Bes sarabia,, already known to Hitler, were delayed by Finland’s resistance.^9 on December 3, 1939 the German Naval File had recorded a declaration by Molotov that "the primary goals of Russia lie in Southeastern Europe and on the Black Sea,." The plan to move against Bessarabia on December 6, 1939 was de layed to June, 1940. Rumania’s premier on January 1, 1940 declared Rumania would fight for Bessarabia and Bukovina.20 por the first time publicly Bukovina was mentioned as desired by Russia. By February, 1940 Russia was using a new approach in the Balkans where she sought a seat in the European Danube Commission that regulated traffic on the lower Danube. Russia had been excluded both from this commission and the Danube Interna tional Commission which regulated the upper river. ly Davies wrote, "as soon as the soviets clean up Fin land they will turn their attention to Rumania and Bessarabia." See o£. cit., p. 468. 20 New York Times, January 2, 1940. CHAPTER XII SILENT STRUGGLE FOR EASTERN EUROPE More or less continuous economic negotiations were going on between Russia and Germany. A pact was signed on December 2H-, 1939j covering the opening of eight junction points on the new common frontier in old Poland for passenger and freight traffic. Russia was not to alter for three years normal gauge rail lines from Rumania to Lwow, Poland. Special equipment for direct pumping of oil was installed on the common frontier. On December 27 an agreement to create a regular airline between Berlin and Moscow was signed. Flights were scheduled to begin on January 8, 19^0, and both governments ratified the pant on January 21. By the end of 1939 considerable num bers of goods were being transported by sea from the Dutch East Indies through Vladivostok, destined mainly for Germany.! Germany on January 9> 19^0 sent to Russia a military mission to aid in reorganizing the Russian Ar-my. A major Rus sian concession was shipment of oil via the Black Sea. to Con- stanza,, Rumania, and Varna., Bulgaria, and then by barge to Germany. Varna was enlarged and Italian and Russian oil tank ers plied the Black sea. Stalin had come . ' a long way— to the right--since his supplying of Caucasus oil to Mussolini during 1 The Times of London, March 30, 19^1* 295 the Ethiopian war five years before. Economic negotiations. A first-hand account of the economic parleys of 1939-1940 was given by Dr. Karl Ritter, leading German economic specialist after Dr. Schnurre, to his interrogators after Germany's surrender. Ritter described how Hitler approved deliveries during the first half of 1940 of heavy machine tools, airplanes, coast guns, battleship turrets, and flak artillery to Russia. Stalin told him, Ritter said: We no longer need help from you or America in this field or that (mentioning specifically heavy industry, medium and small electrical manufacture, certain branches of chemicals, and so on). We do, however, still require technical help in battleship construction. The Czar's admirals were no good. My admirals have slept entirely. We also need heavy machine tools and mining equipment, big electrical assemblies, synthetic processes, etc. If we--Russia and Germany--continue to work to gether like this for four or five years, we (Russia) will be able to produce enough raw materials to sup ply two Germanys.2 To Ritter this revealed much about Stalin, and Russia's contemplation of a’ long period of collaboration. But to the observer of Russian development, Stalin’s statement indicates how Russia, had achieved a position of powerful capital devel opment, leading to independence of imports of capital, and providing her with the industrial base for exercising her tendencies for expansion economically. Her remaining inde pendence was becoming localized. ^ Foreign Affairs, October, 1946, p. 143. 296 Russia complained of lagging German deliveries and reduced her own at the end of January, 1940. Russia also sought construction plans of the German battleship Bismarck. I. TRADE AGREEMENT, FEBRUARY 11, 1940 A trade agreement was rea.ched on February 11, 1940. Writing of the accord Tass of the same day reported that during the ensuing year: The exchange of commodities between Germany and the U.S.S.R. sha,ll exceed greatly all trade levels reached by the two countries since the World War. On both sides there is a . desire to increase still further trade exchanges between Germany and the U.S.S.R. Schnurre summarized the agreement in a report of February 26, explaining that the pact arose out of the econ omic notes of September 28, 1939. The two-year agreement specified a total turnover of nearly 1 ,0 0 0 million marks, about 25 0 per cent greater than the 38 0 million marks total in the trade accord of August 19, 1939, or 21 times beyond the trade of 1 9 3 8. Russian deliveries were to be made within 18 months, German within 27 months. Included were materials under the August 19 pact, and mineral oil, phosphates, chrome ores, iron ore, scrap iron and pig iron, platinum, manganese, metals, lumber and other raw materials. Transit rights to the Balkans and Nea.r East were continued, and freight rates of the Trans-Siberian rail road were reduced by 50 per cent for soybeans from Manchuria,. 297 German deliveries comprised industrial products, processes and installations as well as war materiel. Many of the met als were not immediately available in Germany, Schnurre ex plained. He declared: Furthermore, the soviet Union declared her willing ness to act as buyer of metals and raw materials in third countries. To what degree this promise can be realized in view of the intensified English counter measures cannot be judged at the present time, since Stalin himself has repeatedly promised generous help in this respect .it my be expected that the Soviet Union will make every effort.3 Russia wished almost no consumer goods but almost ex clusively manufactured goods and war materials, Schnurre re marked. A difficulty arose since German bottlenecks in machine tools and other metal products coincided with Russian ones. The significance of the agreement was given by Schnurre; The Agreement means a wide open door to the East for us. The ra.w material purchases from the soviet Union and from the countries bordering the soviet Union can still be considerably increased ... If we succeed in extending and expanding exports to the East in the required volume, the effects of the English blockade will be decisively weakened by the incoming ra.w materials. An unusual feature of the pact was that Germany was im porting iron and other ores from Russia; they were to be re turned later in the form of bullets and bombs. Soybeans from Manchuria were the basis of the German field a.r-mies ' diet. Russia’s agreement to transship commodities from the Far East, 3 Raymond J. Sontag and Beddie J. Stuart, Nazi-Soviet Relations, 1939-19^1 (Washington: U. S. Depa.rtmehiTof State, 19^6), pp. 131-13^- 298 it was asserted, would enable Germany to import American goods. Arrangements for resolving the problem of rail gauge were made by setting up a dozen stations for transfer of loads. A new system of tariffs was planned and more cotton than Russia had exported to the entire world in 1939 was to go to Germany. Most important, the nearly one million tons of petroleum were to grease the German war economy. In terms of dollars each country was to deliver approximately $1 2 5-mil- lion worth of commodities. Neither reached this figure. Germany's ability to export manufactured goods she herself badly needed was to become more limited and Russia even had to advance credits to her, and permit Germany to remain in a, debtor status, with deliveries lagging nine months. This was quite a transforma tion from the pre-war German and British grant of credits to Russia, and marked the opening of serious Russian capital export to the west. Arms, merchant ships and armored vessels were among Russia's gains. Russia permitted Germany to establish con sulates at Leningrad, Vladivostok and Batum. In return Russia was allowed to open consulates at Hamburg, Koenigs- berg and Vienna. II. WHILE GERMANY FIGHTS THE WEST Now that Germany was preparing to reopen the war in the west Russia was free to act in southeastern Europe. 299 Britain on March 27 proposed, a renewal of trade relations, asking tot a . guarantee that goods would not go to Germany. Stalin, despite German pressure, refused to guarantee with Italy the frontiers of Rumania. Russia opened discussions with Yugoslavia. At the same time Molotov on March 29 sa.id: Of the neighboring states to the south, Rumania is one with which we have no pa.ct of nonaggression. This is due to the existence of an unsettled dispute, the question of Bessarabia, whose seizure by Rumania the Soviet Union has never recognized. ' Russian demands in the Balkans were now more public. Molotov also called for continued neutrality by Russia and localizing of the war. Apparently Russia was preparing for a shifting of policy, if necessary. In the new political situation that was arising, Washington extended the trade agreement of August 4, 1937 to mid-1939* Russia had declared she might not be able to buy yearly the minimum of $40-million in American goods. Events beyond the power of the two countries to control now drove them closer together. Japan's move from China, to the Ea,st Indies was to propel Washington and Moscow to work in the same direction. American tankers carrying aviation gas oline were permitted to sail for Vladivostok.^ Reaping what Germany sows. Use of a far eastern base ^ After Pearl Harbor on December 7 1 19^1 Japan, in^ scrupulous observance of her April, 19^1 treaty with Russia., made no effort to halt shipments. 300 by Germany was refused by the Russians, the Naval Pile noted on April 5, because of Russia.n concern over the future position of England and Prance. But when Ribbentrop informed the Rus sians of opening of war in the West— and the end of the so-called phony war— Molotov replied that he understood the measures were ’ ’ forced1 1 upon Germany and said, nWe wish Germany complete success in her defensive measures.”5 still Germany felt that the Russians were changing their views on collaboration and seeking to move out into southeastern Europe. In London Ambassador Maisky continued trade conversa tions with the British, while Izvestia of April 11 called Bri tain and France warmongers. Hitler at this time reportedly asked Keitel if a war against Russia was possible. Keitel replied that it could not be envisaged for the fa.ll of 1940.6 Under great pressure from Germany in the north Sweden began to look to Moscow for Aid. Yugoslavia did the sa.me. When the Yugoslav trade mission arrived in Moscow, the Russian radio on April 14 advised smaller nations Hto make common cause with the larger states in order to assure their status of neutrality.” This unfolding strategy of appearing as the protector of sma.ll states was the beginning of a real . 5 sontag and Stuart, op. cit., p. 138. 6 Raymond Cartier, Les Secrets de la Guerre Exposd pa.r Nuremberg (Paris: P. Brou'ty, j7 "Payer and Cie., 1946), p. 235. Later, a succession of writers was to call Keitel stupid. 301' shift in policy away from Germany, to a balancing between the contending forces while preserving a non-participation status, and eventually moving to collaboration with Britain in the Balkans, the only possible junction point at first. A trade treaty with Yugoslavia was signed on May 11. Supposedly non- political it granted diplomatic status and extraterritoriality. Britain and Prance were quick to recognize that Russia had made a breach in her relations with Germany and that "paral lelism” in her policy with that of the west was developing. Close friendship between Hitler and Stalin apparently ended in the spring of 19*1-0. Neither Stalin nor Molotov sent Hitler a birthday greeting. On April 22 the Naval Pile wrote, ’’ Russian intentions for the incorporation of the border states becomes recognizable."7 Moreover, the German high command ordered twelve divisions to Poland for protection of the Ru manian oilfields, Germany’s chief supplier. The rift widens. In her talks with Britain Russia, as the Germans noted, refused to accept the chief British demand for a limitation of exports to other countries. At the same time the Comintern on May 1, 19^0 in its last public statement excused Germany’s opening of the war in the west and called the western powers warmongers. One year before the Comintern had denounced Germany as the aggressor. Germany in a secret agreement with Finland in May gained troop transit rights through to Norway and sent forces into Finland. 302 Russian military publications which, early in 1940 had expected a stable balance, between the belligerent forces and predicted the impossibility of a short war after the swift Norwegian campaign warned that the Germans possessed technical superiority. The Politburo reportedly moved to alter Russian policy to fit the new situation of a German-dominated continent. Bastions in Finland, the Baltic and Poland were no longer suf ficient as buffers. Russia would have to act quickly in the southeast while Germany was occupied in the west. With hindsight and known statements of German leaders it is possible to see that the Russian concentration of forces had forced Germany to divert troops to eastern Europe. Russia thus was relieving the western powers. Nevertheless, although shifting her ground Russia was not moving back to revolutionary policy, but only to a continuation of the expansionist policy, this time in accord with the west. In direct contradiction to the old Bolshevik Ideology which had always opposed Pan-Slavism, Russia now inaugurated a new Pan-Slavic approach. A United Press dispatch of May 7 noted that Russia would conclude a military alliance with Yugoslavia, and Bulgaria and revive Pan-Slavism If anyone sought to push the Balkans into war. Hitler in November, 1939 had said pan-Slavism would come shortly. Slowly Russian moves multiplied. When Italy sought a renewal of her trade pact which had expired at the end of 1939 Russia warned her in Pravda, and Izvestia. of May 16* 303 If the Italian forces on the island of Pantelleria. threaten the English base at Malta, then the Dodecanese Islands, where Rome has concentrated thousands of troops, may play a vital role in strategic plans threat ening the interests of Soviet Russia and of those East ern countries friendly to her . This, Russia’s first open expression of parallel policy •with the west, was at the same time an a,ffirmation of her ’ ’ interests'" throughout the eastern Mediterranean. It was a bitter blow to Italy which sent more troops into Albania.. On May 19 Molotov, according to Izvestia, repea.ted the demand for Russian admission to discussions on the Danube commission. Bulgaria and Yugoslavia, backed Russia’s request. Trade negotiations in London petered out, but the Rus sians left the business door wide open, indicating their inter est in obtaining rubber and tin in exchange for lumber. They refused to receive a major British economics negotiator, Sir Stafford Cripps. But as soon as Winston Churchill became Prime Minister, the Russians a.ccepted entry of the delegation. It arrived in June, 19^0. Balkan squeeze play. On June 4 Russia again raised with Rumania the question of returning Bessara.bia to Russia.. German leaders feared that Russia, now that Germany was winning in the west, would expand further her bases in the Baltic Sea. Molotov inquired if Germany, Italy and Russia could collabor ate peacefully in the Balkans. One writer even recorded an agreement or pact, although there is no corroborative evidence: 304 Before Italy entered the war on June 10, 1940, an agreement, verbal or written, had undoubtedly been reached among Russia, Germany, and Italy regarding the maintenance of the status quo in the Balkans.' Prom all indications no such additional pact existed. Germany had begun to force Rumania to liquidate British interests there, particularly in oil, and to influence selection of the premier of Yugoslavia. Furthermore, Moscow radio on June 6 warned Italy, f , it will not remain passive in the face of a threat to the Balkans ., r III. PALL OP PRANCE Instead of attacking Yugoslavia as was expected, on June 10 Italy entered the war alongside Germany by attacking nearly defeated Prance. German naval leaders that day repor ted a noticeable cooling off of relations with Russia. Yet the full significance of Prance's fall had not yet been ap preciated in Moscow. On June 10 an agreement regulating procedure for settling disputes and incidents arising on the Russo-German frontier, as established in the September 28, 1939, treaty, was accepted. On June 13, unlike Moscow’s ignoring of Hitler's birth day, Molotov left his calling card at the British Embassy on the birthda.y of-King George VI. That same day Russia again sought the return of Bessarabia from Rumania.. Ambassador 7 David J. Dallin, The Real Soviet Russia (New Haven: Yale University Press, 1944), p. 23TI 305 Schulenburg reported that the soviet Minister in Stockholm had stated, "that it was to the common interest of the Euro pean powers to place themselves in opposition to German im perialism. "8 Now Russia recognized that Germany was far stronger than had been thought possible. Germany meanwhile suggested settling the Balkan question after the war. Russia was alarmed, for she envisioned that a much more powerful Germany would be impossible to bargain with. Within thirty-nine days after attacking Holland and Belgium on May 10, Germany had smashed France’s army. This military victory had destroyed most of the fabric of Stalin's policy of pacts with Hitler to "avoid" war. Russia was coming to the end of the possibilities of remaining out of military involvement while supplying one or both sides, lea.ving her capable of dominating much of the continent after a-prolonged war of attrition had weakened her possible opponents. France’s fall shifted the power-political relation in Germany’s favor and seemingly eliminated the western front, leaving Germany free to move eastward or on into England. * Germany and Russia were now moving face to face in the Bal kans. Yet Russia, following her new policy of expansion, could not evolve any alternative policy, and for the entire historic month of jtlne, 19^0 neither Pravda nor Izvestia. pub lished a 'single leading article on the war. S Sontag and Stuart, op. cit., p. 1^7. 306 Moscow's recovery from her initial alarm at Germany's increased strength, which Russia herself had helped nourish, was swift. Russia stationed twenty-two divisions on the Lithuanian border, forcing Germany to concentrate a large part of the Luftwaffe there, "which was needed for the deci sion in the West,” as Hitler said on June 22, 19^1* In the remaining fifteen days of June Russia, recovering from the speedy German victory in the west, moved to close the histor ic invasion gate through the Balkans and relieve the remorse less German pressure on Britain. History marching on Nazi jackboots had changed the line for Stalin. New policy. Russia was moving away from the policy of "Britain and H?ance a,re the warmongers," yet was forced to continue the closest economic relations with Germany. The new situation demanded a new policy, flexible, Europe-wide, pro- British, and looking to the future of inevitable war. Stalin however was completely entrapped by the dynamics of the devel opment of expansion since 1939- He could not turn to revolu tionary organization against Germany, not after the GPU aided ' the Gestapo in crushing Polish outbursts. International revo lutionary policy was gone with the liquidation of all the old revolutionary leaders and the ending of the program of 1919- Russia could only intensify her policy of expansion by new political-economic relations with countries other than Ger many. The descent into conquest could not be diverted. 307 Russifying the Baltic♦ For eight months after september- October, 1939 the three Ba.ltic states had retained their own governments a.nd their old social structure. In its first ef fort at semi-military occupation Russia had limited political control to foreign affairs. She remained a, model colonial ruler, for a while. Then Russian military forces were con siderably strengthened. On June 14 Russia accused Lithuania of violating their pact and fomenting hostility against Russian troops, and ma.de demands that included acceptance of large numbers of Russian troops throughout the country. Lithuania capitulated and a new pro-Russian government was formed on June 17. Though the capitalist class was in terror the new government "was demo cratic not Communist in character."9 Estonia and La.tvia. were subjected to similar pressure and accepted Russian demands on June 16. In Estonia not a single Communist Party leader was included in the cabinet; it contained mainly Socialists. Tiny movements of workers so greatly irritated the Russians that "not only were these move ments restrained and persecuted by the local policy in Riga and Tallinn, but even the Red Army banned noisy ovations, which at times tended to turn into abortive revolts on the part of Communist elements." -While the Red Army commanders demanded 9 Dallin, op. cit., p. 251. 308 of Tallinn authorities "that they suppress disorders/” in Riga "the police were ordered to shoot at unruly demonstra tors.” Where zealous left elements strove to act for them selves and "here and there workers began to seize factories, emulating the example of the revolutionary Russian workers of 1917-18," the government proclaimed severe penalties for "willful nationalization. "3-0 Such was Stalin’s "world revolution," in reality counter-revolution and bloody suppression of workers’ up risings. Moscow would not take a chance on revolution start ing from however small a spark; the danger tha.t its policy of puppet regimes and buffer states would be upset was too great. Strikes were eliminated by the threat of using the Red Army. When the new Baltic governments announced their programs of collaboration with Russia they made no mention of socialism, of workers’ soviets, nor did Communist Party members enter the government. This short phase moved rapidly towards its denouement, to be replaced by deeper elements of expansion. 10 ibid., pp. 251-3. While Dallin constantly seeks to interpre't Russian moves as revolutionary, the facts he cites show the opposite process was occurring. Wow a state and not a revolutionary party was exporting a, particular policy. Dallin admits on p. 247 that, "In the newly occupied countries industrial plants were not seized by the workers; on the contrary, the new regime ruthlessly suppressed all attempts of this kind." see Wew York Times, June 19, 19^°• Tass on June 23.declared that eighteen to twenty divi sions were in the Baltic states "to provide a guarantee for the execution of the mutual assistance pacts between the U.S.S.R. and these countries." [This was hardly mutual or revolutionary. 309 Russia denied rumors that she had placed from one hun dred to one hundred and fifty divisions along the Lithuanian border. Tass reported on June 23 that, r i good neighborly re lations, resulting from the conclusion of the nonaggression pact . . . cannot be shaken . . . because these relations are not based on motives of opportunism but on the fundamental interests of the U.S.S.R. and Germany." Moscow had protested too much. That day Red Army soldiers were ordered to salute their officers, a formality the early revolution had elim inated . Petsamo nickel mines. As part of her drive in eastern Europe Russia on June 23 sought concessions from Finland in the Petsamo nickel mines, which she had left to Finland under the peace treaty of March 12, 19^0. Germany shortly after was to ask for a mining concessions hitherto held by the Bri- tish-Canadian Mond Nickel Company, which had an agreement with I. G. Farben-Industries. Before Germany could act Moscow had demanded that a joint Russo-Finnish company run the petsamo mines and that the British-Canadian concession be cancelled, in the circum stances the move was really anti-German. Finally Finland agreed to a joint concession but refused full Russian control of the mine management. Russia was developing the device for jointly operating capitalist industries. The lot of a small country in the path of Russian expansion and that of other 310 powers was becoming Increasingly hopeless.H A marked difference between Russian moves in June, 1940 and in August and September, 1939 was their tremendous extent, ranging from Finland two' thousand miles down to the Black Sea, and from outright military occupation to joint running of cap italist industries for a profit. In the rush of events--and in violation of the facts, so heavily veiled by propaganda and misinformation— a widespread conception arose that capitalism disappeared every time Russia stepped into an area. Deep social changes did occur as many capitalists fled and populations were shifted. Land division was consummated by the peasants themselves, but workers' attempts at nation alization were throttled by the Red Army. For example, al most three-fourths of Polish industry was owned by foreign capital and the on-the-spot legal owners had fled, were killed or otherwise disappeared. They were replaced not by workers' councils but by organs of the Russian state. IV. CLOSING THE BALKAN GATEWAY German troops were on their way to Rumania after a 11 Hewlett Johnson in his book, The Soviet Power (New York: Modern Age Books, 1940), actually wrote on page 342: "To the charges that the Russian attack (on Finland) had been prompted by the customary motives of imperialist expansion, I would point to the Russo-FInnish Treaty of March 12th. No pa.rallel exists in modern times to such generous terms on the part of a victorious nation to a defeated one. Had Russia.'s motives been purely predatory, why should she return petsa_.mo and the great nickel mines of the North . . . to Finland?1 Johnson pointed too soon and not far enough. 311 pro-German premier had been installed. But the Russians still had time to act to gain control of Bessarabia without going to war against Germany. Molotov informed Schuleriburg that Russia was about to take advantage of the clause in the secret protocol to the August 23, 1939 pact. Under this clause Bessarabia had been placed within the Russian sphere of interests. Bessarabia and Bukovina. schulenburg informed his chief on June 23: The solution of the Bessa.rabian question brooked no further delay. The Soviet.Government was still striving for a peaceful solution, but it was deter mined to use force, should the Rumanian Government decline a peaceful agreement. The Soviet claim likewise extended to Bukovina, which had a Ukrainian population.I2 The demand for Bukovina was presented for the first time, the Germans complained. When Schulenburg sought a delay Molotov declared that Russia expected German support and would safeguard German interests in Rumania. German leaders stressed their economic Interests in the area, but decided to yield despite German penetration of the oil fields and agricultural areas. Germany protested that Bukovina was never a part of Czarist Russia. In one of the first manifestations that Rus sia was moving beyond Czarist territorial conquests, Molotov countered that, "Bukovina is the last missing part of a unified 12 sontag and Stuart, op. cit., p. 155* 312 Ukraine."13 in the short, sharp dehate Schulenburg on June 26 noted that Russia approved "Bulgarian demands for Dohruja and for access to the Aegean Sea." Russia offered to recog nize Italian hegemony in the Mediterranean, "provided that Italy -would recognize the soviet Government's hegemony in the Black sea..1’!^ Molotov told Schulenburg tha.t Russia -was going to limit its demands to the northern part of Bukovina, plus the city of Czernowitz, which would give Russia direct railway connec tions from Bessarabia through Czernowitz to Lemberg. An ul timatum was presented Rumania, with Russia having taken the seemingly shrewd bargaining position of first asking for all of Bukovina, then retreating and "generously" agreeing to ac cept only ha,If the country. Northern Bukovina,, a province of 6,000 sqm,re miles, had a population of 500,000, 80 per cent of them Ukrainians. Germany advised Rumania to yield, with Hitler in his war speech of June 22, 19^1 explaining why: Russiaf sthreatened attack on Rumania was in the last ana,lysis equally intended to gain possession of an important base, not only of Germany's but also of Europe's economic life, or at least destroy it . . . Russia's advance into Rumania and Greece's tie-up with England threatened to turn these regions, too, within a short time into a, genera,1 theater of war . . . I advised acquiescence to the soviet Russian demands. Hitler had accurately seized on the vital element in 13 ibid., p. 159- 1^ Ibid., pp. 160-1. 313 Russia’s entire expansion, her need and desire to seize a whole section of world economic life. Ciano went still fur ther, declaring the Italians had advised: "Cede.” At all cost we must avoid a conflict in the Balkans which would deprive us of their economic resources . . .15. Ciano's explanation demonstrated that despite Russian seizure of an area the Nazis knew that under their economic arrangements they would still receive regular economic deliv eries from Russia's controlled a,rea,s through further pacts. This was the case with Polish and Rumanian oil, the latter in the sense of transit rights. It was to happen with Pet- samo nickel. Military occupation of Bukovina and all of Bessarabia, followed on June 28. Russia had reached the Danube river. What could not be gained in December, 1939 during the Finnish, war had been seized In June, 1940, while Germany was still busy in the west. Britain makes an offer. Stalin now received Britain’s delegate, Sir Stafford Gripps, who offered a defensive alli ance should Germany attack in the East. Stalin declined the offer, although Britain ma.de a serious concession by releasing two Russian ships the day after the stalin-Cripps conference. Germany Increased her controls in Rumania. 15 Galezzo Ciano, The Cia.no Diaries (Garden City: Doubleday, Doran and Company, 1946), entry of June 28, 1940. 31^ Most of Bessarabia was included in the newly estab lished Moldavian Autonomous Soviet Republic. Northern Bukovina and the remainder of Bessarabia were annexed to the Ukrainian republic. On August 15 a decree was issued nationalizing land, banks, industries and trading enterprises in the provinces. Germany complained that Russia sought further advances in the Balkans. Japan in July, 19^0 proposed a neutrality pact, but Rus sia. would not a.ccept certain conditions. In the north Russia sought troop transit rights on Finnish railways and demilita.r- ization of the Aland Islands. Act III in the Baltic. Russia now moved to occupy the Baltic countries, apparently fearing the end of the war was near. Stalin informed Hitler that the British were aware that Russia sought a change of regime in the Straits of Bos phorus and in the Black Sea, and wanted to trade with Russia. Russia still denied England the right to interfere with com mercial relations with Germany. Stalin declared: . . . The Soviet Union would export to Germany, in accordance with treaty provisions, part of the nonfer- r-ous metals she bought abroad, because Germany needed these metals for the manufacture of the war ma.tdriel she delivered to the Soviet Union . . .3-6 Stalin added the opinion that no power had an exclusive right to power in the Balkans and in the Straits. Russia was willing lb sontag and Stuart, op. cit., pp. 167-8. 315 to continue to breach the British blockade so that she could obtain war■materials from Germany. A puppet government was set up in Lithuania. All parties but the Communist Party were Illegalized. Political commissars, formerly in the Red Army, were introduced into the armies of the Baltic states, now dubbed "people’s armies." In the elections of July 14 and 15, 1940 the Communist Party was the only participant, though using a different name. Ac centuating the fundamental changes since the time of Lenin was the astounding politica.l phenomenon that in the elections Russia’s troops in the army of occupation case their ballots at the polls!1? Trade between the Baltic sta.tes and Germany was allowed to continue. Pro-Russian leaders in the three states requested admission into the U.S.S.R. on July 21 and the following da.y the three parliaments decreed nationalization of land, banks and large industries, without altering the system of land own ership or commodity production. The United States froze the assets of the Baltic states. Britain too refused to recognize the forced change of rules. Both powers were to change their 17 The elections in the Baltic states violated the principle used by the revolutionary Russian delegation to the Brest-Litovsk Peace Conference twenty-five years before; "The solution of the question regarding the fate of regions determining their own lot must take place under conditions of full political freedom and without external pressure. The voting must, therefore, take pla.ce a,fter the withdra.wa.l of foreign armies." But the Russia of 1940 was not the revolu tionary Russia of 19l8* 316 views quickly and almost completely to recognizing conquests. V. RUSSIA RELIEVES BRITAIN The German naval leaders reported on July 21 concern ing a. lecture in which Hitler had said that so long as Rumania, and Russia deliver oil, and hyero-electric works can be safe guarded from air a.ttacks, Germany’s situation was not critical. Russia had contracted to deliver more than a. million tons of oil a year. Germany sought more oil, and slowly the struggle between the two powers in economic terms turned into a, conflict over the oil of Rumania, the Caucasus and the Middle Ea.st. To these areas the Balkans, Danube and Dardanelles were openings. But already Moscow, like Germany, viewed the Middle East as a possible source of supplies of oil. In an audience with Cripps Stalin on July 23 continued his statement that German and Russian interests still ran to gether. Britain had not made a sufficiently high offer. By July 29, 1940 Hitler had given a second sign of intention to attack Russia. His first was a query to Keitel if it was possible to attack in the fall of 1940. Germany was disturbed by Russia’s concentration of forces along the eastern frontier. New Russian republics. Molotov in a speech to the Su preme Soviet on August 1 emphasized that the nonaggression pact was in full force and attacked both America, and Britain for freezing gold of Baltic banks which the Russian state Bank had 317 purchased. Molotov concluded with Stalin's words that full mobilization must be kept up in face of possible .military at tack. Germany was clearly meant. Lithuania became the fourteenth republic in the U.S.S.R* on August 1. Latvia followed on August 5 and Estonia, on Aug ust 8. America condemned the admissions. Russian expansion had reached its territorial height for that period, without war. Now Russian moves were made in utmost secrecy, with even Molotov making no report on foreign affairs for the next eleven months down to the attack by Hitler in 19^1• Japan's move. Parallelism with the west in policy was duplicated in part with Japan. However, the weakness of the term parallelism is revealed by the relations with Japan. In truth arrangements between national states are based on a running together or parallelism of their interests at various conjunctures. This conjuncture arrived for Japan in May and June, 19^0. With the fall of Holland and Prance, Japan was enabled to replace Dutch forces in the East Indies and French interests in Indo-China. Promptly Japan shifted her‘attention from China, and, more important, from the Russian far eastern frontier, directly southward. Along that southern route to empire lay the Philippines. Japan's move southward was to cross American Interests there. Now committed to the policy of expansion to the south Japan sought to ensure that no Russian a.ction would occur in the 318 north.. Molotov on August 1, 1.940 reported a growing normal ization of relations with Japan. As a first move Japan reportedly offered to divide up China, with Russia, and to give Russia concession of all of--. Sinkiang and Outer Mongolia. Unconfirmed reports indicate that Russia demanded annulment of certain provisions of the peace treaty of 1905 which had placed Korea, Kwantung and Port Arthur in the Japanese sphere; liquidation of Japanese conces sions' in Northern Sakhalin island and demilitarization of South ern Sakhalin; neutralization of the Chinese Eastern Railway; and evacuation of troops, along with demilitarization of the northern frontiers of Korea and Manchuria.18 Rejecting these heavy conditions, Japan moved the next month towards closer ties with Germany. Being farther from the scene Germany was willing to recognize Japanese proposals for the "New Order in Greater East Asia." Germany protested an inflammatory article in a Riga paper against the French armistice terms. Russia sought from Germany for 3 j860,000 gold dollars a portion of Lithuania opposite East PrussiaInternally the Russians Increased their mobilization. On September 3, 1940 five Marshals of Russia received thirty-one karat diamond stars Czarist splendor had at last been surpassed. 18 New York Times, September 2b, 1940. CHAPTER XIII DRANG NACH OSTEN AND WESTEN Russian expansion in Bessarabia and Northern Bukovina was matched by a German and Italian decision in August, 1940 to halt any further steps to the southwest by Ripssia. Ger many, after the fall of France, felt powerful enough to oppose Russian demands in the Balkans, and to espouse her own inter ests there in oil, grain and to use this area as a geographic al stepping stone to the Middle East. In turn Russia sought to cement a bloc with Yugoslavia and Bulgaria. I. CASE EAST Yugoslavia was the scene of the major turn in Russian policy to secret anti-German activities. Demonstrations began against German expansion. Communist Parties in Greece and Bul garia also began the change of policy to working against Ger many. Their brother parties in Britain, America and Scandinavia were to function on the 1939 line— Russian expansion is pro gressive; Fascism is a matter of taste; Britain and France are the warmongers— until the spring of 1941.^ The line had shifted 1 As Russia became entangled deeply in ancient national struggles a certain dualism of policy in Stalin's international apparatus emerged and grew worse. There was a time lag in applying a shifting policy in various countries. With their policy of favoring their specific national governments the Communist Parties could not develop a single, world policy, as is discussed more fully in-the conclusions. 320 so swiftly that the cumbersome international machinery of Rus sia could not be geared to the new policy as a unit, a diffi culty which was to grow into a major disease. Different na tional parties had to be allowed to continue on a line already abandoned in key areas by the Kremlin. Germany’s Chief of Naval Operations Raeder at this time gave a brilliant summary of Russia’s "long distance aims": Ice free North-Atlantic port. Advance through the Balkans for the annexation of the Dardanelles and the domination of the Black Sea. Advance through Iran to the Persian Gulf. Strong pressure on Finnish in ternal policies. Subversive creation of disturbances. In Rumania, especially in Bulgaria and Yugoslavia, panslavic-communist propaganda— partially successful. Strong activities by agents in Greece. Demands on Turkey unknown. Force of arms not expected at pre sent. Russian behavior strongly dependent on further devdbpment of war. The political weight of the Axis should keep the peace of the Balkans. Economic deliv eries by Russia are good beyond expectations. 2 Aside from the use of words such as "communist," the descrip tion was thorough* While acting underground against Germany, Russia was making good her economic deliveries. The new pol icy of expansion by opposition to Germany had not yet burst out of the former policy of basic aid to Hitler. Aufbau Ost. Aufbau Ost or Ost Fall (Case East) was the first code name to describe plans for operations against 2 Nazi Conspiracy and Aggression (Washington: Office of U. S* Chief of counselTor prosecution of Axis Criminality, TJ. S. Government Printing Office, 19^6), from the German Naval File or Diary, August 20, 1940.' 321 Bussla. The plan was emouflaged. Russian economic deliver ies, the Germans remarked repeatedly, were quickly and well sent and war materials were requested in return. Only by the spring of 1940 had Hitler felt that German deliveries should he allowed to lag greatly. Under increasing Russian pressure the Germans had trans ferred twelve divisions to Poland. Hitler declared in his war speech of June 22, 194l that in 1940 Britain and Russia had begun their cooperation that forced a diversion of German forces to the east. German General Jodi wrote subsequently that the Luftwaffe had to be kept out of much of the battle of Britain because of the danger from the east. Baltic nationalization. By the end of August, 1940 only ten per cent by value of enterprises of Estonia had been nationalized. Commodity production continued, and with it a surplus which now went to the Russian state in the form of rent, interest and high salaries. Wage labor remained unchanged. “Individual craftsmen, jewelers, shoemakers and carpenters,* 1 wrote John scott, “were all permitted to work as usual.w3 The Russians were moving slowly in the "recu perated* 1 areas. Nationalization in Lithuania was more inclusive, but owners who had run their plants stayed on as directors and 3 John Scott. Duel for Europe (Boston: Houghton Mifflin Company, 1942)/ pp. 84-5. 322 received salaries far above those of skilled workers, Seott declared, Thousands of skilled and professional workers were sent to remote regions of Russia, crippling the union move ment. Prices rose from twenty to two hundred per cent within a few months. By raising wages and offering momentary social reforms hitherto lacking, Russia was able to gain some Initial sup port from the lower ranks of workers. But workers' leaders were controlled or deported to Siberia. Lagging deliveries. Discussion continued over the seri ous lag of German deliveries under the trade pact of February 11, 19^0. On August 29 a pact providing for completion of re patriation of 90,000 Germans from Bessarabia and another 30,000 from Northern Bukovina was signed. Compensation for property left behind was to be settled at a later date. Borders and rights of both countries along the vast common frontier were regulated by a pact of August 30. signature of an agreement on delimitation of the common frontier in Poland came the next day. Meanwhile Germany and Italy outraced the Russians in Rumania, proclaiming the ^Vienna Award” of Transylvania to Hungary. Russia was Informed that Germany and Italy on Aug ust 30 had jointly decided to guarantee Rumania's territory. Stalin's aim of closing the invasion route through the Balkans was impeded. Russia protested that she had not been consulted, 323 In violation of the nonaggression pact of 1939. Russia's own claims for southern Bukovina, which she had withdrawn tem porarily, were thus thwarted. To ease the situation Germany offered to sell Russia a disputed strip of Lithuania. Never theless instead of expanding to the Carpathian mountains Rus sia was halted short on the Prut river by the onrushing Ger mans . German deliveries for the first six months of 1940 had fallen short by nearly 73 million Reichsmarks, and Russia said her shipments would be suspended if the lag was not bal anced. By September 12, 1940 the Russians had supplied almost one million tons of grain, thus solving part of Germany's food problem. Schnurre complained to Hitler that the Russians had cancelled all long-range projects In the trade pact of February 11, 1940. In order to be able to gain grain, Hitler decided to approve German deliveries. Schnurre declared: The supplies from the Russians have heretofore been a very substantial prop to the German war economy. Since the new commercial treaties went into effect, Russia has supplied over 300 million Reichsmarks worth of raw materials, roughly 100 million Reichsmarks of which was grain. Russia has thus far received compen sation only in the amount of about 150 million Reichs marks . . . Our sole economic connection with Iran, Afghanistan, Manchukuo, Japan and beyond that, with South America, Is the route across Russia,which Is being used to an Increasing extent for German raw material imports (soy beans from Manchukuo) 4 Raymond J. sontag and Beddie J. Stuart, Nazi-Soviet Relations, 1939-1941 (Washington: U. S. Department of state, T&45JTPP. TS^STTT 324 By the autumn of 194© the water route from the Black Sea via the Dnieper and Pripet rivers to Brest-Litovsk was opened for transporting goods to Germany. Japanese goods came across the Trans-Siberian railway, whose traffie had risen five-fold.5 II. TRIPARTITE AXIS PACT Having secured her eontrol in yet another Banubian country, Germany moved to settled the question of control of the Danube river on September 12, 1940 in Vienna. Russia was not invited. She protested, declaring her interest in all Danubian questions down to the river's mouth on the Black Sea. Two days later Germany informed Russia her rights to sit in the lower Danube European Commission would be recognized, although Russia sought to sit on the International Commission too, which controlled the upper river. Strangely enough the existing commissions with British and French members were useful checkmates of Germany against Russian demands. Meanwhile British attempts at an arrange ment with Russia continued, subsiding only when an attempted 5 in exchange for Japanese soy beans, meat, rice and cotton, Germany sent across the Trans-Siberian chemicals, instruments and finished goods. See New York Times, June 4, 1941. It is in this light that one should Interpret the statement of Sir Bernard Pares that the pact "was never an alliance, whether, political, military or economic, and has been described as 'the pact which was also a duel,'" a phrase of Duranty*s. See Russia and the Peace (New York: The Mac millan Company, 1941T]Tr“pT 157 325 settlement over Baltic funds collapsed in mid-September. Russia agreed to a German request to keep secret the trans portation of German troops across Finland to northern Norway. Moscow opened its first anniversary celebration in September, 19^0 of the ^glorious victory of the Bed Army” over Poland. Russian internal preparations for war were remarked by the Germans. Germany was particularly inpressed, according to a Naval file report, of Russians interests in the Balkans where ^nothing can be decided without R u s s i a . ”6 The Axis proposals. On September 27 Germany, Japan and Italy signed the tripartite axis pact, and offered to extend cooperation to other nations, meaning particularly Russia. They divided spheres of influence, denounced America., agreed to assist one another and said that the political sta tus of Russia remained unchanged. Japan was informed by Rus sia that a policy of neutrality would continue. This was interpreted as a guarantee of Japan’s rear and Japan was able to move into Indo-China. British and French negotiators met again. German lead ers complained of the possible loss of petsamo nickel, coming via Russia. Finland In the meantime on October 11, 19^0 agreed to demilitarize the Aland Islands, on Russia’s request. 6 Nazi Conspiracy and Aggression, qp. clt., Naval File report of September 2 6/ 1 9 4 0. Germany1s naval leaders were the most thorough analysts of Russia’s conduct. 326 A letter to Stalin, With Russo-German relations fast deteriorating Rihbentrop suggested to Hitler a meeting with Stalin. On October 13* 19^0 Ribbentrop In a long letter to the Russian leader summed up mutual relations and invited Molotov to Berlin.. The aim of proposed talks would be to discuss their mutual world-wide interests, and those of Italy and Japan as well. Stalin replied affirmatively on October 2 1, and stated that the question of joint deliberation on some issues with Japanese and Italian participation would have to be examined. Knowing how great the German pressure in the east was becoming, Russian leaders now were propelled further into closer relations with the west. On October 22, 19^0 British Ambassador Sir Stafford Cripps presented proposals to the Russians. London offered de facto recognition of the incor poration of the Baltic states, a complete reversal of Church ill *s mid-June refusal t© recognize. Opportunism was still the handmaiden of muddling through. Russia was offered a place at the peace table after Germany’s defeat if she would be really neutral and not give Germany great economic aid. Russia gave no answer officially, and relations cooled. But if Russia was blundering her way to some kind of policy she was to be aided accidentally by the decision of Mussolini to invade Greece, over the objections of Hitler. Italy’s action affected the whole subsequent war. 32? Russian representatives met on October 28 with dele gates from Italy, Rumania and Germany to suppress the pre war lower Danube European Commission and establish a provi sional regime until a unified control could be set up. Bri tain protested Russia*s participation in the commission. Japan at the end of October once agairnst sought a pact with Russia, this time on the order of Russia’s accord with Ger many, as Pravda noted on April 19, 1941. On the twenty-third anniversary of the Revolution of 1917* as if to mock the words of Lenin that nationalist expansion would mean the end of the Russian revolution, De fense Commissar Marshal semeon Timoshenko declared: "Rus sia has extended her borders, but we cannot be contented with what already has been achieved. t t 7 Ominous in tone and content the words of the marshal constituted a blunt state ment of intentions. III. HISTORY IS MADE AT A CONFERENCE At the conference of November 12-14, 1940 between Molo tov and Hitler and Ribbentrop, Franz von Papen later told American interrogators, Germany "lost the war. ”8 Germany offered to divide spheres! of Influence between Russia, Germany, Italy and Japan, with Russia to turn her attention to the South ^ Facbson File, November 7, 1940. 8 Foreign Affairs, October, 1946, pp. 147-150. 328 for the natural outlet to the sea Russia desired. Molotov inquired which sea was meant. Rlbhentrop replied it was the Persian Gulf and Arabian Sea. This direction for Russian expansion, away from the Baltic and Mediterranean Seas had been envisaged by Hitler three years before, as Admiral Raeder reported: In 1937-38, Hitler once stated that he intended to eliminate the Russians as a Baltic power j they would then have to be diverted in the direction of the Per sian Gulf . . What started as a move in the Baltic had spread all the way to the Persian Gulf, an expansion nearly staggering in its size. Would Russia join Germany? After explaining what divi sion of the world he desired, Hitler informed Molotov, ”ln no event, however, would the interests of Russia be affected. The Russian empire could develop without in the least prejudicing German interests. 1,10 Again it was Germany which recognized ”the Russian empire” long before other powers. Hitler further offered to set up a European Monroe Doctrine to keep the united States out of Europe, to help Russia gain icefree ports. According to the German reports, Molotov expressed his agreement with the statements of the Fueh rer regarding the role of America and England. The participation of Russia in the Tripartite pact appeared to him entirely acceptable in principle, provided that 9 Nazi Conspiracy and Aggression, op. cit., C-6 6. 10 Sontag and Stuart, op. cit., pp. 217-225. 329 Russia was to cooperate as a partner and. not be merely an object. 11 This general reply and specific questions about immed iate agreements were unsatisfactory to Hitler, who the same day ordered continuation of all measures for prosecution of war against Russia, nevertheless, Hitler proposed next division of Britain’s ^bankrupt estate,” but Molotov asked for continued influence in Finland. In the discussion over the Balkans Molotov said: Germany had guaranteed the entire territory of Rumania and completely disregarded Russia’s wishes with regard to Southern Bukovina. Hitler replied to the Russian reopening of the demand for all of Bukovina, that it would mean a considerable concession ... if even part of Bukovina were to be occupied by Russia. According to an oral agreement, the former Austrian territories were to fall within the German sphere of influence . . . territories belonging to the Russian zone had been mentioned by name: Bessarabia, for example. 12 This is still another pact, agreed to apparently in the dis cussions of August 23-24, 1939* Molotov insisted that be fore any broader agreement with Italy and Japan could be considered, carrying out of existing agreements was needed. 11 Ibid., pp. 226-234. It would be unwise to consider Molotov’s remarks as more than an effort to disclose how much Germany would offer. It would be folly to consider that Rus sia was willing to join the Axis, and accept her own subor dination. See William L. Shirer, End of a Berlin Diary (Hew York: Airred A. Knopf,. 194y), for the superficial.view that Russia might have entered such an alliance. 12 Sontag and Stuart, op. cit., pp. 234-247. 330 Molotov asked what Germany would say If Russia gave Bulgaria a frontier guarantee such as the one Germany had given Rumania. Hitler said that the two countries were dis similar, since Russia had not been asked by Bulgaria, whereas Rumania had requested a German guarantee. Molotov, according to German leaders, "did not conceal his inability to follow Hitler’s argument."13 German leaders later declared that Russia sought to station a garrison in Bulgaria and sent a military mission to Yugoslavia, in addition to moving to the Dardanelles. The German draft. Germany presented a draft of a pro posed agreement. Article 1 sought restoration of peaee, and article 2 a delimitation of natural spheres of influence. In article 3 the four powers were not to support a fifth power against one of the others and were to assist each other econ omically. The ten-year agreement was to have secret protocols. Under the first secret protocol Russia was to satisfy her "territorial aspirations" "in the direction of the Indian Ocean." The second secret protocol provided that the four powers would work to replace the Montreux Straits Convention to grant Russia unrestricted passage of her navy. Molotov said he would have to consult with Stalin.1^ 13 Foreign Affairs, October, 19^6, PP* 1^7“50» 1^ Sontag and Stuart, oj>. cit., pp. 247-25^. 331 On November 14, 1940 orders for the invasion of Russia were extended by Hitler and the operation given the name of "Barbarossa," after the medieval German emperor Frederick Barbarossa (red beard) who had drowned during the Crusades, and whose beard had grown until it covered all of Europe, according to legend. Stalin had not yet replied to Hitler's offer to divide the world. The best summary of the conversa tions was given by the German Naval File: Satisfactory course of the negotiations. At first no fixed treaty: Russia apparently ready to join the Three Power Pact after the clarification of several further questions. In detail: Finland-problem: "Careful1 1 question by Molotov in respect to annexation of Finland by Russia. German standpoint declining, But ready for concessions in respect to exploitation of Petsamo-Nickel. Poland-problem not discussed. Balkans: Notification ofMolotovon contemplated Ger man action for the support of Italy; no objections by the Russians. Molotov's suggestion to create the possibility for Russian influence in Bulgaria similar to the German one in Rumania; not entered into by the Germans; however, Germany disclosed disinterest about Turkish domination of the Dardanelles and understanding for Rus'sian desiresTb own bases there; also for the Kars-Ardahan areas from Turkey; in this sense, joint pressure on Turkey. Molotov agreeable to examination of the suggestion. Iran: German disinterest; Russians very reserved on this question. Japan; Molotov ready for understanding; however, first/TtEorough discussion of all problems, affecting both countries.15 Mention by the Germans of the Kars-Ardahan areas of Turkey Indicates Russia's interest in the region long before the post war conflicts with Turkey over it. Conflicting pressures all along the Danube and across into Asia Minor were leading to - * - 3 Naz3T~Conspiracy and Aggression, op. cit., Naval File, November lb, 1946. 332 an open conflict, with Russia refusing to move out of Germany’s line of march. Still, Russia permitted Germany to establish consulates for trade at Leningrad, Batum and Vladivostok, considered at the time as a solemn reaffirmation of friend ship. Stalin's reply. In late November the line of demarcation in Poland was finally established. But in the Balkans Russia began secretly assisting Yugoslavia in arming against the Axis. Germany however was already more powerful in the region, bring ing Hungary into the Triple Alliance on November 20, Rumania a few days later and following with pressure on Bulgaria. On November 25* 19^0 Molotov told Schulenburg of Russia’s reply to Hitler’s proposals for a pact with two secret protocols. Russia was "prepared to accept the draft of the Four Power Pact," provided four things happened: 1 - withdrawal of German troops from Finland and Russia's ensuring of peaceful relations with Finland and protection of German economic interests in lumber and nickelj 2 - a mutual assistance pact between Russia and Bulgaria, which geographically is situated Inside the security zone of the Black Sea boundaries of the Soviet Union, and the establishment of a base for land and naval forces of the U.S.S.R. within range of the Bosphorus and the Dardanelles by means of a long-term lease. Under proviso three the area south of Batum and Baku in the direction of the Persian Gulf "is recognized as the 333 center of the aspirations of the Soviet Union.” The fourth proviso was that Japan "renounces her rights to concessions for coal and oil in Northern Sakhalin, ” for suitable compensation. If Turkey refused to join the four power pact the four powers would "agree to work out and to carry through the required military and diplomatic measures" under a separate agreement. 16 These five proposed secret protocols and the proposed four power pact accepting division of the world and specifically of the estate of the British Empire represented for November, 19^0, the outermost limits of Russian desires for expansion in the Baltic, Balkans, Dardanelles, Middle and Far East. Stalin’s reply to Hitler is one of the most important determining docu ments of the war, not for its practical results which were minor, but for the picture it gives of the vastness of the Russian aims to expand. In pushing for these objectives all along her borders Russia was informing Germany that Stalin would continue the drive to the oceans, seas and desired land areas. No German statement in reply came until January, 19^1* A vital element in the proposals was that where in August, 1939, Russia had prepared the draft of a pact, now Germany offered the draft, Stalin the amendments. The altered situa tion showed that the basis for further close arrangements had been eliminated as all lands lying between the two powers were 16 sontag and Stuart, o£. cit., pp. 258-9. 334 subordinated to one or the other. Stalin and Hitler had lost their maneuverability. Russia continued her offer of health economic relations, even to exporting products from a conquered Finland. Already Russia was seeking out alternative courses of action. In late November the United States was granted the right to establish a consulate in Vladivostok. This gave the United States an opportunity to check on Russian claims that imports from America did not mean a corresponding release of Russian products for export to Germany. Meanwhile Turkey, informed by the Germans of the Russian demand for bases in the Dardanelles, became an implacable enemy of Russia. 17 When Japan came to an agreement with the puppet Nanking government, Russia on December 4, 1940 announced that her rela tions with China remained unchanged. Russian supplies rolled over a new road she had been constructing to China. On Decem ber 11, 1940 Russia signed the first half of a trade agree ment with China, providing for an exchange of military sup plies for Chinese wool. The second half of the agreement. 17 Yakhontov wrote "that should Turkey be compelled to resist aggression . . . she could rely upon Russia's entire compliance with the nonaggression pact between the two, and count on the neutrality of the U.S.S.R.** See Victor A. Yak hontov, U.S.S.R. Foreign Policy (New York: Coward-McCann, inc., 19^5), p. 235^ This was following the dictates of Moscow's propaganda with a vengeance. Russia's demands for a base In the Dardanelles and part of the Middle East to the TtifHa/n ocean marked the complete overturn of the earlier re volutionary policy of renunciation of aggrandizement In this and pther areas. 335 was signed in January, 19^1. Russia was letting Germany and Japan know that her freedom of action remained, and that she would not hesitate to develop alternative courses of action. IV. OPERATION BARBAROSSA Operation Barbarossa got under way on December 5 when plans for destruction of Russia’s war industrial territories were evolved. By December 18, 19^0 Hitler had ordered the final secret attack plans prepared. May 15, 19^1 was the cru cial date for completion of the plan, nevertheless economic relations continued. A hundred railroad cars a day carried goods to Germany over the Trans-Siberian railway; other cars carried transit traffic from the Middle East to Germany Jousting in the Balkans. Work of the new Danube Commis sion ceased towards the end of December when the river was largely frozen over. The new regime could not work in prac tice and the European Commission at Galatz escaped suppres sion. Suddenly Russia withdrew her delegates from the mixed Danube Commission, ending the sittings. During December German representatives sought to speed up economic negotiations for Russian deliveries so as to pro vide a new economic pact as a "Christmas present” for Fuehrer Hitler’s Christmas tree. The present was destined to be deliv ered late. Germany expressed alarm at Russian efforts to keep Scott, oj>. cit., p. 239* 336 Yugoslavia out of the Axis and to influence Bulgaria to do the same. Hitler in a long discussion with his naval commander remarked on Russia's new hope of coming together with America and Britain. He said, "Stalin is to be regarded as an ice cold blackmailer, * * and sought to preclude a joint American and Russian entry into the war.* * * 9 Hitler was of course en tirely willing to aecept increased Russian materials. Economic pact, January 10, 1941. Three agreements and a property settlement in the Baltic were signed on January 10, 1941. Replacing the agreements of February 11, 1940, the new accords were to run until August 8, 1942. Included in the broad framework of the pact was a provision for the later trade agreement of April 10, 1941, one of the final known pacts between Stalin and Hitler, for supplying oil to Germany. Terms of the January 10 treaty provided that Russia send Germany 1,500,000 tons of grain in 1941. All German trade with the Baltic states was included in the agreement. "While the German radio announced that Russia had agreed to supply Germany with the largest quantity of grain ever shipped from one coun try to another, Izvestia emphasized that the accords were no departure from strict Soviet neutrality and were really like American aid to Britain. The comparison was meant to empha size Russia's ability to remain out of military conflict. ^ Nazjf~Conspiracy and Aggression, op. cit., Haval File, January 8, 1941. 337 Only out of the series of economic pacts is it possible to dissipate the so-called mystery of Russian foreign (and internal) policy. Territorial and economic expansion abroad could arise not as an aberration or whim of Russian leaders but as a continuation of an expanding internal economy, which by 1936 had achieved a favorable balance of trade, and by 1939 had come out of political and economic isolation decis ively, and in one great leap had hurtled its power into the European and Asiatic power scales. By signing with Germany Russia lost most of her western trade, but Germany’s share of trade with Russia rose and the United States continue to deal with Russia. Most estimates of the trade between Germany add Russia place Germany’s share of Russia’s total import and export trade at $l6-$20-million a month, or 50 pei* cent of the overall fig ures.20 But Germany generally lagged behind Russia in the ex change. Nazi Economics Minister Dr. Punk in a speech of June 1 49 1941 said that trade in the twenty-two months of the pacts had increased ten times over the last peacetime year. If 1938 is taken as that year, when Russian delivered $17*700,000 worth of supplies to Germany, Russia's wartime exports would have reached $177-million. The highest known estimate is $250-mil- lion, the lowest $155-million. Certain writers conclude that the trade was more significant politically than economically. 20 Ballin, o£. cit., pp. 420, 427. 338 This appears to be a misleading conclusion. For Russia, as the Germans themselves repeated, was supplying Germany with materials inaccessible elsewhere, was purchasing materials so as to crack the British blockade and was permitting trans-ship ment from the Middle and Far East, and even from America to Germany. Russia kept the German belly full with grain and other foods, and greased the German war machine with oil. It was not the size of aid whlcn was so vital as it was the kind of exports at a key point in time and, above all, the emergence of Russia as a contributor to and key element in the world economy. Russia had extended her steady shift to the right by emphasizing her entire willingness to conclude economic arrangements with the most reactionary governments in the world— at a handsome profit and for a share of the anticipated loot. Property and frontier claims ♦ An agreement on the set tlement of mutual property claims and the migration of popula tions in the three Baltic states was the second accord of Jan uary 10. Approximately 40,000 Germans in Lithuania and another 10-15,000 in Latvia and Estonia were to be repatriated. In all, the total repatriation during the pacts period may have affected 437,000 Germans. Hitler in his war speech estimated the number at more than 500,000. Later the Germans claimed that many secret Russian agents were among the repatriates. Regulating the frontier from the river Igorka to the Bal tic Sea was another treaty of January 10, covering the frontier 339 between Lithuania and Germany and Lithuania and former Polish territory. The agreement envisaged establishment of a jurid ical regime of waters in the frontier zone. Of equal importance was a secret protocol of the same date finally settling the long dispute over a strip of Litht uania beside East Prussia. Russia paid $7,500,000 for the strip, double her original offer. Both countries highly praised the pacts, although not publishing the one concerning Lithuania. Russian leaders, wherever a piece of territory was concerned, still masked their moves where possible as aimed at keeping Germany from seizing an area. It was an incredible performance, fully accepted as genuine by myriads of writers. Germany in the Balkans. Tass on January 12, 1940 declared that the presence of German troops in Bulgaria, if true, "has taken place without the prior knowledge or consent of the U.S.S.R.” German naval leaders the same day noted Russia’s complaint about not being consulted, despite the consultation clause the two powers had. Russia was warning Germany that Bulgaria lay within the Russian sphere of inter ests, and in communications to the Germans also declared that the Dardanelles were part of Russia's security zone. Russia sought a reply by Germany to Stalin's statement of position on November 25, 1940 concerning the joining of forces with Germany, Italy and Japan. The Germans lamely replied that they had to consult with Italy and Japan. But concerning Bulgaria the Germans made it clear they had ever right to he there. Stalin's entire concept that the pact with Hitler would remove the danger of war from Russia had turned out disastrously, as Hitler's legions outran ail expectations. Wisely Russia on January 20 prolonged Japanese fishing leases another year, lessening possible tension in the Far East. At the same time Russia was moving closer to the United States. On January 21, Washington repealed the "moral embargo" on goods to Russia, and in mid-January Washington informed the Russians that Germany was going to attack them in June. How ever, it is evident that Russia was well aware of what was coming. Hitler on his part, unable to explain the resistance of the British, was convinced a secret agreement existed be tween Russia and Britain. 21 Continuing its shrewd playing of both sides of the Far Eastern war, at the beginning of February, 19^1 Moscow returned to China 150 Chinese pilots trained in Russia. Preparations by the Germans to complete Operation Barbarossa were rushed. Trade Pact. A trade agreement was signed on February 11, 19*1-1, providing for shipment to Germany of 1,500,000 tons of oil for the next eighteen months. Haggling over prices ' 21 Raymond Cartier, Les Secrets de la Guerre Expos6 par Huremburg (Paris: F. Brouty, J. Fayar and die., 194oj, p. 245, according to German leaders at the Huremburg trials. 341 prevented shipment for two full months. When the Danube Com mission met again on February 24, Russia found that nearly the entire river was under Germany’s control. Russian diplo matic prestige was at a low ebb. Timoshenko warned that war preparations had to be redoubled, a kind of admission that the ’ neutrality’ policy had failed to accomplish the purpose of keeping Russia out of war. Bulgaria joined the Axis on March 1, and only Greece and Yugoslavia remained out of the Axis. Preliminary planning for economic organization of Russia reached the point on February 28 where German leaders held a conference on ”Oldenburg,” code name for the economic counter part of Barbarossa, i.e., spoliation of Russia. Its essential points included transforming Russia into a colony, seizing raw materials and taking over of all major plants. Germany sought to end the work of joint Russo-German commissions on German territory and of single Russian commis sions as well, which were aiding in returning Lithuanian emi grants from Germany. After the work of the economic specialists came the finer stiletto hand of the secret police. On March.13 Gestapo chief Himmler was entrusted with special tasks in Rus sia as his share of Operation Barbarossa-Oldenburg. V. OH THE EYE OF WAR German planes began flying over Russian territory. In March, 1941 Britain and Russia began meetings in Arabia’s 342 Yemen. Ironically Georgi Astakhov, who had been Stalin's per sonal agent in negotiating the pacts with Hitler was now lead ing the Russian efforts to undo them. Russia promised Turkey should would maintain neutrality in a war. Mussolini saves Mo3cow. When Japanese Foreign Minister Matsuoka visited Germany he was told by Ribbentrop that Rus sia's conditions for Joining a four power pact could not be met. Germany favored a purely commercial agreement between Japan and Russia. But before it could be signed, Britain and Russia came to the aid of Yugoslavia to push out the pro-German government and replace it with one of national unity under King Peter. This was not a working class revolu tion by any means. Ribbentrop in his war speech of June 22, 1941 declared that the coup came as a result of joint labors of Britain and Russia since the fall of 1940. American lead ers on April 6, 1941 approved a pact Moscow had hurriedly signed with Yugoslavia. Hitler who at first thought the overturn in Yugoslavia was a "joke," did not accept schulenburg*s explanation that, "Stalin was prepared to make even further concessions to us. It had already been intimated to our economic negotiators that (if we applied in due time) Russia could supply us up to 5 million tons of grain next year . . . 22 This was 500 per cent more grain than was being supplied Germany. In order 22 sontag and Stuart, op. cit., pp. 330-2. 343 to crush Yugoslavia, Hitler ordered a five-week delay of Opera tion Barbarossa. Goering later reported that Mussolini's bad situation in Greece had forced Germany to intervene in Yugoslavia and then in Greece, delaying the invasion of Rus sia. General Keitel explained, In attacking Greece without having informed his Ally* Mussolini saved Moscow.23 Yugoslavia fell after eleven days, but Germany lost time. Russian deliveries. Schnurre on April 5 summarized the status of Russian deliveries under the agreement of Jan uary 10, 1941. In January and February raw materials from Russia, reached 17 million Reiehsraarks and 11 million, respec tively, including 200,000 tons of Bessarabian grain. March deliveries in grains, petroleum and metals were higher. A grain contract was closed for delivery in September, 1941 of 1.4 million tons of grain. Transit traffic through Siber ia mounted, with Russia providing a special freight train for rubber at the Manchurian border. Tariff talks continued. On April 9 a pact was signed covering resumption of oil deliveries by Russia. A grain agreement of the following day provided for supplying of Rover 3 million tons up to August 1, 1942."Z* Russia was in a worsening contradiction, £3 barrier, og. cit., pp. 188 and 190* 24 sontag and Stuart, op. cit., pp. 318-9* 344 seeking to weaken Germany politically yet supplying her econ omically in the hope that Russia would grow stronger than Ger many in the relationship. Blitzkrieg techniques outrode this conception. Japanese accord. Japan's rapid mareh to the south re quired a guarantee of Russian neutrality in the north. Japan could then exploit the preoccupation in European warfare of the colonial powers to seize colonial possessions in Asia. On April 13, 1941 Russia and Japan signed a treaty of neutral ity. Russia, was to respect Jfenchukuo's territory, Japan to do the same for the Mongolian People's Republic. Troops were withdrawn from the joint frontier, to be used elsewhere. Germany and Russia on April 15 set the Lithuanian boundary from the Igorka River to the Baltic Sea. After a conference on the extent of deliveries under the agreement of February 11, 1940, a protocol was signed on April 18. Both powers agreed that as of February 11, 1941 Russia had delivered materials worth 310*3 million Reichsmarks, or $71,500,000, while Germany was three months behind this.25 Barbarossa-Oldenburg. Germany landed 12,000 troops in Finland on April 2 6, and Turkey permitted sixteen German munitions and troop transports to pass through the Dardanelles for use in the war against Greece. On April 30 Germany set £5 ibldT:, p. 327. 3^5 June 22 as the date of attack on Russia. This was the same date Napoleon Bonaparte had crossed the EFiemen. Within Rus sia Stalin faced a tremendous propaganda task of destroying within weeks the entire fabric of friendship for the Germans he had constructed so carefully since March 11, 1939. Russia in May again sought concessions in the lower Danube, but was repulsed. Along the great waterway neither power had room to retreat. Mr. Stalin becomes premier. Reports persisted that Germany had handed Russia an ultimatum to increase economic deliveries. At the graduation ceremony of the Red Army academies on May 6 Stalin called for victory in the struggle against Germany. The same day, two years after the removal of Litvinov had convinced the Germans Russia was serious about a pact, it was announced that, # , His Excellency Mr. Joseph Vissarianovitch Stalin” had become premier. It was a traditionally dangerous position in Russian politics, with the leader carrying the burden of error in the absence of opposition parties. The situation was mortally serious. Russian deliveries continued, but most Russian leaders who had conducted relations with Germany were removed from their posts. Stalin, having learned from the Finnish war, was preparing the pose of being attacked while striving hard for peace. On May 12 the Russo-Finnish frontier was finally regulated, and Russian complaints against the Finns reduced 3^6 to zero.26 Schnurre on May 15 discussed commercial conversations of the preceding days, that included promises for supplies of oil and rav rubber. He noted that greater economic demands could be made on Russia to gain food and rav material require ments.27 On May 21 the first strong anti-Nazi article appeared in a Russian youth publication. Germany began holding back var materiel shipments. Still, on May 24 a final demar cation of the Lithuanian border was announced. Pravda on the next day denied the possibility of the lease of the Ukraine to Germany, a key sign that an ultimatum was given Russia. Russia welcomed Britain's release on June 6 of three hundred and fifty Baltic seamen detained in England. Churchill twice warned of possible German attack. President Roosevelt warned on June 7 that peace with Germany on her terms was excluded. Stocks through alliances. Moscow and Tokyo signed two trade agreements on June 11, for a total trade of 30 million yen annually. On June 17 an agreement on the Mongolian-Man- churian frontier was signed, and troops removed. But Tass on June 12 denied rumors of German claims to Russian territory 26 Andrei Vyshinsky reportedly called in Finnish Min ister to Russia, Paavo Hynninen, and said to him, "We are as tonished in Moscow at the aid Finland is extending, Germany." *1 am astonished," Hynninen coolly replied, "that you are astonished that your,friends are our friends." . 27 sontag and Stuart, op. cit., pp. 339-341. and economy and denied Hitler was concentrating troops on Russiars borders, or vice versa. In the translation of this language of diplomacy Russia clearly was under increasing pressure. Then on June 18 Germany made the final diplomatic step to isolate Russia in the south by signing a treaty of friendship with Turkey. The Russians never forgot this act. If the political aims of the Germans in planning for reduction of Russian industry and starving of the population were brutal, the economic ones were dazzingly simple. General Thomas, of the Nazi economics staff, on June 20, 19^1* wrote a memorandum on Nazi economics, which is a classic of its kind The course of the war shows that we went too far In our autarchical endeavors. It is impossible to try and manufacture everything we lack, by synthetic pro cedures, or other measures. For instance, It is Im possible to develop our motor fuel economy to a point where we can entirely depend on it. All these autar chical endeavors ask for a tremendous amount of man power, and It is simply Impossible to provide it. One has to choose another way. Nhat one does not have, but needs, one must conquer. The commitment of men which is necessary one single time, will not be as great as the one that is currently needed for the run ning of the synthetic factories, which are of special interest to us for the war economy, by conquering them. At the time the 4-year-plan was established, I issued the statement where I made it clear that a completely autarchical economy Is impossible for us, because the need of men will be too great. Never theless, my solution was always to provide the neces sary reserves for missing stocks respectively to secure the delivery in wartime through economic alliances.^ Nazi Conspiracy and Aggression, op. cit., 1^56-PS. Gestapo Chief Himmler In l^PF admitted thaT"the earlier pol icy of exterminating conquered peoples had been an error because their labor could have been used. In place of ex termination the Germans then instituted forced labor of millions. 348 The aim of the pact with Stalin was to obtain "missing stocks ... in wartime through economic alliances.” Wow Ger many had. decided that it would take less manpower to conquer sources of these stocks than to produce synthetic materials at home 1 Russian leaders were never as revealing concerning the economic bases of their expansion. General Thomas reported in mid-Jtrne that Russia continued deliveries right up to the at tack. India rubber from the east was included. In the earl morning of June 22, 1941 Schulenburg in formed the Russians that their various demands and joint work ing with Britain and others in Yugoslavia and Greece meant war. Nine days after Tass had announced there was no danger of war, no German mobilization and no ultimatum, the Nazi war machine hurtled across the Russian border. At the height of her military power, Germany could wait no longer. Stalin's policy of signing with Hitler in order to keep Russia out of war had failed. If Stalin had gained a breathing space in Which to strengthen Russia, Hitler had reinforced Germany's position immeasurably more by subjugating, with Sta lin's active aid, most of Europe to the German war machine. Left without a strategic line for the program of expansion, Stalin now took up the defensive phase of the process, waiting for the time to come when Russia's basic tendencies outward could be resumed. CHAPTER XIV WARTIME EXPANSION, 1941-45 With Russia -under attack by Germany, both Britain and the United States offered their aid shortly after the invasion began. The 1937 agreement of the United States with Stalin's Russia had been renewed in 1938 and again in 1939, with final imports of coal from Russia ceasing in October, 1939. Release of all frozen Russian assets in America in 1941 made available for shipment approximately $9-miilion worth of supplies. On August 2, 1941 the United States-Russian trade agreement was renewed. Russia on August 16 signed a credit and clearing agreement with Britain. I. LEND-LEASE The first list of supplies for Russia totalled some $21,940,000, and rose by the end of September, 1941 to the sum of $145,710,823. Industrial equipment, machine tools, muni tions and airplanes and aviation gasoline were shipped. Stet- tinius reported his surprise on f , the emphasis placed by the Soviet representatives on materials and tools for their own arms factories. ”1 Russia paid cash for all supplies up to 1 Edward R. Stettinius, Jr., Lend-Lease (New York: The Macmillan Company, 1944), p. 127" This hook carries lend-lease up through 1943* 350 October, 1941aided by an advance of $50-million In consid eration of raw materials later to be shipped from Russia. Gold was to be paid against $10-million of the funds ad vanced. Master lend-lease agreement. In November, 1941 lend- lease aid of one billion dollars was pledged in an exchange of letters. ^Fo be repaid over a period of ten years the loan was to go for military equipment, munitions and raw materials. No interest was required and repayment was to be made in raw materials and other commodities. These terms of repayment were superseded on June 11, 1942 by the terms of the Master Lend-Lease Agreement that Russia signed. Under Article VII of the agreement it was provided that the terms and conditions of benefits to be provided to the United States in return for aid "shall be such as not to bur den commerce between the two'countries," and to attain allied economic objectives. In 1942 the commercial agreement of 1937 was extended for an Indefinite period. Generally in the entire period from 1910 to 1942 Imports from Russia were never more than 1.2 per cent of total United States imports. Russian imports from the United States were far larger than her shipments to the United States. Stettlnius declared that lend-lease materials made up certain critical deficits in Russia's stocks of war supplies but did not comprise much of the volume of fighting equipment. 351 Russia preferred raw materials and manufacturing equipment. These shipments included steel, complete refinery units, a tire factory project of the Ford Motor Company, electric generating equipment, and other items. In addition to ma chinery and raw materials, the United States sent over wearing apparel and foodstuffs principally for the Russian army. In December, 19*1-3 the Russians first made their request for a six billion dollar credit to pay principally for machin ery, plant and equipment. The non-war requests were placed in a special category, called Protocol Four, by the United States. In all, lend-lease exports to Russia reached approx imately eleven billion dollars, or some 28 per cent of total lend-lease shipments to all countries. Munitions made up slightly less than half of the total. The program was dis continued on September 2, 19^5• Reverse lend-lease. For three years before the American forces were able to land in the west, Russia conducted the main land battles with Germany. Her supplies to the United States consisted mainly of furs, timber products, animal products, textile and paper materials and such goods as manganese ore, anthracite coal and asbestos. During 19^3 general imports from Russia totalled $30-million, reaching $50-million in 19^* For the American government Stettinius said that 352 reverse lend-lease included war supplies and services. When American vessels put into Russian ports, Russia met all ex penses of fuel, food and other care, including repairs. Stet tinius declared: For all this aid, the Russians have already made a return far beyond any measurement In dollars or tons. It Is in the form of millions of Nazi soldiers dead or in Russian prison camps, of Nazi tanks reduced to scrap on the battlefields, of Nazi guns and trucks left behind by the retreating German armies . . . 2 To this the Russians added that their sacrifice in lives and property had saved American lives and material. For Russian trade as a whole In 1943 imports rose five times, and exports fell to less than one-third of 1940. Im ports rose from 1,446 million rubles in 1940 to 8,460 million rubles in 1943* Exports fell from 1,412 million rubles in 1940 to 373 million rubles in 1943. The foreign trade balance changed drastically, as Russian planning leader Nikolai A. Voznesensky emphasized.3 Voznesensky, who did not admit of any Import of capital goods, wrote that the ratio of such Imports to domestic pro duction was about 4 per cent. He listed total loss of pro perty at 679 billion rubles or 128 billion dollars in pre war prices. Coupled with the loss of income, Voznesensky 2 ibid . 7 P * 228. 3 Nikolai A. Voznesensky, The Economy of the USSR During World War II (Washington: " “Public Affairs Press, 1 9 W ; p p T - i B ^ ¥6-7. 353 gave the total war loss as 1 ,8 9 0 billion rubles or $357-bil- lion, in prewar prices. Ho comparable Allied figure is avail able except an estimate that Russia suffered 50 per cent of wartime losses of all the Allies. II. STALIH’S WAR Russia's military participation in the war on the side of the Allied had not altered the basic character of the war. For the same rulers who had leagued with Hitler remained in power. The war against Finland in 1939-^0 was evidence that Russia conducted wars of conquest. While pacts could be se creted a war could not. The same pattern of territorial, mil itary and economic expansion which Russia calls imperialism when conducted by other countries had existed two months ear lier in Poland. But Russia had securely hidden what was going on so that the nature of the war was unclear. Still, the rec ord shows that Russian military forces crushed working class organs, deported unionists and worked with the Gestapo. Russia's war in Poland, directed against a virtual re volution as Polish rulers fled or were killed or imprisoned, marked the end of the great Russian Revolution in a violent descent into counter-revolution. Hone of Russia's wars since 1939 has been in any sense a civil war of classes, a revolu tionary war. It Is vital to remark that In the spring of 1939 Russia referred to Britain and France as the democracies, to 354 Germany as the aggressor. After signing with Hitler in August, 1939> Russia called Britain and France imperialists and war mongers, Hitler a lover of peace. Following June 22, 1941 Russia once again called the western powers the peaceloving democracies, Germany the aggressor and imperialist. Stalin notedly went even further, declaring: The second world war differed fundamentally from the first in character. Unlike the first world war, from the very outset it assumed the character of an anti-fascist war, a war of liberation, one of whose aims was the restoration of democratic liberties.4 Yet for the two opening years of war Russia was aiding Germany. Imperialist war. Even in his earliest public statements on the nature of the war Stalin never referred to Communism or class warfare. In a speech of HOvember 6, 1941 he showed what he considered to be imperialist war, In stating: The Germans are now waging a war of annexation— an unjust war for the seizure of foreign territory and the conquest of other peoples. Emphasizing the nationalist character of Russians ”fa- therland# war, Stalin said in a speech of February 23, 1942: The Red Army is not waging a predatory imperialis tic war but a patriotic war, a war of liberation, a just war . . . to liberate from the German invaders our Soviet territory . . . Stalin further described his conception of Imperialism in his May Bay Order of the Bay in 1942, when he said: 4 Edgar Snow, people on Our Side (Hew York: Random House, 1945), p. 6 8. 355 . . . the German fascists are not nationalists hut imperialists, who seize foreign lands and suck their blood to enrich German bankers and pintocrats. We do not set ourselves the aim of seizing for eign countries, of conquering foreign peoples. Our aim is clear and noble. We want to liberate our So viet land from the German fascist scoundrels. We want to liberate our brothers, the Ukrainians, Moldavians, Belorussians, Lithuanians, Letts, Estonians, and Karel ians, from the disgrace and humiliation to which they are subjected by the German fascist scoundrels. In his best liberating manner Stalin managed to include within 1 1 soviet lands to be liberated0 the peoples of Moldavia, Belorussia, Lithuania, Latvia, Estonia and Karelia. Under the guise of a “patriotic war of liberation0 the entire policy of expansion continued. Dissolution of the Comintern. Viewing Russian policy from 1939 on as the culmination of a process of moving to the right and the making of arrangements with forces that did not oppose Russian expansion, one can see why Stalin on May 22, 194-3 dissolved the Third (Communist) International or Comin tern, Lenin’s instrument for leading world revolution. Sta lin declared that dissolution facilitated the organization of a common onslaught against Germany and exposed Hitler’s lie that Moscow “allegedly intends to intervene in the life of other nations and to ’Bolshevize’ them.”5 Russia said it was for noninterference. Abolition of the Comintern was based on Stalin’s “seek- ------ 5 staTIn's reply to a letter from the Reuters new agency, published in Soviet War Documents, p. 5 8. 356 ing for a united front, not of the world’s workers for world revolution, "but of other nations against Hitler.”^ Hew, more flexible and more fitting weapons for implementing Russia's anticipated new status from gains in the war were in the making. In place of minor Stalinist groups whole governments were to be used. The new expansion required its own formsj it was soon to create them. Blocs of states were to replace private groups. But the new type of expansion did not lack international leadership. How it was more direct, from Polit ical Bureau, through secret police and Russian army to Stalin ist leaders in state positions in various governments. While Russia has been accused of planting several mil lions of "colonists** throughout eastern and central Europe, she has made full use of her highly nationalistic Communist Parties. Guerillas and partisans were tied to national pro grams of ousting the Germans, but they were carefully linked by the Russians to their respective national bourgeoisies. Revolutionary agitation was not permitted, stability, elass peace, an end to strikes and sales of war bonds were the ingredients of the policy. III. COUNTER-REVOLUTION An outstanding example of Russia's crushing of workers 6 sir Bernard Pares, Russia and the Peace (Hew York: The Macmillan Company, 1944), p. 229• 357 was in Czechoslovakia. The actions in this country were more known to the outer world than the repressions against the Poles in 1939* When Russia's armies swept into Czechoslovakia in April and May, 1945 they found awaiting them armed workers militias and workers committees, linked by national workers councils that had seized all the factories as the German own ers and puppets fled or were killed. At the same time the peasants had seized the land. i The councils and committees were really more power ful than the government which had no armed forces at its disposal and which came in from abroad at the heels of the victorious Russians. For months, there fore, much of the government's time was taken up with bringing the Councils and Committees into a more nor mal relationship with the central authority.7 This ’ ’ more normal relationship” is known simply as counter-revolution. With the aid of the Red Army the various parties, led by the Communist Party, were ”working feverishly to disarm the workers and weaken the authority of the committees and councils.”^ Workers’ holding of Czech factories may have lasted the month of May, 1945, after wbfch under combined pres sure of the Russian Army and the various parties, the workers power in the plants was steadily eliminated. Only after this power had been decisively broken were the nationalization decrees of October 24, 1945 issued. 7 The Economist, February 9> 1946. 8 Loc. cit. 358 Revolution in Germany? Stalin on February 23, 1943 denied that Russia sought to exterminate the German people and destroy the German state. He said that Hitlers come and go, but the German people and the German State remain. He was for retention of that state. Russia developed the Free German Committee of captured officers to prepare for state relations with a subordinated Germany. Instead of calling for revolution, leaders of this committee in August, 1942 declared: We are opposed to fomenting demoralization in the Wehrraacht. We do not intend to incite the soldiers to abandon their arms and retreat in disorder . We must avert at all costs any repetition of the events of 1 9 1 8. We must avoid all anarchy and un disciplined behavior . . . Our slogan is reconstruc tion, not destruction . . . construction of a strong democracy will require the support of a strongly wel ded army led by officers who realize their responsi bilities. 9 In a speech of ROvember 6, 1942 Stalin had said sub stantially the same thing: *It is not our aim to destroy all military forces in Germany, for ©very literate person will understand that this is not only impossible . . . but it is 9 Christian science Monitor, August 11, 1942, quoting from Freie's Deutschland. German Stalinist leader Wilhelm Pieck, on the other hand, said in Moscow in December, 1933: ”We are fighting for a Soviet Germany. We will conclude a fraternal alliance with the U.S.S.R., arm all the toilers, and create a mighty revolutionary Red Army.” See David J. Dallin, Russia and Postwar Europe (Hew Haven: Yale Univer sity Press! T343T7 pTT^T- “----- V How both pieek and Russian leaders called not for arming the tollers and a soviet Germany with its own Red Army but for keeping the Wehrmaeht. 359 also Inadvisable from the point of view of the future.® This propaganda for softening up the Germans was the precise oppo site of the revolutionary policy of 1917-18 which led to the Kiel mutiny. Russia during the second world war did not call for fraternization between Russian and German troops. How it was Russia which was holding back and stifling revolution. Germany remained in the forefront of Russian plans for completion of her emergence as a major industrial power. Revo lution would upset these plans, based on export of capital and domination of economies outside Russia. Within Germany there is a strong school in the German officer caste, a con tinuation of the older Eastern school, which continues to see in combination with the vast continental power of Russia the only remaining possibility for a weakened Germany to as sume a place in creation of a huge continental combination. Army of occupation. Spearheading the pattern of expan sion is Russia’s army or threat of using it. By crossing its frontiers Russia's army dissipated the idea that it was solely an army of defense, snow wrote; In Lenin's day It would have seemed inconceivable that the Red Army could occupy half a dozen countries of Europe and Asia and not establish proletarian dic tatorship in them, but withdraw instead to honor agree ments with the ' ’imperialist jackals . " 1° Speaking of occupation, Snow, who is thinking In pre- 1° snow, op. cit., p. 121. 360 1939 terms, noted: The test of Russia's pledge not to seek territorial aggrandizement, and to give other states the freedom to choose their own form of government, will not come during the period of occupation but after the war, when the Red Army withdraws to within its own national boundaries. The test will be whether Russia uses any form of coercion to include the states of eastern Europe inside her national boundaries, or whether . . . she confers with Britain and America on the methods whereby political power is to be transferred to the inhabitants, as she has promised to do, and abides by the decisions secured through such consultations Snow's test has been met. Russia has in 3ome cases withdrawn her occupation troops but not before a given country was com pletely controlled through the Communist Party. In other cases she continues her controls. Moreover, Russia has not hesitated to use former fascist forces to run eastern Germany. Revolutionary Russia had opposed military occupation of the Ruhr in 1923 as directed by Prance against German workers. At Brest-Litovsk under Lenin's instructions, revolutionary Russian delegates had declared in 1918 that "voting must . . . take place after the withdrawal of foreign armies." Similarly in a proposal to the Vienna conference of 1924 for a plebis cite to resolve the Bessarabian question, which Rumania declined to permit, Russia said that a refusal to permit a plebiscite is wrong and shows that a state fears the population. Russia has since gone further, permitting only single party tickets and no opposition candidates in countries controlled by her. Towards unions, as in Germany, Russia had a simple approach: To use them to control the mass of workers, above 361 all in the production process. In Germany a Stakhanov or speedup movement named after a miner, Hennecke, was inaugur ated and piecework norma established. Thus were the bene ficial aspects of Russia's particular brand of "socialism" extended to another country. Forks councils were shut down and new elections held to ensure that forces favorable to the Russian occupation were in charge. Concerning the Ger man unions, The Economist noted: The new organizations which have been founded in Germany cannot, by any Western standard, be called trade unions. As organizations they are, no doubt, real, but as trade unions with normal functions they are illusory. By all experience It seems impossible that under military occupation German workers will be allowed to engage in negotiations on wages and work ing conditions . . .11 It extended this viewpoint to unions in the western zones too. Subsequently leading western union organizations se parated from the Russian-controlled World Federation of Trade Unions. Wo strikes are permitted in occupied lands. So far has repression of workers gone that many writers who imagine every move of Russia's Is revolutionary have not been able to avoid the realities of counter-revolution. Cham berlin wrote concerning revolution: It is indeed ironical that Stalin's Russia is turning away from this goal just when the agony and destruction of a second World War may have created revolutionary moods to some of the European countries that failed to respond to Lenin's appeals to revolt during and after the last war.l^ 11 The Economist, February 19, 19^6. 12 William Henry Chamberlin, The Russian Enigma (New York: Charles Scribner's Sons, 19^3), P« 300. 3 6 2 Russia had. begun moving against revolution before 1939. Fisher wrote, "As elsewhere in Asia, Communist pressure is ap plied from the fulcrum of nationalism and self-determination rather than from that of social revolution."3-3 Russia's edi fice of rule used the various methods of military government and a satellite party, where necessary, but nowhere permitted workers' rule. IV. TERRITORIAL EXPANSION Whether in relation to Britain and France in 1939 or to Hitler Germany in 1939“ 194l, or to her Allies from 194l to the present day, Russia has never wavered from the policy of expansion, going even beyond Gzarist expansionist aims. In 1942 she insisted that Britain recognize the expanded bound aries of June, 1941. Britain had offered to do so in part in 1940. In May, 1944 Britain offered to recognize Russian in fluence in Rumania; Russia was to grant Britain similar recog nition in Greece. By the end of 1944 Britain granted the Russians great influence in Rumania, Hungary and Bulgaria and in exchange received recognition of British influence in Greece and in part In Yugoslavia.1 2 1 , 3-3 The Annals of The American Academy of Political and Social Science, The soviet Union Since World War II, Vol. 263 (Philadelphia, May, 1949), ed. Philip E. MOsely, p. 194. 3-4 Cordell Hull, The Memoirs of Cordell Hull (New York: The Macmillan Company, 1$4B), Vol. II, pp. 1165-74, 1451-59. 363 These gains were supposedly limited to the end of the war. But Russia in her armistice terms with Rumania, Bulgaria and Hungary consolidated her penetration and gained added economic rights and chairmanship of the Allied Control Commis sions. In Finland Russia gained political and economic powers. Before a single peace treaty was negotiated Russia had regained nearly every piece of territory claimed prior to the Nazi Inva sion. Byrnes wrote of the expansion: I had secured the Yalta agreement on the Kuriles, Sakhalin, Dairen and Port Arthur ... At Potsdam we had encountered the Soviet demands that Poland he giv en a large portion of eastern Germany to compensate for the Polish territory east of the Curzon Line taken over by the Soviets; her demands for Koenigsbergj for a share in the administration of the Ruhr; and for control of the Dardanelles. Her determination to dominate the Balkan states had become apparent, and at Potsdam she had made a bid for control of one of Italy's North African colonies, preferably Trlpolitania.15 While this Is a quite useful summary of part of the Rus sian demands it Is almost completely vitiated by the conception of Byrnes that "the flush of victory has encouraged the Soviet Government to extend Its ambitions.”1^ Military victory had given these aims fuller room for expression; but it had only a minor relation to their causation in the growth of capital export potential before the war began In 1939 • Now the demands were more open, and the Allies could not be pledged to secrecy for any length of time. 15 James F. Byrnes, Speaking Frankly (New York: Harper and Brothers, 19^7)> 92. 16 Ibid., p. 292. 364 Northern windows. Karelia was transferred by Finland to Russia under the treaty of March 12, 1940. This was con firmed by the armistice of September 19, 1944. Most of the 400,000 inhabitants of the area of 1 6 ,0 0 0 square miles "fled to Finland when the Soviets came in."17 petsamo and the nickel mines was ceded on September 19, 1944. Extraterritorial rights were gained with the lease of the Peninsula of Borkkalla-Udd, southwest of Helsinki under the armistice terms. Russia, however, renounced rights to Hango, granted under the treaty of Mareh 12, 1940. In ex change Finland was offered territorial concessions in icebound lands of far less Importance. Nhile the west contends that the three Baltic states of Estonia, Latvia and Lithuania have been forcibly annexed, Russia simply declares these states, comprising 61,368 square miles and Including 5, 9 5 5, 9 ^ 5 people, voluntarily joined Russia In 1940. By this annexation Russia also gained ports. From Norway in November, 1944 Russia sought economic privileges in the Spitsbergen island group, outright posses sion of Bear Island and the right to establish military bases on other Islands in the group. Russia^ demands violated the 1920 treaty signed by thirty-four countries, including Russia. This treaty had stipulated that Norway could not construct 17 Corl'fss Lament, Peoples of the soviet Union (New York: Harcourt Brace and Company,“T946J, p. 56. Coming from a pro-Russian writer, this is quite an admission. 365 fortifications and use Spitsbergen for -warlike purposes. For a short time Russia occupied the Danish island of.Bornholm, then evacuated it. Russia had its greatest opportunity to prove in Poland that small states had nothing to fear from her. Pravda stated: In this war we are seeking neither foreign territor ies, nor power nor prestige. Poland and the world know we are going westward for one purpose— to liberate peoples from their enslavers. 18 Could Russia help it if these peoples wished to apply for mem bership in the colossus of Europe? At Yalta Stalin insisted: The Curzon Line is the line of Curzon and Clemeneeau and of those Americans who took part in 1918 and 1919 in the conference which then took place. The Russians were not invited and did not take part . . . How some people want that we should be less Russian than Curzon was and Clemeneeau was. You would drive us into shame. What will be said by the White Russians and the Ukrain ians? They will say that Stalin and Molotov are far less reliable defenders of Russia than are Curzon and Clemeneeau. I could not take such a position and re turn to Moscow with an open face.!9 Stalinrs extreme Russian nationalism could not be con cealed. The Russian leader added: I prefer the war should continue a little longer although it eosts us blood and to give Poland compensa tion in the west at the expense of the Germans . . . I am in favor of extending the Polish western frontier to the Heisse River. This territory, German for hundres of years, was not a bargain ing point for the Russians. lew York Times, Hovember 21, ISkk. !9 Byrnes, oj>, cit., p. 29* 366 The western powers sought to delay the territorial shift until the final peace settlement, then insisted on a representative government being installed. Stalin replied that for Russia was a question not only of honor hut of security. The Polish Lublin government steadily pushed out all opposition until its control was completed late in 1947. Many Polish leaders knew that taking of German territory would make Germany a bitter enemy, and keep the Poles de pendent for security on Russia in the future. 20 Poland was to lose 180,000 square kilometers to Russia and gain 127,00° from Germany, although the new regions were more highly industrialized than those she had lost. Thus, Polish leaders charged, Poland would still be 22 per cent smaller than before the war, Germany only 18 per cent small er. The treaty of August 16, 1945 modified the treaty of September 28, 1939, with the Przemysl and Bialystok-Suwalki areas going back to the poles. If Harry Hopkins 1 statement is correct, Russia at one time was willing to agree to Poland having East Prussia. Instead Russia took most of this area herself. 2 1 On June 11, 1950 polish leaders warned that any 1 change of their westernfboundaries would mean that Poland would fight for her newly won areas. ------- 20 James T. Shotwell and Max H. Laserson, Poland and Russia, 1919-1945 (Hew York: King's Crown press, 1945), p. 4. 21 Robert E. Sherwood, Roosevelt and Hopkins (Hew York: Harper and Brothers, 194**), entry of March 16, 1943- Central buffer states. Britain and tbe United States in accordance with one of the Potsdam agreements had agreed to support Russiars demand for transfer of Koenigsberg to Russia. This included Russian claims to East Prussia, an area of 5000 square miles and 1,200,000 people. Later, part of this region went to Poland, in all, about one-fourth of German territory has come under Polish and Russian control. The German populations in the main were expelled by the new settlers. In the Moscow conference of October, 19^3 Russia agreed to restore Austria 1s independence. Instead a large part of Austrian industry and even parts of Austrian territory were seized on the ground that they were German assets. This is considered separately in a later section. Prom Czechoslovakia Russia under a treaty of June 29, 19^5, obtained Sub-Carpathian Ruthenia or Trans Carpathian Ukraine, 4,886 square miles in area and containing 6 0 6 ,5 6 8 people. Britain had approved Russia's ascendancy in the Bal kans. In return Russia promised, nthat if Britain found it necessary to quell internal disorders in Greece by military action, Russia would keep hands off.”^^ This was hardly an indication that Russia was leading the world revolution. Tiny Albania with 10,628 square miles and a population df 368 1,003,124 is controlled, by a ’ ’ Communist" Party regime, a name which pro-Russian forces still utilize in part. In Bulgaria a Fatherland Front came into power on Sep tember 9, 1944 under ' ' ’ Communist® leadership. Utilizing the single-list election technique in this land of 3 9 ,8 2 5 square miles and 6,077,939 people, the pro-Russian forees eliminated rival groupings and are in full control. With the forcing out of Small Holders’ Party leaders in 1947 the ‘ ’ Communist® Party is the real ruler of Hungary, with an area of 35,875 square miles and 9* 1 0 6 ,2 5 2 people. From Rumania Russia gained Northern Bukovina with 2 ,3 0 0 square miles and 5 0 0 ,0 0 0 people in 1940, and also Bessarabia with 17,100 square miles and 3,200,000 people. The boundaries were confirmed by the armistice of September 12, 1944. By 1948 King Michael had been forced out of Rumania, having an area of 9 1 ,6 7 1 square miles and 16,409,367 people. Yugoslavia under Marshal Josip Broz (Tito) split from Russian control in 1948, as is discussed separately under- Russian exports of capital. But Tito’s rule is still similar to that in other Balkan lands. However, Russia has failed to have the port city of Trieste returned to Yugoslavia. The fate of the city is still in doubt. Already Russia is looking towards alternative ports for openings on the Mediterranean. Danubia with its 7 5, 0 0 0 ,0 0 0 people in an area of more than 300,000 square miles is firmly under Russian control. To Russia Danubia is an ideal “buffer.® Russia has cemented 369 her leadership by extending control over the Danube river refusing to relinquish it to any international commission not dominated by her. Shrewdly Russia has argued that the Danube should be controlled by riparian states. Middle East gateway. Revolutionary Russia had renounced all Czarist ambitions to control the Straits of the Dardanelles. Stalin first from Hitler and la,ter from American Ambassador Smith and from Turkey herself, sought to obtain a base on the straits ostensibly for "security” reasons.still, on August 10, 19^1 Russia signed with Britain a declaration that she had no designs on the Straits. New Russian proposals which were raised as Russia moved into a superior bargaining position during the war were substantially the same as those Molotov had put to Hitler on November 12, 1 9A0. Russia sought a naval base on the straits and rights to Kars and Ardahan provinces, contending that the provinces had been part of Russia under the Czar. At one time the United States said It would agree to such a base if America were permitted one also. Russia countered with a declaration that it was not asking for bases on the panama Canal. ^3 smith, op. clt., p. 53. Yet Joaehlm Joesten In What Russia Wants (New York: Duell, Sloan and Pearce, 19^ ) » wrote on page 176, "There Is absolutely no reason to suspect the Soviet Union of aggressive designs on Turkish territory, nor Is Moscow in any way concerned about the political regime in Ankara." Sir Bernard Pares has noted that the historical origin of the word "Jingo," was from a London song to halt the Russians from having Constantinople. see A Wandering Student (Syracuse: Syracuse University Press, 19^«)^ P* 399. 370 Tripolitania was sought by Russia at the Potsdam Con ference where Bussia said she "would like some territory of the defeated states.” Molotov reportedly declared: The Soviet Union should take the place that is due it, and therefore should have bases in the Mediterran ean for its merchant fleet. We do not propose to intro duce the soviet system into this territory apart^from the democratic order that is desired by the people.2^- Molotov pointed out that outlets at Dairen and Port Arthur were insufficient and that a southern port was needed. Stalin sought a broad interpretation of the clause in the United Nations Char ter providing that terms of trusteeship for an area shall be "agreed upon by the states directly concerned.” But Russia failed to get the base. Efforts to gain an oil concession in Iran and to keep troops there well past the time set for their leaving have not gained for Bussia the influence she has sought there. Russia's demand of Hitler for the territory south of Baku was not to be granted by the Allies. Afghanistan and Bussia ratified a pact on frontier problems and water claims on June 13, 19^6. An other agreement was signed on September 29, 19^8. With Russia the second largest Moslem country after Pakistan, Stalin’s policy towards Moslems has shifted. Restrictions on the church of Islam were lifted. A major stumbling block has been the need to take a stand on Zionism and the new state of Israel, spurriig — ?2rT5yrnes, ©£. cit., pp. 76 and 9 6. Article 79 of the Charter covers trusteeship. See The Annals, op. cit., p. 150* the Russians on is the huge oil pool of the Middle East, one of the largest in the world. Far East. If wartime losses by Russia are the J l reason" for her seizures of territory, then this does not explain her obtaining of Tannu Tuva under a pact of October 11, 1944. Tan- nu Tuva suffered the loss. The ”Top secret” Protocol adopted at Yalta in February, 1945* was an agreement by Churchill and Roosevelt to hand over to Russia the Kurile Islands in return for Russian participation in the war against Japan. It provided also that ”the former rights of Russia violated by the treacherous attack of Japan in 1904 shall be restored.”25 Stalin had completely returned to the Czarist expansionist techniques, for Lenin in 1904-05 had practically called for Russia’s defeat in the war against Japan. Involved were the southern half of Sakhalin Island, Internation alization of the Chinese port of Dairen (Dalny), lease of Port Arthur as a Russian 3 3aval base, and joint Russo-Chlnese opera tion of the Chinese Eastern and South Manchurian railroads. Outer Mongolia was severed from China under the accord. Yet while the gains were supposedly from Japan, the areas in volved are largely Chinese. Fisher remarked, ”had soviet Rus sia not claimed the fruits of Czarist imperialism, China would have recovered the position In Manchuria which she had lost fifty years ago tb Russia and Japan,” and which both 372 had fought to retain for themselves.2^ Bussia had had inserted in the text of the Yalta pact the phrase, "the status quo in Outer Mongolia (the Mongolian People's Republic) shall be preserved." Russia was to use this interpretation to insist that a plebiscite be held to de cide Outer Mongolia's political future. The Chinese were thus outmaneuvered. Under an agreement of August 15, 1945 Russia had pledged to China in regard to Sinkiang: As to the latest events in Sinkiang, the Soviet Government confirms that, as stated in Article V of the Treaty of Friendship and Alliance, it has no in tention to interfere with China's internal affairs.2? Nevertheless the agreement provided that certain areas of Sin kiang were to be autonomous. In mid-March, 1950 under an agree ment with "Communist1 1 China, Russia gained "pre-eminent rights" in Sinkiang for Its mineral and oil resources.2^ Extraterritorial rights In China thus included penetra tion of Sinkiang, Dairen, Port Arthur, Outer Mongolia and later still other regions.29 The Annals, op. cit., p. 200. 27 David J. Dallln, Soviet Russia and the Far East (New Havens Yale University Press, 1948), p. 3^5• 2& Associated Press dispatch, March 31» 1950. 29 S. S. Balzak, V. F. Vasyutin and Ya. G. Feigin, Economic Geography of the USSR (New York: The Macmillan Company," 1949). She American editors added a comment on page 5^5; "Extraterritorial rights have been obtained In Finland and.China." Data in the book Is mainly pre-1939. 373 Korea was occupied by Russian military forces which aided a "Communist1 5 Party there to control half the country under what was called "trusteeship*1 and then "guardianship." Then in the summer of 1950 the North Koreans opened a military drive to unify the entire country under their banner. Unlike what the old Bolsheviks had said of Czarist im perialism, unlike their renunciation of all of Czarism’s land and economic seizures, Stalin in his broadcast of September 2, 19^5 in announcing the surrender of Japan, declared: We men of the older generation have awaited this day for forty years and now it has come. He took nationalistic pride in finally avenging the humiliation of Russia in 190^, that "black stain in the history of our country." V. TOTAL GAINS Nearly all of the basic demands for territory and peoples raised by Russia at every opportunity since 1939 have been gained, prom September 17, 1939 when Russia seized part of Poland and other lands by agreement with Hitler, to the present day by agreement with the Allies, practically all the basic expansionist demands have been put into effect. Russia has her northern windows, her central European buffer, Danubian river control and Par Eastern openings vaster than that of the Czars. Only at the Dardanelles and the territory south of Baku, the keenly desired warm water openings, has she been 374 halted for the time being. But she has come into Austria and Germany, far beyond even her own demands, and almost bypassed the Dardanelles at Trieste and Tripolitania. By 1946 her estimated land gains over the year 1938 were 260,000 square miles, increasing her total area to 8,436,000 square miles. Despite wartime losses of possibly twenty million people offset by a possible natural increase of nearly that sum, Russia with the added population of new territories had In 1945 a population near 193-million.30 There have been other gains since, principally in China. Areal and population gains are not the real measure of Russia’s conquests and expansion; the economic growth which is assessed separately is even more vital. The polit ical and economic ones combined include such well known tech niques of penetration as land and population seizure, extra territoriality, transit rights, military bases, mixed capit alist corporations and concessions, seizures and single monopolies, military occupation and pro-Russian party domina tion. As a result Russia is a bi-continental power, with influence affecting millions of people in Europe and Asia, and continents beyond them. In economic and political poten tial no power on either continent can match Russia’s strength. Barring catastrophe, Russia could move into a position no other power has ever held on the two continents. 8^ Statistical Yearbook of the League of Rations, 1941- 42 (Geneva: League of Rations, 1943), PP« i7, CHAPTER XV ADVANCED ACCUMULATION OF CAPITAL The economic and social havoc wrought by the Nazis in Europe, ooupled with the combings and systematic looting, ma.de it impossible to reconstruct the pre-war property situ ation. Russia, coming on the scene as the Nazis and collabor ators fled, had no interest in seeing former owners regain possession. Nor were workers and peasants waiting for Russian or other forces before they undertook seizures of property, from which Russia militarily and swiftly was to expel the workers, and control them and the peasants. Nhereas Russia after the first world war, at the height of revolutionary policy, had debated the problem of "primitive Socialist* accumulation of capital," the real question being argued in 1921-24 and after was: How to accumulate capital. In those years certain Russian leaders saw as possible sources the surplus of the peasants, the profits of state industry, and Imports of capital from abroad. All three had been used. By 1944 and 1945* unlike the early Bolshevik repudiation of indemnities or reparations and of annexations, the Russians had set out to seize capital from abroad. in the history of capital accumulation, seizure by force has been an all too frequently employed method of propelling industry forward. Russia had borrowed, not invented the method. 376 With the possible exception of the Nazi despoilers and the early mercantilist depredations in the New World in the colonial period, no power appears to have rivalled Bussia at seizing capital openly by force. Her expropriations, how ever at no time took the form of revolution, but followed the standard mercantilist practices of older times, supplemented by methods perfected by Hitler and Stalin, and others♦ Beplacing former owners. In many cases former owners had simply fled the country as Russian troops entered.^ In others Germany owned a large part of economy outright, and other foreign owners existed. Germany had nationalized many industries in Europe, and in the process had jumbled property rights. Moreover, like previous upheavals, the war had suc ceeded in eliminating tfhole segments of the European ruling class. Its replacement has been the aim of Russia, once she had made it clear that her own organs and not those of workers could rule these areas. Between revolution and her own state controls, Russia chose to extend the sway of her state system. I. NO SOVIETIZATION There Is a story propagated zealously by certain groups 1 Walter Duranty, stalin and Company (New York: Will iam Sloane Associates, Inc., 194977 P- £27, remarked, "nine- tenths of big business and finance and the landlords in all the countries formerly under German Influence had either been taken over by the Nazis or had. willy-nilly collaborated with them.” 377 that somehow the Russian army automatically and by its tran scendental presence, and whether Stalinism wills it or not, is spreading proletarian property relations to countries it enters. This conception that military occupation and secret police activity make capitalism disappear is accompanied by a half-theory that as Napoleon destroyed much of feudalism in most of Europe, so Stalin without necessarily wishing to do so is destroying capitalism by moving the Russian army into This story is a fiction made of whole cloth. As there is not a single example of the Russian army leading an insurrection in Europe (but the opposite!) so there is no proof that the Russians have made a single change in cap italist property relations throughout Europe which can be asso ciated with proletarian revolution. "When Russia burst out into eastern Europe in 1944 the world could observe whether "world revolution” was any part of Russian policy, snow declared: But Soviet leadership rejected that way out of its dilemma, in the main respected agreements with the cap italist powers as the focus of post-war stability, and where necessary put a firm brake on revolutionary ex tremists. How firm that brake was has been shown in a military sense, and it will be demonstrated in the land divisions that arose. 2 Edgar Show, People on our Side (New York: Random House, 1949), p. 124. snow for a long time has presented the Russian story in a highly favorable light; his testimony here is useful as a consequence. 378 Chamberlin sought some reasons for the change: The dominant group in the ruling party is no longer composed of fanatical apostles of revolution. It is composed of high civilian officials, military officers, captains of state industry, men who have increasingly taken over the habits of life, and the habits of thought, of ruling classes in other lands. This change . . . has gone hand in hand with the shift from internationalism to nationalism . . . To this Chamberlin added: It is noteworthy that Stalin has never put forward the slogan of a Soviet Germany. A genuine social revo lution, in Germany or anywhere else, would probably be rather embarrassing to the Soviet dictator, intent on building up his personal power on a more conservative social foundation. . .3 No soviets exist in any Russian-controlled lands; nor do workers anywhere in Russia’s areas control industry and gov- erhment. Russia has remained consistent with Molotov’s declar ation to the supreme soviet on October 31.» 1939: We declare that all nonsense about Sovietizing the Baltic countries is only to the interest of our common enemy and of all anti-Soviet provocateurs. "Our common enemy” at that time was Britain and Prance; our common "friend" was Germany. When the Comintern was dissolved on May 22, 19^3 Stalin said that the act exposed Hitler’s lie 3 ’ William Henry Chamberlin, The Russian Enigma (New York: Charles Scribner’s Sons, 19^3)> P* 5S. David J. Dal- lin in his book, Russia and postwar Europe (New Haven: Yale University Press, 15%)', wrote on page 173, "One distinguish ing trait marked the Soviet territorial acquisitions— they have been characterized not only by political but also by social transformations . . . there was an immediate revolution in the economic and political life of the local population." This contradicts the facts, and also conflicts with many other statements of Dallin. 379 that Russia “allegedly intends to intervene in the life of other nations and to 'Bolshevize* them. It is an intrig uing and contradictory curio sum that both Trotsky and Men shevik and Socialist leaders, who bitterly oppose Stalin, insisted that Stalin was sovietizing industry and land outside Russia while Stalin himself denied this I Existing social structure. On April 2, 19*1-4 Molotov announced Russia's aims on entering Rumania: The soviet Government declares it does not pursue the aim of acquiring Rumanian territory or of altering the existing social structure of Rumania. The entry of Soviet troops Into the boundaries of Rumania is dictated exclusively by military necessities.5 Territory was to be seizued, but the social structure was only to be altered to the extent of placing Russian forces in the dominant economic position. Similarly when Molotov informed the Allies at Potsdam that Russia wanted a southern sea outlet to complement her new Far Eastern ones, he said of the demand for Tripolitania: The Soviet Union should take the place that is due it, and therefore should have bases in the Mediterran ean for Its merchant fleet. We do not propose to intro duce the soviet system Into this territory apart from the democratic order that is desired by the people. 8 ^ Soviet War Documents, p. 58. 5 Hew York Times, April 3, 19^ • 6 James F. Byrnes, Speaking Frankly (Hew York: Harper and Brothers, 1947), P* 380 Salisbury gave a clear summary of the real process when he wrote: There is a common denominator to the policy followed hy these men in all countries* This is: Go slow. Everywhere the emphasis is on reform rather than revo lution. . • In their propaganda to the Germans the Russians re peatedly emphasized that they did not propose to abolish the system of private capital in Germany . . . Large estates are broken up and parceled out to the peasants in small plots. But small entrepreneurs carry on busi ness as usual. And when non-Communist left-wing col leagues propose more radical changes the Communists have taken a conservative line, notably against collectiviza tion of agriculture and the abolition of trading. Land division is considered in the next section. It ? is noteworthy that not the Communist Party so-called but other groups sought more radical changes, which the pro-Russian par ty fought. Salisbury continued: The fact Is that the Communist policy in the countries of the ‘ ’ security Zone” resembles that of Russia during the period of Lenin’s. Hew Economic Policy. Most of the principal means of production are taken over by the state, but private trading continues, and agriculture Is not collectivized. The great surface difference be tween the social-economic structure of the new Poland and the Russia of 1922, for example, is the absence of revolutionary propaganda and slogans, and the emphasis upon the forms of democratic usage. To some extent, Communist policy In Poland is reminiscent of that em ployed by Stalin in dealing with the more backward na tionalities of the soviet Union, particularly In Cent ral Asia . . .7 Salisbury is only partially correct, for the real diff erence was that the Russian economy of 1922 was created by 7 Harrison Salisbury, Russia on the Way (New York: The Macmillan Company, 19^6), pp. $56-7♦ There is little dispute over the facts of the case. 381 revolution, that of Poland and Germany by military-economic means which were counter to revolution. Next, where in Russia under the New Economic Policy, foreign Investors held conces sions and control in mixed capitalist corporations and received profits from Russia, today it is Russia which is the chief in vestor in mixed capitalist corporations, concessions and single state monopolies in other countries, from which she draws pro fit. But both HEP and present Russian policy used state cor porations as their organizational form. There is a difference and a resemblance. The mention of Stalin's policy towards Central Asia is correct. In the effort to raise up capital from within Russia in the process dubbed primitive accumulation, Russian leaders treated this region as an internal colony. Russia's "socialism in a single country" was not an ar ticle for exportj for an economy more advanced than capitalism had not evolved. The real export was of capital and other forcible means for controlling neighboring lands. The state ments of Russian leaders about no Sovietization are borne out fully by their actions of counter-revolution, as the entire process of seizure of capital abroad will demonstrate. II. LAND DIVISION Neither the Russians nor anyone else in eastern Europe has nationalized land. Land was seized not by the Russians but by the peasants themselves who divided the land and gained legalization of the division into smaller units, including private property rights and inheritance rights in perpetuity. These land divisions are a process opposite to nationalization even of the bourgeois type. That the Russians did not rein state the big landowners is attributable mainly to the fact that most landlords had fled with the Germans or had been killed; and that Stalinism culls peasant support against any possible opponent force, both against the former landowners and the working classes in the cities. Against collectivization. When Balkan revolutionists demanded collectivization of land, state ownership of indus try and suppression of conservative opposition, ’ ’ Moscow re fused to support such 'proletarian dictatorship' in any coun try it occupied and instead . . . urged communists everywhere to 'legalize* and to cooperate in coalition reform governments Leading Russian economist Eugene Varga declared: Thus, the agrarian reform in Rumania was carried out before the Groza government issued the decree concerning the reform. It took place spontaneously in the beginning, because it was necessary to till the soil that the landowners had abandoned ... It was the same in other countries also . . .9 Varga, moreover, called all these reforms ’ ’ state capitalism,” as is shown in the concluding chapter. Stevens demonstrated ^ Snow, op. cit., p. 125. 9 Eugene Varga, Soviet Views on the postwar World Economy (Washington: Public Affairs Press, 1^48), p. 2J. All too many persons imagine that it is Russia which makes changes and undertakes complete overturns. 383 in even more details . . . estates 'which had been abandoned by their Rumanian owners--in the Botosani district only two out of 152 big landowners had stayed behind--were being worked and nanaged by the peasants. This was the sole indication of economic change. And the so viets declared that it had been necessitated by the flight of the landowners.9 From the critical work of American Ambassador to Rus sia, Walter Bedell Smith, came the comment: There is still a good deal of collectivization to be done. In the newly acquired territories and par ticularly in the Baltic states, collectivization has only been started . . . 10 This is far from the case, as Yarga said, nor it is yet the trend, although there are some state farms, Russian army-held lands. Within Russia, following one of the world's most pro found revolutions, it took the state from 1 9 1 7 to 19 28 to start the collectivization process, which is not completed to this day. Smith, too, was emphasizing the Baltic states which had been seized in 1 9^0. The agrarian reform in the Russian zone of Germany, which Neumann calls "progressive” despite many omissions, 9 Edmund Stevens. Russia Is No Riddle (New York: Greenberg Publisher, 19^5), p. 23T. 10 Walter Bedell smith, My Three Years in Moscow (New York: J. B. Lippincott Company, 19$0)> P* 1^0. It is an anomaly that ex-Ambassador Davies viewed Russia as a form of state socialism or capitalism for exacting interest, while Smith who reported repeated evidence of classes, exploitation and anti-revolutionary activities, could declare Russia was communist. More than a million peasants in Russia remain out of collective farms, which are less productive than capitalist farms such as large combines in the United States. 384 has transformed the zone "from a feudal and aristocratic preserve into a country of small farms. " 11 Junker landlord ism was liquidated, but land was not nationalized. Medium sized farms remained, and land had to be paid for by peasant families. For its own use and for export to Russia the Russian army requisitioned many land areas, land animals, tractors and other equipment, and grain, potatoes and other crops, as part of its living off the land. Leaders of the Russian-led Socialist Unity Party have stated, "that the principle of private ownership will be fully preserved once the land re form has been concluded. " 12 After speaking of the breaking up of large estates, Salisbury wrote, "when non-Communist left-wing colleagues propose more radical changes the Commun- . lsts have taken a conservative line, notably against collec tivization of agriculture and the abolition of trading.l,13 In Poland the Russians opposed a strong movement of Socialists and even of Polish Stalinists to eliminate the church, confiscate church estates and nationalize the land. Of Poland Salisbury wrote, "There the support of the landless peasant has been welded to the state by giving' him a small 11 The Anna,Is of the American Academy of Political and Social Science— The soviet Union Since World War II (Philadel phia, May, 1949), Vol. 263,. p. ITT, 1 2 Manchester Guardian, January 2 and October 19^6. Salisbury, op. cit., p. 358. The term Communist confuses many into belXeving revolution is occurring. 385 farm.”12* - Polish Stalinists in the -western reaches followed a different tack, according to Mikolajczyk: In the new western territory, the Communists re fused to break up the large Junker estates. They ruled that these must remain as they were for the eventual establishment on them of "grain factories. " Today the state is operating 4,200 of these "factories.** Each is identical with the Russian type of sovkhoz, where the farmer is only an employee of the state, in this same area of Poland, the Red Army continues to ad minister about 8 0 0 ,0 0 0 hectares in the sovkhoz manner.3-5 Poland did not have "land hunger*1 for the former German Silesian areas, and once the German population was expelled land division was not feasible. Still, to have retained the Junker estates, and to have replaced former owners by the Russian state as employer, are far from revolutionary changes. Czarism too had owned most of the land and had had state farms. How Russia’s armies held farm areas for their own use. Land nationalization. There is an extensive literature on land nationalization as an ordinary capitalist reform which has, like other facets of Russian economy, gone largely unmen tioned. During the revolution, Lenin wrote on May 11, 1917:. Nationalization of the land, while it is a bourgeois measure provides the greatest amount of freedom for the class struggle . . . 3 - ° ------ 3*.Ibid".", p. 357. 3-5 stanislaw Mikolajczyk, The Rape of Poland (Hew York: McGraw-Hill Book Conpany, 1948), p. 220. 3-6 Hikolai Lenin, Selected Works, Vol. VII (Hew York: Inter national publishers, 1938), ppT 34-5-6. Nationalization served one purpose for the Czar, a semi-feudal monarch; another for Hitler, whose power was grounded on finance capital. 386 In a criticism of the single tax theory of Henry George and its acceptance by Sun Yat-sen, Lenin had written: Indeed, what does the "economic revolution,1 1 about which Sun Yat-sen talks so.pompously and obscurely . . . amount to? To the transfer of rent to the state, i.e., to land nationalization by some sort of a single tax, similar to that advocated by Henry George . . . Is such a reform possible within the framework of capitalism? It is not only possible, it represents the purest, most consistent, ideally perfect capitalism. Land nationalization makes it possible to abolish absolute rent, leaving only differential rent . . .17 Marx had called this, "the progressive bourgeois demand of nationalization” in an age when capitalism was expanding, nationalization would only put an end to the "monopoly of pri vate landowners, with the result that free competition would be more consistently and fully applied in the domain of agric ulture."^ Russia was using land division for her own ends. Ill. GERMAN ASSETS Under the Potsdam agreement of July-August, 19^5 Russia was granted the right to acquire "German external assets,” to remove capital goods and equipment from its zone of occu pied Germany as reparations, and to acquire shares in German industries. Additionally Russia was to receive 25 per cent of 17 iHiaT, Vol. IV, July, 1912, pp. 318-9- 1^ See Lenin’s essay, "Karl Marx,” in Karl Marx, Selected Works, Vol. I (Moscow: Cooperative publishing so- ciety, 1936), p. 42. Nationalization may not be at all pro gressive, e.g., Hitler instituted in some cases more far- reaching nationalization measures than Russia. 387 capital equipment from the western occupation zones, 10 per cent with no payment and 15 per cent in exchange for foods and raw materials from Russia's zone. No definition of German external assets in Austria and the former Axis satellites was made, nor was joint Allied accounting or control of reparations provided. Indeed, Russia had moved in to take capital equip ment from Manchuria before the Allies could diseuss the amount of reparations from Japan and her former areas. Russia com pounded the confusion by claiming any questionable Axis assets as "war booty," not even subject to discussion. Assets in Austria. Looting, war booty and reparations are considered below under separate headings, because of their importance for clarifying the mechanics of Russian expansion. Austria is an example of how the Potsdam accord not only was interpreted by Russia so as to make her heir to much of that country's wealth, but to prevent re-establishment of Austria as an independent state in accordance with the three-power declaration of Moscow in 19^3* For a time Russia supported Yugoslavia's claims to a strip of southern Austrian territory and to reparations from Austria. During the war the Germans had annexed, bought out or otherwise seized an estimated three-fourths of total Austrian assets in industry, banking, land and instira.nce.19 When the 19 The limes of London, July 9, 19^6. 388 Russian armies entered they found most of the countries pro perty listed as German-owned. To the Austrian objection that the brigandage perpetrated by the Nazis could not be ratified by the Allies, Russia answered with a total ratification by seizing plants and works and demanding even sub-soil rights. In a note of July 16, 1946 to the Austrian government, Russia listed all types of German wealth subject to seizure, and also Italian-owned property. The Russlang were thorough. To counter the Russian seizures, the Austrian govern ment moved to nationalize most of the properties involved. But this did not halt the Russians. Paradoxically, In Austria the Americans and British favored the nationalization, so as to halt the Russian penetration, while Russia, still considered by many as the standard bearer of world revolution, fought bitterly against nationalization. The Austrians admitted it would be useless to nation alize enterprises if it was not clear which were Austrian and which were not. From 40 to 60 per cent of the enterprises belonged to Austria, the country's leaders said, while the remainder were the property of Russia, Britain or the United States. 20 Socialist leaders said that two-thirds of the factories slated for nationalization were listed by the Russians as Ger man wealth which they desired as reparations. Communist Party 2° ArbeXterzeitung, May 10, 1946. 389 heads estimated the list of enterprises slated for nationaliza tion as 90 per cent of those seized by the Russians as German assets. Only a few units of the remaining 10 per cent included American and British capital. ^ IV. WAR BOOTY, LIVING OPP THE LAND With or without the sanction of the German external as sets clause of Potsdam, the Russians have laid an additional claim to various properties in occupied lands as legitimate war booty, separate and distinct from reparations and a share of German assets. In this way Russia was enabled to take over many German- or native-owned items of capital goods which it then proceeded to use in its new campaign of capital invest ment abroad. Machinery and tools, entire factories and even their workers were removed. In a sense this represents partial ful fillment of the long desired joining of German machinery with Russian industry. Bulgaria paid in loot and requisitions, for the Russian army lived off the land and had to be fed, unlike certain other armies which brought in their own food and sup plies. From Rumania the Russians made a surprisingly rich haul, their total take there coming to two billion dollars 21 The Time3 of London, July 11, 19^6. See also L ’huraanitA, July 28, 19^6 • 390 in round numbers.22 Where the Spanish civil war had produced the fifth column, the Russian occupation of Rumania produced the sixth column, copied from the Nazis: The sixth column was composed of "economic experts" from Soviet industrial and economic bureaus and special Red Army branches. They were augmented by Rumanian Com munists . . .23 German investments in oil and banking were the chief prizes. Russia moved fast to effect the seizures before the Rumanians could set up their own controls. Factories and other assets were taken from Poland as war booty. From that part of eastern Germany incorporated into Poland, the Russians removed two synthetic oil plants, and "also denuded the new western territory of its railroads and factories."24 North Koreans were forced to furnish Russian forces with a regular supply of food. Industrial equipment total ing up to 40 per cent of the industrial potential was evacu ated . Russia set the value of removed equipment in Manchuria at $97-million. But the American Reparations Commission estimated direct damage at $858-million and total losses at above $2-billion, counting deterioration and replacement 22 Harold Lehrman, Russia1s Europe (New York: D. Apple ton-Century Company, Inc., 1947),p. 2 3 8. 23 Robert Bishop and E. S. Crayfield, Russia Astride the BalVflrtq (New York: Robert M. McBride and Company, l'f4b), p. 188. 2^ Mikolajczyk, op. clt., p. 213. 391 cost.25 Legal basis of war booty. While international law had never included industrial plants and equipment under the term war booty, Russia laid claim to various properties under this supposed legal right of the victor. Germany as has been pointed out stripped countries which she had con quered; Russia was doing the same thing to countries to which ostensibly she had come as a friendly power. Russia insisted that war booty could not be credited to reparations. Izvestia declared on January 29, 19^7 that booty was a part of "Military property which had belonged to the Japanese Kwantung Army.” Moreover, the paper added, Hthe soviet concept of war booty had been incorporated in the armistices concluded by the Allies with Rumania and Bulgaria in 19^ and with Hungary in 19^5 •1 1 However, the Bulgarian armistice, to take one example, concerned vessels and water materials, not industrial plants and equipment. War booty was defined as material or equip ment used by military formations. Since that time littie change in the status of the property has occurred, except that the Allies have offered to consider the booty as part of a final reparations account. 25 David J. Da 11 in, soviet Russia, and the Far East (Hew Haven: Yale University Press, 1$'4B), p. 24'4. see also page 321. 392 The Russians contend that Allied complaints are a defense of former "enemy” property. Having a war economy themselves, the Russians look on all materials as war materials potentially or actually, and therefore subject to seizure by whatever vic tor arrives first. Russian economist Varga declared of the use of national income to cover the costs of war as leading to impoverishment of the defeated, usually: Finally, there is one other source, looting other countries. This method of covering war costs was ex-* tensively employed by fascist Germany. Varga’s critics argued that this impoverished the losers but enriched Germany: The appropriation by the German bourgeoisie of a tremendous number of enterprises in the occupied zone and the clearing system of trade turnover, barter, without cash payment, which was used by fascist Ger many as one of the forms of robbing the occupied coun tries, gave Germany colossal material resources. Russia was to adopt and intensify the identical methods. Primitive (or advanced I) accumulation. "When Marx wrote of the various ways to obtain capital through spoliation, fraud, robbery, usurpation and terrorism, he called the entire process "primitive accumulation of capital." The very phrase has a peculiar fascination for Russian leaders, who have toyed with various methods of obtaining capital for a generation, state chartered groups, Marx had written, seized gold and silver, enslaved peoples, looted property, and began Megro slavery. 26 varga, op. cit., pp. 29, 67. 393 Labor exploitation was increased by the police power of the state, commercial warfare accelerated, and the whole process crowned by the national debt, the modern mode of taxation, and the protectionist system under the power of the state. In the colonies the rising states found not only markets and new monopolies for themselves: The treasures captured outside Europe by undisguised looting, enslavement, and murder, floated back to the mother-country and were there turned into eapital.2? "Even the method of plunder,1 1 Marx added, "is determined by the method of production. "28 This may establish certain cri teria for Russia’s own economy and its expansion abroad. These seizures have no relation whatever to socialism, except a negative one, nor were workers in other lands ever permitted to share in expropriations with the Russians as might be considered a revolutionary division of property. Looting was raised to great heights by fascist Germany. How this looting can be extolled as a new wonder of the age is demonstrated by Turin: People who have visited the U.S.S.R. since the war . . . state that great enthusiasm and keenness to re construct the country are noticeable everywhere, and that the Russian troops who went abroad have profited greatly by their new contacts and experiences. They have brought home not only all kinds of objects of 27 Karl Marx, Capital, Vol. I (Chicago: Charles H. Kerr and Company, 190b), pp. 796, 805, 8l4, 823, 826. 28 Karl Marx, & Contribution to the Critique of Polit ical Economy (Chicago: Charles H. Kerr and Company,T9i3), P• 2887 Wherein does R u s s i a n plundering differ from Hazi looting? Prom mercantilist despoliation of the Hew World? 394 comfort which were extremely scarce in the U.S.S.R., but also knowledge of the everyday life of the people in for eign countries. This explains the desire to increase the production of the above-mentioned luxuries and com forts, and to make the life of everybody in Russia eas ier and more comforta.ble.29 This is how looting "teaches" the merits of luxuries and comforts. But the experiences of Russian soldiers, like the experiences of the soldiers who went abroad in the Napoleon ic wars and then came home to participate in and lead the De cembrist uprising of 1825 m y produce far less comfortable and luxurious results. V. REPARATIONS Russian reparations and looting from occupied lands are a complete departure from the revolutionary policy of 1917-18 when Lenin insisted on no annexations, no indemnities and no stifling of national independence. It should be clear that Russian stripping of capital goods, living off the land and seizure of reparations is more than simple looting. It is counter-revolutionary policy in economy. Far from strengthening Russia, to whom the booty has helped give a new capital position, looting has aroused hatred for Russian methods among peoples affected by the seizures. Opposed to revolution in Europe or Asia, Russia, it is no ex- aggeration to state, is the most conservative force left after *9 s. P". Turin, The U.s.S.R. (London: Methuen and Com pany, Ltd., 1948), p. 232.” 395 the flight or death or subordination of the former owning classes during and after the war. Claims on Germany. In order to avoid the mistakes of the Versailles Treaty, under which Germany had managed not to pay most reparations, the Allies agreed to obtain reparations from capital assets by removing plants and equip ment. Russian leaders for a time had thought that this would mean a linking of German machinery and technology to Russian war materials, and lead to a great improvement in Russian economy, while German recovery would be correspondingly re tarded. The Russians sought German labor to rebuilt war- shattered areas, one asking for ten million German and Japan ese laborers for this purpose. Seizures, bull? removals, reparations from current production and use of German labor, the latter considered under a separate heading, were demanded by the Russians. In the conversations with the Allies the target figure of twenty billion dollars in reparations was raised, of which Russia was to get fifty per cent. Payment was to be in 1938 prices. Russia was to satisfy Polish claims with 15 per cent of her takings. Actually the ten billion dollars were first claimed at Yalta, and were rejected by Churchill, although called a possible basis of discussion by Roosevelt. The Russians maintain that the demand has been accepted in 396 principle. They have acted accordingly. But the Potsdam agreement had envisaged reconstructing German economy so that it could support the population with out aid from the victor powers, and also pay reparations claims. Despite an agreement in 1946 on a level for peacetime industry / in Germany, Russia continued her exploitation of eastern Germany. As a result the United States halted removals from the American zone for the Russian reparations account. Bussia opposes nationalization. Austria offers the seemingly unusual spectacle of a. country in which Russia de nounces nationalization measures, while Britain and America support them. Most of Austria’s industry is in Russia’s zone, and was largely seized as German war "booty and external assets. Izvestia on August 1, 1946 denounced Austrian attempts at na tionalization of the affected properties as ' ’illegal1 1 and a ’ ’ hostile act against the Allies." Russia seized plants, raw material reserves, stocks, railroad rolling stock and automobiles and laid claim to 45,000 acres of land. The total loot was from $22-$33-million and included from 50 to 75 per •cent of the industries of the country. Opposition to the seizures spread throughout the tiny country. Comparisons of Russian actions to those of the Nazis were repeatedly made. To offset intense Austrian opposition 30 Le Monde, July 9, 1946. New York Paris Herald- Tribune, July 19, 1946. 397 to the seizures the Russians returned some works. They then laid claim to sub-soil rights, such as the oil of Zistersdorf and the land areas, in perpetuity. Promptly Communist Party strength in Austria began to dwindle. The Russians started to operate the enterprises themselves. Britain and the United States remain content to employ the Austrian desire for nationalization as a counterweight to Russian pressure, in the entire struggle the Russians came further along the path to proving that nationalization to them is not necessarily a useful or desirable structural alteration, unless it could be under their control. For this they had as historical precedents both Hiterlian and Czarist state intervention in industry. Reparations account. Since she had not invaded Russia Bulgaria did not have to pay a reparations bill. Russia sought to reduce Bulgarian payments to Greece to $45-million, and for a time influenced Yugoslavia not to insist on a claim of $25- million in reparations from Bulgaria. Reparations were thus i a highly flexible policy. In Finland Russia opposed increased demands for na tionalization. Finnish capitalism was capable of paying $200-million in reparations without any structural changes. The Russian Army merely guaranteed that no strikes would occur to impede production. Half of the capital in nation alized Finnish industry was turned over to Russian control 398 in January of 1947. Hungary was handed a reparations bill of $200-million. Like all other bills it was in pre-war prices. Russian off icers took control of the Hungarian National Bank early in 1946, supposedly to halt inflation, but withdrew when an out cry against the action arose. At first the Russians had taken over "direct control of the factories,”31 but later returned them to the Hungarians. A major blow to possible economic independence for Poland was struck when Russia under her interpretation of the Potsdam agreement was to settle the reparations claim of Poland from 15 pe? cent of her share of ten billion dol lars. In August, 1945 Molotov told the then Polish leader Mik ola jczyk in Moscow of the plan. When the Poles objected that Russia had already stripped the portion of Germany going to Poland, Russia offered concessions.32 What was given verbally was however taken away In reality. 31 The Times of London, October 23> 1945- 32 Mikolajczyk, op. cit., pp. 140-1, wrote that Molotov said: "Poland is luckier than the Soviet Union. You get this amount in addition to the six billion dollars you’ve already received." "What six billion?" Mikolajczyk asked. ’ . ’ Don’t your understand?" Molotov replied. "Poland has given her eastern provinces to,Russia. The Polish.property there totaled three and one-half billion dollars. But on the other hand you receive from Germany an area whose property is worth nine and one-half billion dollars. So it Is clear that you’ve gained six billion dollars." When Mikolajczyk reminded Molotov that Russia had stripped the region bare, Molotov replied that the looting amounted to only a half billion dollars. 399 Finally Russia gained from Poland an agreement for most of her coal for export, or about 12-million tons. Russia's insistence on obtaining the coal free of charge ■was reduced to an accord to pay five or six dollars a ton. According to Mikolajczyk, this was permitted to be reduced to $1.25 a ton, whereas Poland had been offered up to $16 a ton by Denmark and Sweden. Mikolajczyk estimated that this brought Russia's gain from Poland in coal alone to more than ^100-million a y e a r .33 Russia demanded $300-million in reparations from Ru mania, to be paid over a six-year period mainly in oil and oil products. But at the same time Russia had seized the oil industry and absorbed most of its production, only to relinquish direct control later. In Manchuria Russia laid claim to 14 per cent of all reparations because of its "out standing role . . . in the crushing of Imperialist Japan, ” according to Pravda of September 13, 19^7. Russia had pre viously removed most of Manchurian industry as war booty. Total reparations bill. By 19^7 Russian policy to wards seizure of plants and removing capital equipment as reparations had shifted to a demand of reparations from current production. Integration of German machinery was 3 3 Loc. ~ cit. notedly, Molotov referred to the eas tern provinces of Poland as being polish and not Russian, and being given by the Poles to Russia as a "gift." Still, Russia’s controls are flexible, as she rules.only indirectly in Poland. 400 found to be cumbersome and nearly impossible. Other machinery was a slightly different matter, particularly that from the east, which went mainly to Siberia. By raising the demand for i current production Russia put the other Allies in the position of defending German property when they refused Russian requests. At the Moscow conference on March 18, 1947 British Poreign Minister Ernest Bevin said that Russia had gained more than seven billions from Germany through removals and by taking 70 per cent of Russian zone production. Voznesensky on his part contended that the total take in the form of re movals was $768-million, or only 0.6 per cent of Russia’s war losses of $128-billion. A German estimate put the total at more than $8-billion by the end of 1948. Total reparations were running about one billion dol lars a year in 1947 and 1948, but the Russians were already reducing the burden. In May of 1950 Russia cut more than $3-billion from her reparations bill against her zone of Ger many. Guts were also made in some other reparations accounts. Germany was listed as having paid $3,658,000,000 and owing $3,171,000,000, to be paid out of current production.35 one estimate of the total reparations from eastern Europe, in cluding war booty and occupation costs and withdrawals from current production, is that Russia has taken more than the 34 The Annals, op. cit., pp. 174, 90, 68, 92. 35 United Press report from London, May 16, 1950. sum of $13,500j000,000 out of these areas.36 VI. USE OP FORGED LABOR One of the Yalta agreements ¥as the ’ ’ use of labor” as a source of reparations. Prom the Russian point of view such labor while aiding in reconstructing Russian economy could not be used to rebuild Germany or Japan. Russia denied she has taken German workers along with dismantled factories, asser ting, “the German workers signed voluntary labor contracts for work in the U.S.S.R.”37 Allied leaders thought that the Yalta agreement, affirmed at Potsdam, meant the voluntary return of displaced persons. When Russia sought to have political refugees forcibly re turned from the Baltic states, which she had annexed, the Allies at first helped return thousands of people. Reports of the use of this labor and of Russian labor under forced conditions show the vast changes in Russia since the revolu tion of 1917 and the programmatic declaration by the Bolshev iks of 1919 that subjugation of nationalities and of the working classes of other lands would mean the end of the revo lution. The various seizures of labor have been called a slave hunt. The official phrase, to cite one example, was, "con- 3^'"lHfted States Hews and World Report, August 6, 19^8. 37 The Annals, op. eit., p. 17^* 402 scription for labor in soviet Russia of Rumanian citizens of German ethnic o r i g i n ."38 How much the Russians gained through such labor is given in an estimate that at $4 daily value, the work performed by some seven hundred thousand Japanese laborers up to the summer of 1948 may have yielded more than $2-billion in labor a l o n e.39 what the total yield is from use of all forms of forced labor may never be estimated. 30 Bishop and Crayfield, op. eit., p. 133• 39 Dallin, op,, cit., p. 382. Prom the standpoint of the accumulation o!l ~capital by primitive (or more advanced) means the seizure of labor forces was one of the principal instrumentalities for gaining workers, aside from the en closures movement, see Marx, op. cit., p. 824. CHAPTER XVI NEW CAPITAL EXPORT POSITION Russia’s economic strength was great enough to hold Germany at hay for many months before aid from the west came. Eventually, with the fall of Germany, Russia emerged as the strongest economic power in Europe and Asia. Actually she had been on her way to becoming the second strongest power economically long before this. She had achieved a favorable balance of trade in 1935 -36 and was exporting capital abroad by that time. I. DENIAL OF CAPITAL EXPORTS Some writers deny that Russia is a capital exporter. Dobb denied claims r , tha.t the U.S.S.R. had an export surplus on which claims ought to be made to make good the grain de ficiency in central and southeastern Europe." Instead, he declared that up to the summer of 19^6, "the Ukraine and Belo russia were in receipt of some UNRRA supplies."3- Schwartz declared: Only a very small percentage of Soviet exports appear to consist of fabricated industrial products, though many of the countries with which the USSR has concluded trade agreements are badly in need of machin ery of all kinds. The soviet Union’s inability to 1 Maurice Dobb, soviet Economic Development Since 1917 (New York: International Publishers, 19^ ), p. 303♦ 4o4 supply any large quantity of machinery and transpor tation or power equipment has somewhat weakened its bargaining power, but this has been more than offset usually by soviet military and political strength. 2 Other writers contend that Bussia. has no foreign invest ments whatsoever, that instead she is taking in machinery from the satellite states which are more developed than herself, that Russia is mainly agricultural, and that it would be better to borrow from the outer world the capital goods to build up Rus sian industry. AH these writers are living in the pre-1939 world when Russia was mainly a capital importer. Hone of them has been able to show as clearly as Baykov and Yugoff the devel opment of capital export by the 1 9 3 0 1 s. Basis for capital export. To Poland the Russians exten ded a loan of $450-million, to China one of $350-million, fol lowing on earlier ones. Throughout Eastern Europe Russia is an investor in most industries to the extent of several billion dollars. The change to the export of capital came by 1935-36, as has been shown earlier. By 1939 Russia was ready for ex tending this tendency to the next stage of seizing entire 2 Harry Schwartz, Russians Postwar Economy (Syracuse; Syracuse University Press, 1947), p. 64. See also Walter Bedell Smith, My Three Years in Moscow (Hew York: J. B. Lippincott Company,“T950), PP• 30,“T3I, 135, for the view that Russia is mainly a capital importer. Ste phen Enke and Virgil Salera in their International Economics (Hew York: Prentice-Hall, Inc., 1947), take a similar view on page 477. John Scott wrote, MThe Soviet Union will be content for years to import large quantities of all sorts of manufac tured goods from the united States and Great Britain. ’1 See Europe in Revolution (Boston: Houghton-MiffTin Con^any, 1945), p. 243. 405 sections of the world market, starting with half of Poland. Stalin has made part of this position clear: Prom the standpoint of natural wealth, we are com pletely secure. We have even more than we need.3 But Russian did not halt at her borders. She set out to dominate neighboring economies, to harness them to her needs, to use whatever capital goods they had under the pretense that they were German external assets and war booty. With these capital goods to which she laid claim and left in occu pied lands, Bussia was able to leap forward to a position of replacing Germany as the principal capital exporter and owner in eastern Europe. Whereas usually the emphasis of analyses on Russian expansion has rested on removals and looting, a pro cess whieh by its nature is a one time affair and cannot lead to reproduction of wealth, now Russia has moved to consolidate economic control by running plants in these countries. Pilling the capital vacuum. When Germany collapsed Rus sia’s tendencies to expand had a fuller area in which to oper ate, and she rushed to make good the replacement of German capital. Until she could push in capital materials Russia was 3 Joseph Stalin. Problems of Leninism (Moscow: Foreign Languages Publishing H use, 194(5), p. 324. see also William Van Narvig, East of the iron Curtain (Chicago: Ziff-Davis, 1946), p. 2 8 9, who discusse's the ’ 'harnessing" of lesser economies. Hans Heymann in We Can Do Business With Russia (Hew York: Ziff- Davis, 1945), p."^2‘ , TnjcCls cussing how "Russia "will make deals to safeguard her investments, ’1 wrote, ’ ’ her methods may some times seem unpleasantly reminiscent of,those of ’ Big Business,’ particularly in regard to the ’little fellow.1” 406 required to use her occupation armies and local forces to reinforce her capital seizures. Pending the consolidation, which has taken several years and is still far from complete, a policy of splitting with the Allies even to the extent of losing much possible aid that might have been obtained was followed. Although Russia did Import much capital, she also ex ported capital, as do England and France, and as the United States and Czarism did on a large scale before the first world war. But in the large, Russia has become a capital exporter to most of her neighboring countries. Czarism also made such imports of capital from the west and exports to less advanced lands, whose areas she controlled and from whose production she extracted profits.^ II. BILATERAL TRADE Before reparations had even begun Russia for many years had used trade agreements to open up relations with the outer world. During the war six treaties of friendship and economic cooperation for twenty year periods were signed with Britain, Czechoslovakia, France, Yugoslavia, Poland and China. The treaty with the United States was extended. After the war more than fifty treaties were made with most countries.5 ^ see Walter Duranty, Stalin and Company (new York: William Sloane Associates, Inc .Y19^9), pp. 230-1 for part of this view, politically. 5 Ibid., p. 238. 407 Russia had emerged from economic isolation. Treaty terms. The contracting countries grant each other most-favored-nation treatment, but in the broadest sense the treaties are bilateral in character and not freely multi lateral. For example, Russia prevented many of the satellite countries from accepting American credits under the Marshall Plan, even where several countries had sought them. In most cases the agreements are short-term, running up to eighteen months, and then being renewed. Bean wrote that despite criticism of the treaties as being exclusive and violating the master lend-lease agreement, f , an examination of the actual terms of the treaties, however, does not indicate exclusive domination by Russia.” As proof, Dean wrote: True, for the duration of the trade agreements, these countries are to make deliveries of specified raw materials and manufactured goods, to Russia, which are thus diverted from other markets, as well as from native consumers. In return, Russia supplies primarily some items of food and raw materials, but none of the manufactured goods required by the countries of northern and Eastern Europe which, so far as can be determined, are free to negotiate for the purchase of such goods in Western countries and, in some cases, have • already done so . . .6 Dean's view was wrong on many counts, for Russia began supplying capital goods, and restricting moves of dominated countries to 6 Vera M. Dean, The United States and Russia (Cam bridge: Harvard University Press, 194d), p. 221. Elsewhere Dean remarks the existence of quite obvious items of capital goods export. 408 make trade agreements with the west, except where these could "be used to strengthen the Russian sphere of influence. While Dean considered that Russia was using foreign trade, as in the 1 9 2 0rs, "to obtain the goods it lacks or cannot pro duce at a given time"7 and not for political domination, Russia had already gone far beyond this. Primarily an economic fence was erected around eastern European Countries, and only pro- Russian forces permitted to remain in power. Under the trade agreements most of the exports of the dominated countries were channeled into Russia. Yet Heymann wrote, "Russia has never resorted to trade tricks and subterfuges, Nazi-Style. The Soviets have proudly considered themselves a ’ have* nation and have paid with home- produced gold or other raw materials for whatever was needed to replenish their national wealth."® Dean too denied that Russia's foreign economic policy was like that of Hazi Ger many because Russia would permit "expansion of industrial pro duction in neighboring countries."9 Pacts were to destroy these conceptions. Russia was able to secure terms of trade at better than world market prices, 7 Ibid. ' , p. 230. see also Lawrence W. Towle, Interna - tional Trade and Commercial Policy (New York: Harper and Bro thers, 1 947), p. 754, on the channeling process.. ® Heymann op. cit., p. 117• 9 Dean, op. cit., p. 232. 409 as in the case of Polish coal. Deliveries in 1947 were worth $100,000,000, hut this was far from the price Russia paid. 10 Polish grain, it was charged, was taken from farmers through taxes, shipped to Russia, then sold hack to Poland at Chicago grain market prices. 11 Lehrman gives a version of the bilater al agreements which differs from that of Dean: All of Russia's Europe was honeycombed with bilater al barter-clearing agreements. Theoretically, these were supposed to exchange one satellite's surplus pro ducts for useful products which the USSR or other satel lites could supply, without any money changing hands, in practice, the shipments from Russia, like the bar tered opera glasses and other export junk of the Hazi Reich, were crammed with gadgets which weren't needed or weren't equal to value received. The barter agree-, ments, furthermore, left the satellites without free dom to sell to the highest bidder in the best market. 12 III. CAPITAL EXPORTS It is now possible to demonstrate concretely the capital export process Russia had extended and consolidated, following out the tendencies of 1936 and subsequent years. "Russia,” wrote Van Harvig, "considers the countries bordering on the Mediterranean as the predestined market for the tremendous 10 Stanislaw Mikola jczyk, The Rape of Poland (Hew York: McGraw-Hill Book Company, 1948), p. 141. 11 Ibid., p. 215. 12 Harold Lehrman, Russia's Europe (Hew York: D. Appl©- ton-Century Company, Inc., 1947), p. 275. But Russia was sup plying quite real capital goods as is shown in this chapter. See The Annals of the American Academy of Political and Social Science--The Soviet Union Since World War II— Vol. 263 (Phila delphia, May, 1949), p. 95* 410 export trade which she expects to produce.nl3 On this score both the pro-Russians and the eritics, despite their various views on the totality of Russian economy, are beginning to see part of the rise in capital exports. Export policy. Increase of exports of capital will prob ably be a main economic factor in altering opinions about Com munism in Russia. Planned economy, according to Dean, will be kept not only to complete the process of Industrialization but “beyond that, also manufactured products for export to countries as yet less advanced than the U.S.S.R." Dean wrote further: But now that Russia has reached the point where it is no longer utterly dependent on technical aid and equipment from abroad as it was in the early stages of five-year planning, there are indications that It will Inaugurate a more active--some might say more aggressive— policy of economic collaboration with neighboring coun tries which possess industrial facilities or raw mater ials it lacks. This has begun on Russia's borders. Sternberg consid ered Russia's general economic policy as follows: . . . industrial production is to be tremendously increased in border to make the Soviet Union and Its empire as far as possible self-sufficient and Indepen dent of countries beyond the Russian orbit, while within the Russian empire the satellite nations are to be kept to a large degree dependent on Russian industries .J-5 13 Van Narvig, op. cit., p. 186. Vera M. Dean, Russia,: Menace or Promise (New York; Foreign Policy Association, 1$46)7 P * • 15 The Nation, December 31, 1949* P« 644. Russia made purchases outside her orbit, with satellite countries func tioning often as buyers for her. 411 Voznesensky when head of the state Planning Commission declared of the five year plan for 1946-1950: In future, too, the U.S.S.R. will continue to devel op economic relations with foreign countries, while main taining the well-tried policy of the Soviet Government aimed at ensuring the technical and economic indepen dence of the soviet Union. • • • In the East and West the historical "boundaries of the Soviet Union have been restored. Prom now on, in the East, Southern Sakhalin and the Kurile Islands will no longer serve a3 a means of isolating the Soviet Union from the ocean or as a base for a Japanese attack on our Par East, but as a means of direct access of the Soviet Union to the ocean . . .1° This direct access to the oceans and ports for carrying traffic was desired, according to Voznesensky, for the vast trade Russia planned. How the Russians proposed to accomplish this was ex panded by Sternberg: According to Malenkov, Russian tractor production Is considerably above the pre-war level. This increases the ability of the soviet Union to supply the satellite nations with some of the tractors and farm machinery they need . . .17 The picture of Russia as an utterly backward nation received a rude shock when during the war Russia offered the United States her formulae for spathetic rubber.18 Russia is in the uncomfortable position of having to furnish the satel lite countries with their needed capital goods or lose economic 16 Bernhard J. Stern and Samuel Smith (Eds.), Under- standing the Russians (New York: Barnes and Noble, Inc., 1947), pp. 227-8, quoting from Voznesensky. 17 The Nation, December 31> 1 9 4 9 P* 644. 1® Albert Rhys Williams, The Russians (New York: Har- court Brace and Company, 1943), p. 200. 412 control over them. Hubbard has described accurately the ten dency for industrialization to require an ever-expanding market and outlets for the capital investment boom under the five-year plans. The alternative was unemployment and depression within Russia, he said. 19 In discussing possible trade and the faet that traders with Russia would seem to be freed from the "risk of loss of their investments, ' 1 Mandel wrote: It is understood, of course, that the Soviet Union is a powerful industrialized state owning various resour ces, and will enter the world market not only as a buyer but also as an exporter of goods. He lists the goods which are meant: Stalin mentioned manganese, gold, chrome and timber. . . . The new Soviet industries in the Caucasus and Central Asia can provide partsof Asia and northeast Africa, with manufactures, including machinery, more cheaply than can others in these limited areas and cate gories of production. On a limited scale, this had al ready begun before the war . . .20 An interesting statistical proof of Russia’s ability to export capital could readily be made out of these two sets of facts: Voznesensky, as has been shown, has placed total Russian war losses at $128-billion. Ho full estimate of Russian gains from war booty, looting, mixed capitalist corporations, German 19 Leonard E. Hubbard, soviet Trade and Distribution (London: The Macmillan Company, Ltd., 1938)> PP* 345-6. It took years,to prove that this view was correctj apparently it will take some more time before capital exports grow so large as to be obvious to everyone. 20 William M- Mandel, A Guide to the soviet Union (Hew York: The Dial Press, 1^46), pp. 436, 441-2. 413 external assets, living off the land and use of labor has been rendered. Russia may have gained double the $10-billion in reparations she sought from Germany throughout Europe, and between $5- and $10-billion in the Far East, although depre ciation has been great in the case of transfer of capital. This gives a possible total of §25-$30-billion. With war losses of $128-billion and postwar gains of nearly $30-billion, Russia would be $100-billion weaker in economy than before the war. Her export position would be correspondingly weaker. Yet Russia is now able to export machinery, plant and parts and equipment. Despite all the wartime losses and the contrary process of seizure, Russia has continued her capital export tendencies. Had she not lost so much wealth her capital export capacity might have been far greater. Still, the trend exists, with evidence that it is growing, and no one can yet point out its end. It is at this point that previous analyses have ended, and this analysis has begun. Food exports. While food is not a capital good, it is an example of the export process, from which Russia extracts considerable profits for use in capital exports. On the eve of the May, 1946 elections in France, Russia shipped in 500,000 tons of wheat. To neighboring countries in 1945-46 Russia had sent in possibly a million tons of grain. Russia rushed her grain to a starvation zone in Iran, and during 1947-48 was to 414 export 3.2-million metric tons of grain to eastern Europe, western Europe and Egypt and India.. Grain has been sent to China. Salisbury contends that this signifies: Eussia utilizes economic power to implement her foreign policy. She is not unique in her use of eco nomics to back up diplomacy, but she carries this pol icy somewhat further than most powers . . .21 The grain was far from a gift. In Rumania where Russia had sent in grain to help end starvation, "the grain had to be given back to Russia with interest, not in money but in kind. The rate was 6 per cent a year. " 22 Buranty considers that the large exports of Russian foodstuffs were shipped to; prevent revolution, among other reasons: Shortages or high prices of food have been one of the prime reasons for strikes, labor trouble, popular discontent, and all such incentives to revolution in postwar Europe. Yet the Russians, for business purposes, are doing the very thing to mitigate this danger in the West . . . should one trust Stalin's prewar formulation of soviet foreign policy: "We stand for peace and the strengthening of business relations with all countries."23 Longtime experts on Russia have been amazed at her vast ability to engage in export trade. They had considered she would be a capital importer for untold years to come. Imports, Re-exports. Where Russian exports to and im ports from the six eastern European countries amounted to 1.7 21 Salisbury, op. cit., p. 3 6 7• 22 Robert Bishop and E. S. Crayfield, Russia Astride the Balkans (Wew York: Robert M. McBride and Company, 1948), pT~2 2 0. 23 Buranty, op. cit., p. 2 3 8. 415 and 6.8 per cent of the respective Russian totals, in 1947, aside from reparations, the totals had risen to 56 and 36 per cent, respectively, a remarkable shift in trade.24 Ex pectations that Russia would increase her trade with the west turned out to be wrong, as the trade with eastern Europe rose. One writer considers that the "Molotov plan” was evolved after the Russian refusal in mid-1947 to participate in Eur opean economic reconstruction, and was a measure to reverse a slight trend of trade with Russia to fa.ll.25 Dean said of this move: . . . The decision of the Soviet government to abstain, and force its neighbors to abstain, from par ticipation in European discussions concerning the Mar shall plan, was regarded as an attempt to roll down an economic, as well as political, 'iron curtain' across Europe . . .26 But in her next sentence she denies that Russia can develop bar ter agreements much further because of low productivity and demands of consumers in Russia. The Molotov plan was designed to gear the economies of eastern Europe into the Russian ex- Annals, op. cit., p. 91, where Gerschenkron, one of the contributors, declares that his earlier statement in a work written in 1945 that America would grant Russia extensive credits had proved to be a mistake♦ This inability to obtain credits imposed a feverish pace for creation of Russian-made capital goods. This does not gainsay the considerable attempts at imports of capital from Britain, Switzerland and even little Sweden. 25 ibid., p. 94. Russia now solicits advertising, even competitive advertising of American products. See Mandel, op. cit., p. 437. 26 jjean, The United States and Russia, op. cit., p. 233* Her conclusions are not consistent with facts cited. 4l6 port of capital plan. Meanwhile Russia continues her policy of weakening American and British influence in economies on her borders. Russia faces quite literally the task of producing the cap ital goods to maintain her newfound capital position; seizures have to give way to new production. Russia cannot hold these areas for long by political-military means along, without their populations moving against her. It has been remarked that the low allocation for oil production in the current five-year plan was made on the basis of expecting oil imports from abroad. This does not vitiate the view that Russia has become dominant economically in her areas, since both Britain and Prance, with whole em pires, have imported oil for years. Arguments that Russia’s is a "defidt economy,” that foreign trade is a dispensable luxury,” that Russia’s stake "is political rather than economic,that Russia restricts exports to a balanee with Imports, and that "tte satellites cannot receive large amounts of capital goods from 27 por these expressions of a single point of view--that Russia cannot export capital— see Dean, The United states and Russia, op. cit., p. 232; William Bullitt, The (jreat 6lobe it self (New York": Charles Scribner’s Sons, 1946), p. 112; T.. Waiter Wallbank and Alastair N. Taylor, Civilization past and Present (Chicago: Scott Foresraan and Company, iy42), Vol. ‘ 27 p. 445; Mikhail V. Condoide, Russian-American Trade (Columbus: Ohio State University, 1946), p. 112. see also Ihilip Mosely, Pace to Pace with Russia (New York: Foreign Policy Association, Headline Series No. 70," August 20, 1948), p. 62. All these follow the pre-1939 attitudes that Russia has a self-contained economy and is independent of the world market. 417 the USSR” all miss the new capital position Russia has assumed, only in part from her seizures of German and Japanese holdings. Re-exports are increasing. They represent more than the transit trade whereby Germany was supplied by Russia during the war with materials from the Par and Middle East and America. How Russia was able to intervene directly into other countries, to dominate their economies and use their riches for her own export purposes. In 1946 Polish coal was re-exported to Fin land, and the next year the system was simplified with the coal going directly from Poland. Russia is a kind of vast "middle man” for her satellites. She resells potash and nitrogen from Germany and re-exports goods from Czechoslovakia to eastern Germany, Rumania and other countries. Moreover, "satellite countries appeared In various parts of the world as purchasers of goods on Russian account.”^ Rus sia had learned some of the lessons of earlier capital exporters. Hungarian production began to recover early in 1946 when the Russians, Czechs and Poles made available 380,000 tons of coal and coke.29 Where Russian exported anthracite coal even to America and Germany, now she re-exports coal from Poland. IV. CAPITAL TRADE BY COUNTRY Only a huge chart could do real justice to the vastness 2® The Annals, op. cit., p. 9 6. 29 Manchester Guardian, April 12, 1946. 418 of Russian trade relations and capital export today* not to mention her participation in mixed capitalist corporations. These are treated in a section of this chapter. Still the sixe, extent and techniques of Russian expansion in economy can really only he grasped hy showing how the various tenden cies work out in life in certain countries. For example, Russian technicians were sent into Afghan istan in 1950. An official Russian trade mission, the first in Afghan history, followed. Russia varies her methods. China trade. Towards China Russian policy has shifted steadily, as western influence was driven out. Between 1937 and 1940 from $200- to $250-million in loans were advanced. Under the treaty of August, 1945, Russia gained joint admin istration of Manchurian railways, joint utilization of port Arthur as a naval hase and special commercial rights at the port of Dairen. Russian trade agencies opened shop in Man churia. Ballin wrote of the trade pacts: ... a way was found to export large amounts of wheat, soy beans, meat, rice, and furs to the Soviet Union in exchange for badly needed coal, kerosene, matches, cigarettes, and various industrial products.30 In addition to finished industrial goods some sixty Japanese-built locomotives that had been removed were returned. 30 David J. Dallln, Soviet Russia, and the Far East (New Haven: Yale University Press, 1948), pp. ’ 332, 358'. ‘ see also New York Times, March 7,. 1947* Enough of the trade de vices is shown to indicate the wide range of techniques used, and the absence of one monolithic method of trading. 419 The Russian five-year plan of 1946-1950 included construction of five railways in the area, totaling 2,800 miles, representing one of the first public extensions of the five year plans abroad. Control over the Chinese Eastern Railroad was to be retained by Russia, since the general manager of the road was to be appoin ted by her. The entire relationship was altered on February 14, 1950 when a new treaty of friendship and alliance was signed in Mos cow. Russia agreed to extend China a $300-million credit for a period of five years, to return the Manchurian railroads and withdraw troops from Port Arthur by 1952 or upon conclusion of a peace treaty with Japan, property taken from Manchuria was to be returned. American officials promptly charged that Rus sia really was attaching four Horth China areas, including Manchuria; the Russians denied this.31 American officials also charged that secret protocols were signed which would not come out for some time. More Russian advisers entered Ghina, and the American State Department insisted that Russia had obtained ^pre-eminent rights’ 1 in Sinkiang. f 1 European nations♦ Czechoslovakia was one country which won a delay in the supplying of Russia with materials, until her economy could be better stabilized. Towards Finland the 3'1 "united Press dispatch from Moscow, February 15* 1950. See also Associated Press dispatch from Washington, March 31, 1950 and united States Hews and World Report, February 24, 1950. 420 Russians extended a loan of about $50-million, with which the Finns were able to purchase machines, industrial installations and coal. A new five-year trade treaty for mutual exchange of approximately $350-million was signed on June 13, 1950 in Moscow. Germany, after having her reparations bill "reduced" in 1950 also was given a promise that Russian occupation troops would be paid for by Russia, as would the dost of for tifying the Elbe. Credits and investments are coming in, but they are only a trickle. In January, 1948 Russia granted Poland the largest single loan under Stalin’s leadership, for $450-million. Russia has supplied most of Poland’s requirements of cotton, wool, minerals, automobiles, tanning materials, mineral oils, leather, iron ore, magnesium, ferro wolfram, vanadium, molybdenum. Russia siso furnished boxcars. More than $7-million was loaned, for re construction of Warsaw32 Thousands of tractors have been sent. Russia has become the major market for polish exports. Russia was supposed to send 30,000 tractors to Rumania in 1948. Her export rate may reach 10,000 units a year to eastern European countries, exclusive of other agricultural machinery. Through this furnishing of capital goods, Russia 3^ Correspondence Economique, April 11, 1946. See also Combat, July 14,1945- By 1955 Russia is to aid Poland to raise her total number of tractors to 19,000. 421 ±3, according to Sternberg, "keeping these countries indus trially dependent on the Soviet Union in at least vital res pects. "3 This is the relation of forces. Non-satellite pacts. In 1934 and again in 1940 Sweden extended a credit to Russia. On October 7, 1946 Sweden granted Russia a credit of $278,500,000. it was to last for five years. Russian coal-mining rights on the Norwegian island of Spits bergen were renewed and mining begun after the war. In agreements in 1948 with Britain, Sweden, Norway, Switzerland, the Netherlands and Belgium-Luxembourg, Russia agreed to supply $300-million worth of goods, including grain, in exchange for machinery, electrical equipment and watches, technical supplies and steel and other industrial products.34 The Butch agreement Involves total trade of $108-million. Merchant marine. Russia*s ceaseless search for warm water outlets to the four seas and world trade beyond has led to the construction of a merchant marine, the purchase of many vessels and most Important her carrying of her own freight. Prom 1.5 per cent of world maritime tonnage, and handling of 92.4 per cent of export tonnage and 86 per cent of import 33 The Nation, December 31, 1949, p. 644. Re-export of some of these materials to satellite countries occurs. 3^ Joseph Newman in the Los Angeles Daily News, Nov ember 23, 1949. Import of such capital^goods from western countries does not violate the fact of Russia's export of capital goods to less advanced lands. 422 traffic by foreign ships, Russia had shifted by 1937 to carry ing two-thirds of her maritime traffic. Lack of her own mer chant fleet, Russian economists complained, "lessened the abi lity of Russian grain and other exports to compete in the world market., , 35 This the Russians set out to correct, declaring: The structure of maritime traffic has altered sharp ly. The international trade in coal has changed 'from an inqport to an export traffic . . . Considerable exports of apatite and potassium salts are beginning to appear. The nature of the export traffic has altered. Timber, for example, formerly went out almost unprocessed, while now it leaves largely as lumber. The export of grain has decreased significantly.36 Russia now exported finished industrial goods, a major change. Wartime loss of ships was large, 1400 sea-going vessels being sunk or damaged, or practically the entire fleet. Some vessels have been acquired from Finland, Italy and Germany as .reparations. Danubian boats were seized. By 195° 600,000 tons of shipping were to be added. In 1949-50 the Russians purchased ten trawlers from Sweden. German Schnorkel type submarines were seized, and Russia may have more than 250 of these vessels. V. MIXED CAPITALIST CORPORATIONS Making use of the old structure of a mixed capitalist corporation between two nations, the Russian state has become 3b S. S. Balzak, V. F. Vasyutin and Ya. G. Feigin, Economic Geography of the USSR (New York: The Macmillan Com pany, 1949), p. 448. 36 Ibid., p. 489. And this is dated 1939 for the main data I ^23 the largest single capital stockholder in eastern Europe. Seized German assets were taken over by Russia and promptly invested as Russian capital, with Russia holding 50 or 51 per cent of ownership rights. Ehke and Salera, wrote: A relatively recent Soviet trading development . . . is that of the binational trading company . . . the Soviets have joined with local governments to form a special type of trading company. This company is jointly controlled by representatives of the two gov ernments, and is granted virtually exclusive trading rights in its particular line of activity. Generally, the company has a board of directors composed half of Soviet nationals and half of nationals of the respec tive country. The president is usually a citizen of the local country, and the vice president is a R u s s i a n .37 They err only in considering the binational company or state monopoly corporation a new development. Both Salisbury and Bullitt took the opposite view. Salisbury wrote: The fact is that the Communist policy in the coun tries of the "Security Zone" resembles that of Russia, during the period of Leninfs Hew Economic policy . . .3o Bullitt called the economic regimes in eastern Europe "strikingly similar to the regime set up in the soviet Union by the Hew Economic Policy."39 On this question both writers have made a serious error. Russia's economy of 1921 was created by revolution, that in eastern Europe is simply a continuation ------- 37 Stephen Enke and Virgil Salera, international Econ omics (Hew York: Prentice-Hall, inc., 19^7), P* 38 Salisbury, op. cit., pp. 356-7* 39 Bullitt, op. cit., p. 71* 424 of tendencies towards fuller state control under capitalism. Furthermore, where mixed corporations under HEP were for the exploitation of Russia, the present mixed undertakings are for exploitation by Russia of neighboring countries. Lenin had declared of such mixed companies: . . . The concrete form state capitalism took in Russia at that time was setting up of "seventeen compan ies with a combined capital amounting to many millions . . . we have formed companies jointly with Russian and foreign capitalists The "joint companies” are old-time mercantilist devices, copied organizationally by HEP and later forms. Russia permit ted other capitalists and foreign investors and states to par ticipate within Russia in devices for industrialization which Stalin after world wa,r two uses to exploit resources and work ers outside Russia. There is a further economic difference be tween HEP and now. Today the arrangements are made by the Rus sian state directly with neighboring states, instead of with single capitalists. This is treated more fully under the sec tion on single state monopolies. Germany * s economy. Since Molotov spoke of ”no Sovietiz- ation” Russia under her interpretation of Potsdam has gained a right to a share in German assets and industry. Called Soviet corporations, the Russian-dominated groups included 180 factories in the summer of'19^6, linked by 25 holding 40 Hikolai Lenin, Selected works, Vol. IX (Hew York: International Publishers, 193b)> P.* 359* 425 companies, divided, among the main industries. Neumann wrote of the groupings: These corporations are Soviet property, are managed by Soviet managers without participation of trade unions or works councils, and are all controlled by Soviet In dustry Inc., a corporation having its managing board at Berlin and its presidency in Moscow. They work primarily for the reparations account, but, according to state ments by soviet managers also supply the nationalized sector as far as possible. The ultimate fate of the Soviet corporations remains in doubt, although Soviet authorities from time to time have; Indicated that the corporations will at some future time be returned to German sovereignty.^ Workers had no control over the corporations, whose description is included here since it is not yet clear that Russia will retain them permanently. The corporations may be said to be the first large-scale attempt by Russia to impose her system of combines--or combines of combines-- on non-Rus sian lands. Reparations were taking nearly 70 per cent of current production of the corporations, and the occupation army most of the rest. More than one-third of eastern zone production is concentrated in the corporations. Some writers, noting the division of the lands of part of the junkers, and partial nationalization, conclude, MIt is a veritable social revolution.1 1 ^ But Neumann pointed out: It is quite important to realize that the radical change in the property structure was not carried out : 4l The Annals, op. cit., p. 177, quoting from Per Sozialdemokrat, September 2'0, 1948. See also Continental paily Mail, September 12, 19^6. L ’Echo de la Finance, November 9, 19^5* 42 6 as a socialist measure, but as a device of denazifi cation. Socialism was still deemed to be undesirable. In greater detail Neumann showed: . . . many measures of the state governments are truly progressive. But by no stretch of imagination can the Soviet zone system be called a socialist state. Workers representation does not exist. The integration of the EDBG- and SED bureaucracies into the state ma chines strengthensthe authoritarian rather than the democratic elements, and the fact that the whole system works for a foreign power makes it still more impossible to accept the Bousseauan identification of the general will, represented by SMA, SED, and EDGB, with the interests of the people, or more particularly with the working class. This is why Neumann speaks of "the growing schism between social ist slogans and state capitalist reality."^3 Hungary. Under a five-year treaty with Hungary, since 1946 joint or mixed capitalist corporations in all of Hungary's basic industries were established, with the Russians holding 50 or 51 per cent of the eapital, largely gained from German assets. This agreement makes Hungary the leading example of how Russia can dominate an entire economy without altering its basic struc ture. It Is also the first instance of Russia seeking a joint share of the major industries of an entire country, unlike parts of industries in Poland and a whole sector of industry as in Iranian oil. Varga, himself a native of Hungary, did not hesitate to call such rule "state capitalism." With emergence of the Russo-Hungarian corporations an The Annals, op. cit., pp. 177-8. 427 entirely new stage of Russian expansion had been reached which could not he called preventive seizure" before British or American forces could exert their ownership rights. The treaty, Lehrman wrote, is "calculated to turn Hungary into a Soviet colony. ! , i j -4 Russia is withdrawing half the profits from Hungar ian industry. A new twist to this type of governmental or public invest ment was made by the Russians and the Hungarian. Communist Party, when the latter established a "Collective Cooperative of Econ omy and Assistance,” prior to taking over full control of the country. Through this cooperative the Communist Party entered into control over production. Russia began supplying coal to Hungary, and also sent in metals, fertilizers, vehicles, trac tors and textiles.^5 Rumania. Mixed capitalist corporations were also estab lished in Rumania for petroleum, navigation, shipbuilding, power, aviation, timber, glass, mining and metallurgy. Of this move Dean wrote; The 50-50 arrangements, as seen from Moscow, do not differ materially from joint-stock companies previous ly formed by citizens of Western countries for the dev elopment of resources in nations regarded a3 backward.46 44 Lehrman, up. cit., p. 220. * * • 5 The Times of London, October 23, 1945. ^6 Bean, The United States and Russia, op. cit., p. 225. Joint stock companies such as the London, Plymouth, Virginia and East India companies had founded colonies and spread capitalism over the face of the globe. Czarism used them too. * 428 Dean is correct here. However when other countries go through such an investment process that gives them control, Russia has never hesitated to call the act of extracting 50 or more per cent of profits imperialism, fascism and similar names. Pro- Russian writers have refused to comment on this phenomenon. The mixed corporations for control of river transport along the Danube reached the poont where the Russians and their neighboring satellites were able to consolidate control of the entire river. This was an historic change from the ear lier period of Russia's nearly total exclusion from the water way. Ho real changes were effected in Rumanian economy. But alteration of the rail gauge to the broader Russian ; type has been proposed. The instruments Russia used for establishing and running the mixed state capitalist corporations were foreign arms of her state bank. These dealt directly with the Rumanian banks, a difference with the usual techniques of other control sys tems which Dean did not remark. Another distinction is that at first not a ruble of Russian capital was invested: It had been seized from the Germans who earlier had seized the pro perty from the Rumanians and others. Most dangerous of the devices Russia has established may be the SovRom bank, to which the Rumanian Rational Bank may be already subordinated. SovRom bank is nearing or has achieved a commercial banking monopoly.^7 4y Bishop and Crayfield, op. cit., pp. 199-200. 429 After the joint Anglo-Soviet occupation of Iran in August, 1941 Russia was to handle supplies north of Teheran. The country was divided into north and south between the Allies and remained split until 1946. Russia pushed for a single Russian oil concession In northern Iran, but under great pressure from the other major powers decided finally to settle for construction of a joint stock company with Iran. Howard reported that the representative from Iran had Informed the United Nations in 1946 that, in lieu of a Soviet oil concession, an Iranian-soviet joint stoek company was to be established with 51 per cent of the shares to be held by the soviet gov ernment . 46 To this day the joint stock eompany, a normal state capitalist organization, has not been established. American Ambbassador to Russia Smith declared of an Interview with Stalin concerning Iranian oil: . . . He stressed the need of the soviet Union for a greater share in the exploitation of the world's oil resources, and said that Great Britain and later the United States had placed obstacles in the way of Russia when she sought oil concessions. ' ’ You don't understand our situation as regards oil and Iran,” he said. "The Baku fields are our major source of,supply. They are close to the Iranian bor der and they are very vulnerable . . . We are not go ing to risk our oil supply.”^9 Stalin had given a clear reason for Russian interest in ex pansion abroad, "a greater share in the exploitation of the 48 The "Annals, op. cit., p. 186. 49 smith, op. cit., p. 52. 430 world's oil resources.” Russian economists complained that the Middle East fields and Baku were part of the same field. Russo-Chinese mixed companies for exploitation of the Chinese Eastern railway, Manchurian industry and mining, all were apparently altered hy the agreement of 1950 with China,. But for a time at least Russia had sought long term leases, joint administration of railways, joint utilization of ports, naval base rights and extraterritorial rights of other kinds. Moreover, the general manager of the railroads was to he a Russian, which would give that country control. Estab lishment of such mixed corporations with China was slightly different from arrangements with other countries, since China was an ally. But the entire fundamental approach of Russia to setting up mixed state capitalist corporations showed no alter ation, regardless of what country was involved, unless outer pressures were too strong to permit full exercise of Russian expansionist tendencies until a later time. VI. SINGLE STATE MONOPOLY It would he easy to write that Russia was moving to the stage of eliminating mixed capitalist corporations with other states, and was setting up single state monopolies of her own. But not even Russia has this much power, nor is it advisable because of the possible wrath of subject populations, who would object to such open Russian state exploitation. Yugoslavia's 431 Tito had much such an objection and was denounced. Operating capitalist industries. Russia moved so fast in her initial seizure of German external assets that, as in Austria, she seized and still controls single monopoly rights. The Zistersdorf oil fields were taken over, thereby giving Russia sub-soil rights in a non-Russian land. Some 45,000 acres of farm land were also seized, along with much of Austria’s industry. Austria refused a Russian offer in the summer of 1946 for a 50-50 per cent exploitation of the oil wells.50 Approximately two hundred Austrian firms were placed ■under control of and operated by the Russians in a giant trust. Its production goes to supply the occupation forces and for export.51 a leading Russian general in the occupa tion forces told a Russian Tass correspondent; . . . The enterprises becoming property of the USSR remain in Austria. They function on the same legal bases as all other enterprises in Austria. In these enterprises we will apply commercial legislation, and labor and other laws of Austria. In these enterprises, the interests of Austrian workers, employees, engineers and technicians will be safeguarded. We jwill have the worry of amelior ating their conditions of life and of food, in all regards we will support the initiative of union or ganizations and other worker organizations which tend to create a social institution network (canteens, 5° L ’Humanity, July 28, 1946. 51 United States Hews and World Report, December 10, 1948. 432 parks and nurseries).52 Thus in Austria's economy the Russians have retained capitalist property relations in the controlled plants and operate them under a single state monopoly. Russia opposed-; nationalization, although even the Communist Party of Austria had voted for nationzliation of the plants seized by the Rus sians! Whatever difference there is between Russian control over unions and the earlier Hitlerian domination in the pro cess of production has not been established. Prom Finland Russia took over control of half the na tionalized industries in January, 19^7» establishing her own separate control. This was done in the Baltic states and in other areas, such as Bessarabia, Bukovina, eastern Poland and in the Par East. Russia assumed single control of oil and coal concessions on March 31* 19^ in Northern Sakhalin, form erly held by Japan. On the other hand, in the Sudetenland of Czechoslovakia the Russians returned to Czech control a Nazi- constructed synthetic gasoline plant and other works* Thus Russian policy is not at all Inflexible. Halting removal of plants from her zone of Germany, Russia has moved to the next stage of continuing on the spot production. Prom this she appropriates a large share of cur rent output for use of her occupation forces and for trade. 52 Neiies Oesterreich, July 9, 19*6. For the attitude of the Communist Party of Austria, see The Times of L0ndon, August 3, 19^6. ^33 Russia holds very large land acreages in the form of a single monopoly in eastern Germany, mainly for the feeding of her occupation forces. She also holds land in parts of Poland, although these may he relinquished. Public seizure. Earlier conquerors have hid their penetration and domination of an economy behind native persons and corporations, or "fronts.” They did not find it necessary to declare themselves publicly as owners of land, natural resources and plants, not to mention sub-soil rights. Instead of being "silent partners" in a country's industries, Russia in her single state monopolies has been quite open about her controls and seizures, even seeking to give them legal justification, as has been shown in the section concerning war booty and looting. The new Russian expansion has much to learn from the old in matters of con ceal control behind dummy companies. As a consequence the Russians have been made to look like thieves, when with more judicious handling they could possibly have achieved the same re suits--perhaps more- slowlyt:- by moving to gain ownership, as even the Nazis did In many cases. In owning land and sub-soil rights, annexing border regions and declaring these areas Russian soil, Russia has bared her entire aim and method of conquest. It is one of history's most unconcealed and truly naked forms of politico- economic rule every devised. Russia, apparently rushed in so 434 rapidly that she had established her controls, stripped and looted, ousted workers’ from control of industry, opposed nationalization, continued capitalist property relations, before she saw that the results of telescoping the process of domination into one single series of seizures had only gained for her the enmity of countless millions of peoples for years to come. It is this public seizure and open or naked domination of economies which in part distinguishes the present Russian forms of direction from Czarism and some others to which they have an affinity. Tito and colonialism. The worst of the breaches in the buffer state system came when the Cominform denounced Tito, head of the Yugoslavian government, after apparently failed to liquidate him secretly. Enmeshed in ancient na tionalistic conflicts, Russia floundered badly on economic policy toward Yugoslavia, whose fierce nationalism and fight ing power had made of her one of the few countries in all Europe which stood up to the Germans and then to the Russians. Yugoslavia refused to accept orders on organization of her forces and on agrarian and industrial subordination of her economy. Tito at the end of 1948 noted that the break actually occurred in 1946 when Yugoslavia sought to become more than ’ ’suppliers of raw materials. ”52 b'2 united press dispatch, December 28, 1948. see also Mew Statesman and Nation, July 3» 1948; Fortnightly, November, 1948^ ^35 Rumania and Hungary too reportedly opposed this role of suppliers of raw materials. Tito and similar elements sought to gain aid in the form of capital goods from the west, which up to 19^8 Russia had refused to permit until she her self could supply capital goods. Similar problems are repor tedly arising in China. World Stalinism had not only been halted by this entangle ment in nationalist problems, but also Stalinist leaders in vari ous countries for the first time had their base in an economic and political machine controlled by them directly. They were no longer grounded solely on the Kremlin’s support. State relations had to replace the former more private ones, and for this Russia had not been well prepared. It remained for the Russian economists to explain the fuller significance of the attempted subordination of Tito, when they discussed the colonial policy of imperialism: The colonial policy of the imperialist countries retards the development of industry in colonial and semicolonial countries, which are the largest sales markets for industrial output, and which abound in various raw materials . . .53 Russia used this same policy to certain less advanced coun tries, although some others were permitted to industrialize. Nevertheless the Russians have gone on to further organization of their borderlands and buffer states. On 53 Balzak, Vasyutin and Feigin, op. cit., p. 105. They were writing of the United states ,“England, Germany and France in 1939• 436 January 25, 1949 a Council for Economic Mutual Assistance was established. It was an attempt at more thorough integration of the economies of eastern Europe with that of Russia. It was followed by more thorough organization in 1950. VII. MONETARY CONTROLS ¥hen the armies of the four major nations moved into lands to be occupied they printed their own Invasion currency. Russia was accused by the other Allies of having printed far more than the British and Americans. Being the first to enter Berlin, seat of the large banks, the Russians blocked all bank accounts, closed the banks, resulting in virtual confiscation of deposits. New community banks under Russian control were opened and deposits Invited. The new banks were designed to assist financing of the agrarian reforms and to keep eastern zone economy functioning so that it could pay reparations. Insurance companies also had their accounts seized. New public insurance companies were opened, which depended entirely on the Insurance monopoly in Moscow.54 In K03?ea the Russians printed new money and ordered the old money turned in. It was used to finance Russian operations. Manchuria also had an occupation currency circulating, which the Russians insisted the Chinese government recognize. But !?4 "La dette et la M nnaie Alleniandes,n Notes Document- aires, et Etudes, No. 345*. ^uly 6, 1946. 437 China refused.55 She incoming Lublin government of Poland also intro duced new currency, seized the personal savings of Poles and forced new savings to be deposited in government banks. The new currency had been printed in Russia.56 Rumania was forced to agree to a joint bank known as SovRom, with the Russians having practically a commercial banking monopoly.57 Financial controls may be more insidious than other forms. Invisible import of wealth. Before 1939 the Russians had had a Valuta plan for achieving a rough balance between receipts and expenditures of foreign currency. Gold was used to settle accounts. Today this has changed considerably. Russia now has bond holdings abroad, along with stocks and whole plants, and land and sub-soil rights. She has liens on current production, and draws interest from her invest ments. By printing occupation currency and controlling banks, Russia was enabled to withdraw from conquered countries great stocks of wealth which appear in no reparations or even war booty recoking. This process of monetary manipulation has by no means halted. In the past two decades the Russian state had made huge 55 Dailin, Soviet Russia and the Far East, op. cit., pp. 24-6, 285. 56 Mikolajczyk, op. cit., p. 213• 57 Bishop and Crayfield, op. cit., pp. 200-1. 438 profits from foreign trade, as Condoide -wrote, to gain capital: By concentrating all foreign-trade functfons in the hands of the state, the Soviet authorities removed all the numerous middlemen and diverted the profits formerly received by them into the hands of the State. In this way, foreign-trade monopoly became a source of capital accumulation . . .5o By 1950 interest payments on foreign investments had be- ©me a source of capital accumulation. They joined other types: looting, plant seizures, reparations, war booty, part of current production, having factories work up Russian materials, labor imports, imported techniques, banking controls, shipping char ges, printing press money. Moreover, through near-barter ar rangements Russia was able to force countries to pay in goods, to strip many of them of their valuables and reduce them to economically dependent positions. There is also the fact that the Russians shrewdly have used some of the satellite nations to purchase materials they could not obtain directly. Higher profit yield abroad. It has been demonstrated that under the bilateral trade agreements the terms of trade are highly favorable to the Russians. They are enabled to purchase many products at' less than world market prices, and thereby gain an additional profit. It would appear that Russia, like older investors in foreign trade, has become intrigued with the higher profit yield possible abroad. Al ready the Russians by preventing strikes have guaranteed 58 condoide, op. cit., p. 32. ^39 their own investments and payments on reparations .59 Furthermore the five year plans have already included investments abroad, such as building of railroads in Man churia, just as in pre-1939 days plants were built abroad and investments made. What is lacking within Russia can thus be supplemented by investment abroad, and extraction of profits from these investments. Russia may have reached the stage of making a considerable amount of profit from her foreign in vestment, instead of having to pay out huge sums for use of foreign credits or take a loss on her holdings.6° This process is not the self-sufficiency of ’ ’socialism in a single country." It is also the opposite of world revo lution to end capitalism. 59 Towle, oj>. cit., pp. 5^, 161, on the higher profit yield abroad. 60 ibid., p. 6l. Towle wrote of the economic stages through which a growing nation may pass: "In the first stage, when a nation Is young and undeveloped, it.will borrow heav ily from abroad, and these capital Imports will be balanced by an import balance of trade . . . In the second stage, inter est payments and amortization payments on the principal will exceed new borrowings abroad; to provide the foreign exchange to meet these debt service payments it will be necessary to develop an export trade balance. Eventually, the nation, may reach the third stage, in which she will be lending sums in ex cess of the amount needed for the interest and amortization payments on her own debt; again, this situation necessitates an export trade balance. Finally, in the fourth stage, receipts for interest and principal repayments will exceed new foreign lending, and the nation will develop an import balance of trade." By 1935-36 Russia had achieved a favorable balance of trade and was exporting capital to less developed countries. By 1950 Russia had reached the third stage and part of the fourth, and was living off payments of interest from abroad. Lenin called this type of "special privilege" Imperialist "parasitism.” 44o Gold ha, 3 been used by Russia to pay for Imports. Dur ing the 1920’s and 1930’s there was a fear of Russian gold, based apparently on the thought that considerable gold could be produced by prison or slave labor in Russia. Writers today even consider this possible and that Russia may be able to upset international monetary equilibrium with gold shipments abroad. In 1930 Russia, had produced 8.3 per cent of world gold output. This rose to 16.2 per cent in 1937* placing Russia second to South Africa in total production. Apparently Russia is highly desirous of having the gold standard reestablished as a means of settling international payments. This would give a certain stability in international trade for her. Russia agreed to participate in the United nations Sta bilization Fund with at least one billion dollars In gold. She was one of the signatory nations at the Bretton Woods monetary and financial conference in July, 1944, at which she accepted use of gold as the common denominator for currency of each member nation, or of using the American dollar. Russia agreed to contribute $1,200,000,000 to the Interna.tional bank and a stabilization fund in proportion to her trade volume. In 1950 Russia ordered her bloc of nations to tie their money In international payments to her revalued ruble. she an nounced she would seek to create a ruble empire from the Elbe to the Yangtze rivers. CHAPTER XVII CONCLUSIONS Of the possible ways of examining the phenomenon of expansion by Russia the economic Is not the least Important. To the Russian leaders the economic is the foundation for all others, and politics Is the concentration of economics. Where state and eeonomy are fused in multi-layer trusts there is no real line of separation. Under state monopoly economics is Intimately linked with political, military, and ideological and propagandis'tic forms of expansion, some of the directions and tendencies of the economic expansion, hitherto given far less attention than the political growth, will be delineated to indicate the mode of operation of the expansion, and its prospects for enduring and changing. Who benefits from the expansion is only now receiv ing an answer. The phenomenon is relatively new, at least In its present form. It is still in process of development, and is changing rapidly. What appear to be basic tendencies today have not reached their fruition. Moreover external forces, such as a defeat In war or revolutionary overturn,; or even great pressure from other powers, may prevent a full unfolding of trends whose further growth depends in large measure on favorable opportunities. There is a mistaken emphasis in the literature on the seemingly omnipotent 442 Russian state "planning" all its moves, having blueprints for world, conquest, being perfectly monolith, and moving with the inevitability of a natural law when in fact it moves haltingly. I. END OF REVOLUTION Revolutionary Russia under Lenin was no stranger to expansion, mainly through revolutionary uprisings, and only secondarily with aid from Russia’s armed forces. Workers out side Russia were called on to overthrow their rulers. The lat er expansion under Stalin has a greater resemblance to Czarism. Rationalism and exaggerated patriotism replaced the early revolutionary internationalism. That "disgusting" word Fatherland was back in official favor; war against Germany was called the "great patriotic war." The Internationale was re placed by a national anthem, the Red by the Russian army. Pre revolutionary Czar1st ranks, plus a few refinements such as the title of Generalissimo for Stalin, were reintroduced. Sa- j luting of officers was revived, while the "socialist Oath” of troops was eliminated. World revolutionists were purged. Russia by the middle 1930*3 had begun to act on the basis of her own national interests. Her development has moved steadily towards the extreme right: From the united front with working class groups, to the popular front with avowedly capitalist formations, to the political and economic front with Hitler. These were followed by making common 443 cause with the formerly dreaded "imperialist" powers of Amer ica. and Britain, and the present "national fronts" which are steadily giving way to the single-party blocs in eastern Eu rope, or outright Communist Party control. Patriotic, na tionalistic and religious Russia had once again begun to move beyond her borders. Comparisons of present-day Russian expansion to that of' Czarism are useful, but incomplete. Russia has evolved a technique of performing her exterior moves publicly, as a state, of intervening directly, while pursuing secret'end3 as well, and working through fifth column agents or sixth .column economic experts. Czarism*s messianic outlook has been altered and merged with multi-national federalism and Pan-Slavism. A search for security through clasping of other countries to Russia goes on ceaselessly. In place of the early revolutionary exposure of secret diplomacy and renunciation of Czarist conquests, Russia today has reinstated secret diplomacy. There is a difference. Pos sible opponents are mercilessly exposed and publicly defamed; character assassination is an effective divider of opposing opinion. There is too the assertion that Russia is bringing other countries socialism, democratic liberties, a just and durable peace, and an end to crises and unemployment. Czarism neither promised nor aimed for these things. Hor did Czarism have a developed propaganda machinery, geared to splitting opponents in other lands and mobilizing mass sentiment at home. 444 Russia has sought' to prevent small powers from deciding the destinies of nations, as Czarism did. Lenin in 1919 had prophesied that forcible coercion of the working classes of other nations into submission would mean the fall of the revolution. As Russia was ringed by pressures from without, Stalin rose to power internally, re moved the internationalist forces and by the 1 9 3 0*s had moved towards extreme nationalism. Nevertheless, expansion had not halted, Germany's leaders noting a desire to move out abroad as early as 1932. The Allies of the first world war bitterly denounced revolutionary Russia for quitting the war and giving up the eastern front. The Allies of the second world war denounced Stalin's Russia for seizing territory and seeking to dominate other nations politically and econ omically. Russia once again had become an oppressing nation. No revolution was called for anywhere throughout Europe by Russian leaders and their followers. Where property changes occurred, as on the land, they were consummated by the peasants themselves. In industry the main change was the supplanting of former collaborationist owners or owners who had fled with those who would work closely with pro-Russian governments. No Soviets exist anywhere in Russia's zones of Europe, nor do workers there control industry or government. Once Stalin had entered on elose relations with Mussolini and Hitler, and then with the western Allies to obtain the identical demands raised to Germany, there was no way of turning back 2j45 to the use of revolutionary strategy and tactics. Still, Russia calls her groups Communist parties, her self the land of socialism, her aims the end of capitalism. In the nature of modern political economy where so many phe nomena have one formal name and an entirely opposite real meaning, one has to probe beyond the claim to the real social relations concealed by propagandistic phrases. It Is no acci dent that leading political and economic specialists acknow ledge that Russiars moves, for example in Germany, were not carried out as socialist measures but as part of the process of denazification. Where workers representation did not ex ist, reasoned analysts did not hesitate to declare that so cialism was neither called for nor achieved. Instead Russia Imposed a military occupation which was in complete contrast to the opposition revolutionary Russia of 1917 had had to such methods. II. IMPERIALISM Lenin*s description of imperialism as the highest’ stage of capitalism in which monopolies and finance capital dominate and the export of capital and division of the world occurs Is not adequate to describe Russian expansion. Such a descrip tion unduly limits the role of political aims and methods of expansion, although In his other works Lenin apparently made no such separation. The political element of Russian expansion requires great emphasis because of the state monopoly of economy 446 and of foreign trade. Russian expansion is a state organiza tion of the enslavement of peoples, seizure of territory, military occupation, single party controls, use of special economic privileges and spheres of influence, entry into mixed capitalist corporations and erection of single state monopolies working for the state. (Trotsky repeatedly said that Russia lacked the element of finance capital and therefore was not imperialist. This hook has shown that capital export has resumed, and this chap ter will describe some features of organization of the border lands. The agreements with Hitler for division of Poland were an imperialist division of territory. The demands made on Finland were for imperialist aggrandizement. The joint or mixed capitalists corporations from which Russia obtains half the profit give her leaders a privileged economic position. In no way can this be called a sharing of the fruits of pro duction with toilers in the borderlands. Russia's crushing of workers' attempts at seizing factories and controlling industry can, indeed, be termed counter-revolutionary. If this be imperialism, it is a direct state imperialism based on trusts and finance capital export means. ¥hen the policy of relying on buffer states and not workers abroad arose, Russia extended her acceptance of im perialist methods of controlling other areas and of acquiring greater weight in the European and Asiatic political relations. Russian leaders have emphasized: It should he known to everyone, that the borders of the Soviet Union could no more serve as a subject of discussion than, for instance, the borders of the United States or the status of California . 3 - Russia, perhaps unwittingly, was admitting that borderlands were gained by seizure. The capital export position. Once the economic accords between Russia and Germany have been examined there should be little doubt as to the forms and techniques of Russian ex pansion economically. By 1935 Russia had begun to export capital to eastern lands, even building plants, roads and rail lines there. On balance, however, she was a capital importer. But the tendency to export capital had definitely evolved. In those pre-world war two days Russia was not strong enough, nor was her capital position sufficiently consolidated, to permit her to exercise great influence In world trade. In the pacts with Hitler Russia realized all her Im mediate territorial and political demands, and found that to entrench herself further in newly acquired areas required supplying them with capitalism^ vital materials, production goods, as was being done in the east. By 1940 German economists 1 Pravda, October 13, 1943. While some American wri ters have recognized the validity of the claim, the fact remains that this was the voice of nationalist Russia, insist ing on her right to acquire territory as befitted her na tional honor. These same writers call Russia "communist. 448 were informed by Stalin that Russia within five years could supply two Germanys, and had begun exporting iron ore and steel to Germany. By wartime victory, diminishing importance of Germany and Japan, and war booty and looting and repara tions, Russia has achieved a new position in international trade. Behind her Russia has the lessons of Germany's efforts to dominate trade of central and eastern Europe. Today the Russians stress that they still remain econ omically independent and retain their state monopoly of foreign trade. Row the state monopoly is really a multi-state mon opoly because of Russia*s position of dominance over the econ omies of neighboring lands. War booty and seizures having a short life span, Russia soon replaced them with a system of organizing production on the spot and obtaining a share of the product. The chief form used is the mixed or joint cap italist corporation in which Russia is a stockholder, and as a result of which Russia is the largest single.capital stock holder throughout eastern Europe. Bilateral trade agreements, block buying and the setting up of single state monopolies as in the holding of sub-soil rights to Austrian oil are part of the organization of the borderland economy. Once Russia had seized possibly $2O-$30-billion worth of capital materials through eastern Europe and Asia she became the legal owner, and these goods were transformed into her own capital export. In addition, she.has extended huge loans to nearby lands, $450-million to Poland, $350-million to China and 449 lesser loans to other nations. Trade with most European na tions has risen sharply. What is most important in the cap ital export picture is that increasingly other lands are be ing placed in a position of economic dependence on Russia. Economic organization. The Eastern European Council for Mutual Economic Aid was organized in January, 19^9 to coordinate the functioning of these economies. Still in use are Russia's occupation armies, although through strengthening of Communist Party control the Russians can let native leaders rule while control is exercised less openly. A remarkable interchange of products has begun, in which Russia actually imports certain machinery from such highly developed lands as Czechoslovakia, but in turn sending them other capital goods. At first the Russian economic council worked to draw materials out of Europe in order to make Russia relatively stronger. But this has changed already, and on-the-spot pro duction is now being heightened. A significant advance is the increase of population in the Russian Par East. Thousands of people from the border regions have been sent to swell the region. The Urals, Siberia and Central Asia m y already out produce the Conetz basin in coal, pig iron and steel. Rebuilding of plants has begun in those areas which were once stripped. Manchuria is to be rebuilt to half her previous capacity. For Russia to succeed in raising living standards in eastern Europe and to collectivize farming it will be neces *1-50 sary to increase the export of tractors. - Poland is. expected to receive some 3,000 tractors this year from Russia. Other eastern European countries also await farm machinery. One of the largest plans is for establishing an "East- ern Ruhr" around Polish coal, Czechoslovakian-Eastern German engineering skills, and Ukrainian iron ore, which could pos sibly outproduce Germany’s Ruhr. This would increase steel output of Russian areas. To meet the problem of the econom ically difficult long haul of J00 miles from the Ukrainian mines, a series of canals connecting the Oder and Danube rivers is to be built. Russia's investment in fixed capital would include direct loans, aid in canal construction, provision of ships and overall organization of the project. Hitler earlier had expanded the highly developed industries of Czechoslovakia. Stalin apparently has seen that great gains can be made from permitting a continuation of this development to more lands.2 How closely various countries have been linked to Russia’s economy can be shown in the case of Czechoslovakia. In 19*l-7 the Czechs supplied $25-million worth of products to Russia; in 1948 $120-raillion; in 1948 more than $200-mil- lion. The plan is to increase Czechoslovakia's capital 2" United States News and World Report, July 7 and 14, 1950; Business Week, December 10,1949, March 25, 1950; Magazine of Wall Street, March 25, 1950- More agricultural countries were less fortunate and were not to have their economies developed in this way. 451 Investment almost 50 per cent in 1950. Russia will increase trade with the Czechs, and has already extended gold and hard- currency loans to enable the Czechs to balance their "western trade in 194-9* The Russians supplied approximately $100-million. In 1948 Russia exported $355-million worth of goods to the borderlands and imported $295-million worth, giving Russia an export surplus. Moreover Russia was paying approximately one-third less than world market prices when buying in eastern Europe and when selling there charging from 40 to 50 per cent a^ove world prices. Neighboring countries purchase materials in the world market for Russia*s use, for American practice limits direct Russian purchases. These countries also deliver gold and hard currencies to a common pool in Moscow. ¥hen the Russians re valued the ruble in 1950 the neighboring orbit countries lost greatly, for in being tied to the ruble instead of gold and the dollar they will be required to pay more rubles for Rus- • sian goods, and their hard currencies will exchange for less rubles. As a result "the satellite countries whieh are des perately short of raw materials and capital goods will now have to turn almost exclusively to Russia to get them."3 Mere, Russia now has proposed organization of a ruble bloc from the Elbe to Yangtze rivers. . III. STATE CAPITALISM 3 Magazine of Wall Street, March 25, 1950, p. 698. 452 Lenin called Russia state capitalist under HEP: Freedom of exchange means freedom for capitalism. . . a new form of capitalism . . . It is state cap italism. But state capitalism in a society in which power "belongs to capital and state capitalism,in a proletarian state are two different concepts.4 Lenin explained that the concrete form state capitalism took in Russia was establishment of "seventeen companies with a combined eapital amounting to many millions . . . we have formed companies jointly with Russian and foreign capitalists.” HEP was an effort to obtain capital from abroad, but it was the same "state capitalism” Lenin had described in 1917 and 1918, with the workers in control of the "commanding heights.” How could Russia proceed beyond state capitalism? Lenin replied: "a direct transition" could come only through elec trification "of every village" and then "only if the prole tarian revolution is victorious in such countries as England, Germany and America." While Lenin noted ”a partial revival of bureaucracy in the soviet system,” which was strangling the workers’ control that he said made Russian state capitalism different from other types, he showed that concessions were "the simplest case . . . of how the Soviet government ’implants' state capitalism.” Cooperatives, commissions and leases were the others.5 m 1947 when Russian economists criticized Eugene 4 Hlkolai Lenin, selected Works (Hew York: Interna tional Publishers, 1938), Vol. IX, pp. 238, 339*. 5 ibid., pp. 182 and ff. Unlike other analysts Lenin was not afraid to use the bald term state capitalism as a description of Russia in revolutionary days. 453 Varga for calling eastern European economies "state capitalist,1 1 some "beat at tlie hard rock of Lenin’s characterization of the eeonomy of Russia as state capitalism and complained: "But did Lenin have in mind state enterprises when speaking of state capitalism in Soviet economy?"6 Others denied that state capitalism could exist at all, stating that while Lenin recognized a "growing-over of monopoly capitalism into state-monopoly capitalism . . . it cannot he completed under capitalism . . . #7 Lenin’s own works would indicate that if state capitalism is only a tendency under the older types of capitalism, it was consummated in Russia in his time, although workers’ control remained. Since 1924 workers’ control has disappeared, and state capitalism with its base in commodity production and money, wage labor and bond flota tion, trusts and modern finance techniques and labor controls has moved far to the right. State monopoly abroad. Russia's joint or mixed capitalist corporations in eastern Europe and in parts of Asia have been compared repeatedly to the HEP. But Lenin had shown that in the Russia of his time the workers ostensibly ruled; today they do not in the borderlands. Where Russia was the field for 6 Eugene Varga, Soviet Views --on the -Postwar. ' World Economy (Washington: Public Affairs Press, 1948), p. 94. 7 ibid., p. 42. Varga was finally forced to confess that eastern Europe was not state capitalist. 454 investment by foreign capital, today Russia is the investor in other lands. Nowhere does she share her control with workers in these countries; nor does she, ’ ’communist1 1 fashion, share the seizures of property with German or other workers. Dean has made the observation that: The 50-50 arrangements, as seen from Moscow, do not differ materially from joint-stock companies previously formed by citizens of Western countries for the devel opment of resources in nations regarded as backward.° The form is similar to the Hudson Bay, Plymouth and London companies which also were state chartered monopolies. But Russia has called such investments by other imperialism. There is no evidence as yet that Russia is raising up backward nations, although certain social reforms have been gained. Primarily the gains from production in lands where the joint companies are used are not shared with the producers, but go to the Russian state. It is for this reason that Marshal Tito of Yugoslavia has stated that Russia moved abroad to solve an internal cri sis, caused ”by the introduction of unequal relations and exploitation of other Socialist countries.”9 Russia increased the size of Polish and Czech industry, but Yugoslavia was to be a colony and supplier of raw materials, Tito complained. 3 Vera M. Dean, The United states and Russia (Cam bridge: Harvard University Press, i'948), p. 225* 9 united Press dispatch from Belgrade, March 18, 1950. See also Reuters dispatch from London, July 9, 1950. 455 As Russian plans did not include increasing industry in Yugoslavia, so in Germany, Weumann remarked a growing gulf between "socialist slogans and state capitalistic reality," which only a rapid improvement in living standards could al ter .1^ In the denunciation of Varga by his fellow Russian economists, their anger was aroused particularly by his appar ent identification of British state monopoly with that of the eastern European countries: . . . the economy of a transitional type in the countries of the new democracy Comrade Varga gives an evaluation of this phenomenon as state capitalism . . . Comrade Varga terms the enterprises nationalized by the popular democratic states "state-monopoly enter prises .f , H Varga had declared: . . . In the countries of a democracy of a new type, for example, in Poland, Yugoslavia, Bulgaria, etc., the economy has acquired new characteristics: a considerable part of the means of production of industry has been transferred to the ownership and administration of the state, that is, state capitalism prevails . . . Although Varga was forced to retract this characterization, It would appear that it was sound. His fellow economists doubt less feared, as they had stated, that the characterization could then apply to Russia herself, as Lenin had applied it. It is no wonder that the Russians called nationalization in Britain 1° The Annals of the American Academy of Political and Social Science--The Soviet Union Since World War II (Philadel phia, 19^9), VolT“26i, pp. 1Y&-9• H Varga, oj>. cit., pp. 22, 39, 18-19, 11. Varga was demoted but then, when his analysis held up, was reinstated and sent to help integrate Hungarian economy. 456 "state monopolies" that did not radically change property rights* On this score the current Russian leaders had departed from Lenin, who had described HEP as a state capitalism with workers’ control; now this control was removed. The state corporations are a real step beyond the state-dominated economy of mercan tilism because they are founded on multi-layer trusts in which investors remain but the individual entrepreneur is gone. This was true even concerning the reforms in land owner ship where the peasants, as Varga declared, carried out the elimination of the landlord before the governments issued decrees.2-2 Yet both Marx and Lenin had repeatedly called not land division but the opposite and far more developed pro cess of land nationalization an ordinary capitalist reform. There is nothing exceptional nor socialist about the capital ist state owning all or most of the land, as Czarism had done. Varga’s comment, it should be emphasized, was based on his calling all eastern European economies state capitalist. It is now possible to reach a closer characterization of the Russian state system of economy both internally and abroad. Before summarizing the component parts of the descrip tion it worthwhile to call attention once again to the long years of mercantilist state economy Russia endured. While latterday writers find a strong resemblance between state mixed or joint corporations under HEP and those in eastern ------- 12 IB'M.', p. 23. 457 Europe today, their common mercantilist origin from older Czarist forms which have been resuscitated is even more strik ing. Given only a change of date and of a few names, the pic ture of a typical Czarist-mercantilist state chartered corpora tion fits closely the Russia of today both at home and abroad: . . . the interests of all Russians engaged in the American fur trade were mered in 1799 with the charter ing of the Russian American Company, and upon his ac cession to the throne Alexander confirmed the monopoly granted this company and placed it under his official protection. It was given full control over all Russian settlements from Bering Straits to the fifty-fifth parallel— all of what is now Alaska--and the further authority to enter into treaties with the Indians and to establish colonies south of this line wherever the territory was not already occupied by another power. The Czar sought to establish an organization comparable to the British East India Company or Hudson’s Bay Com pany. It was virtually an independent branch of govern ment designed to promote Russian interests in the Hew For Id.- ‘ •3 To this description of a complete state monopoly operat ing as a direct arm of government for promoting the national interest, the modern mercantilism or state monopoly capitalism of Russia has added mainly the ingredients of multi-layer trusts , grounded on modern industry and finance. IV. THE COMINFORM The Third (Communist) International was dissolved in 1943 when Russian leaders prepared for a new structure that would link Communist Parties abroad should they enter govem- ------- 13 poster Rhea Dulles, The Road to Teheran (Princeton: Princeton University Press, 1944), p. 2^7 To this day Russia's northern Sea Route Administration is patterned after the Hudson Bay Company. 458 merits that were being readied. Ho public or secret Comintern had previously performed the function of direct state arrange ments with Russia. Abolition of the Comintern was based on Stalin*s "seeking for a united front, not of the world’s work ers for world revolution, but of other nations against Hitler," Pares explained.3-3 Expansion required its own forms; it was soon to create them. The new Communist Information Bureau or Combinform was founded in September, 1947. How Communist Parties had bases not alone in Russian strength but in control of whole states and economies. The multi-state organization through the Com- inform, and other, less public means, declared it was leading resistance to American plans for enslaving Europe. Russian diplomats were the leading carriers of author ity to the local Communist Parties, which exist in nearly all countries. Moreover, Russia has planted several millions of her troops and thousands of agents in the borderlands and even in some of the western lands to prepare for neutralizing these powers today and subordinating them tomorrow. A consultative military grouping was established on March 26, 1948, along with a whole series of political and economic alliances. These arrangements moved Russia well beyond the old united fronts with workers groups and popular fronts with capitalist formations, to direct state relations. It would be 14 sir Bernard pares, Russia and the Peace (hew York: The Macmillan Company, 1944;, p. £2'9. 459 a mistake to consider that the "national" front is any more than a mask for Russian control, it is grounded on domination of a state and economy and not upon relations with worker groups. No unified line. Trotsky declared frequently that Sta linism could not survive a major ehange such as a war, but Stalinism showed far greater strength than had been thought possible. Still there is prevalent a common error of attri buting to Moscow a unified world line or political program and a degree of omniscience in her relations with parties abroad. "When Marshal Tito broke with the Kremlin in the summer of 1948 the absence of a unified line was apparent. This lack of singleness of policy had begun years before. While Russia continued her pacts with Germany, Yugoslav Com munist Party leaders in 1940 had begun opposing Germany. Par ties elsewhere were operating on the old line of "Britain and France are the warmongers." Innumerable national differences stand in the way of Russia being able to fit a single policy onto its cumbersome interna.tional apparatus. Dualism of policy in specific coun tries appears to be the rule, now that the Communist Parties are so tied to nationalism. After the war dualism grew worse. French stalinists demanded internationalization of the Ruhr and annexation of the Saar; German Stalinists fought this. A similar struggle broke out between Yugoslav and Italian groups over control of Trieste, despite the overall Russian aim to 460 gain the port so as to reach the Adriatic sea and bypass the Dardanelles. If this be 1 1 socialism” in more than one country it is showing itself incapable of preventing inter-state struggles. No longer is It possible, as in the old days, to eliminate a difference by liquidating opposition, as Tito's survival demonstrates. This should give the lie to opinions as to the extent of monolithism'and impregnability of Stalin. Slavish devotion to the current line is no longer the hallmark of a Communist Party in good standing. Some are forced to retain national lines abandoned generally by Mos cow. Stalinism has its parties follow their national capit alist class on many basic problems. Against major opponents such as America and Britain all nationalist Stalinist groups follow the general line of neutralizing these powers in order to prevent their putting too great pressure on Russia. A ma jor distinguishing feature from the economic standpoint is that all national Communist Parties favor overwhelming state intervention of nearly all kinds. Wherever they are they support state monopoly capitalist tendencies. Multi-national federalism. Not from revolutionary as pirations but from the drive for economic and political domination over other lands has Russia spilled out into Europe. Pan-Slavism Is only one form of this eruption and not the most Important one. The early Bolsheviks had fought and opposed pan-Slavism, but by 1936-38 the movement had been 461 resurrected and on August.10-11, 1941, a century after the first Czarist efforts an All-Slav Committee was set up. As Tito’s defection shows, Pan-Slavisra is not too powerful. More important is the multi-national federalism ap proach of unifying peoples of.different languages and cul tures, apparently an advance on older forms of empire. Russia has sought an adjustment to tie-Catholic Church, with Stalin in 1944 proposed in a letter to the Pope a merger between Greek and Roman Catholic churches. His offer was rejected. Moslem religious groups were permitted some freedom of worship within Russia, possibly the third largest Moslem land. Apparently one of the key lessons of the war to Stalin has been that incorporation into Russia is not always the most effective means of control. Economic, financial and other less public controls can be as effective, given a suitable pro- Russian party in a neighboring land. Thereby too, Stalinism uses native forces to rule, as opposition to foreign powers is normally intense, still, no enduring regime of rule over peoples has evolved, a fact which Russia’s leaders know well. But where Russia might permit some public political separation, it is different with economic independence. Thus the effort to subordinate Yugoslavia economically as well as politically led to a split and loss of Yugoslavia as an opening on the Adriatic Sea, a real alternative route to the Dardanelles. Along her borders Russia for years has sought to erect 462 bold blocs of buffer states, as her version of a barrier which might be an equivalent of the Atlantic or Pacific oceans. Rus sia will accordingly tolerate no other federation of nations in Europe. It is questionable if she can stabilize all the countries along her borders, although she is capable of forcing the United States to move materials and men into various areas along the swollen frontier to block outward thrusts. A brilliant move on the part of Stalin was permitting the Union republics their separate foreign affairs officials, war departments and right to make treaties. This is a major con cession to nationalist feeling. At the same time the Russians were enabled to gain three votes In the United Rations, one each for herself, the Ukraine and Byelorussian republics. But there has been not the slightest separation economically which would show that any real national independence existed. V. COMPETITION WITH AMERICA Ribbentrop once said that Russia sought a long war that would tire out peoples and permit Russia to step in. Expecting capitalism to collapse, Russia is painted as helping various countries to go under. Much of this "buzzard theory" that Rus sia gains from exhaustion of others is propaganda. For all powers strive to avoid being weakened, to remain out of wars while other powers falter, and to prepare to survive In the best bargaining position. 463 To consolidate her power Russia cannot feed people words but has to raise their standard of living. Those who insist Russia is still following Marxian theories that stress the im portance of the economic base of society, forget that today Russia is an empire, not a bankrupt stock liquidator. Russia would prefer to take over areas with their economies intact rather than have liabilities on her hands, as Hitler found most of eastern Europe had become. Thus Stalin opposed na tionalization in Austria which interfered with Russian seiz ures. She fought nationalization in Finland, where capitalism was capable of paying reparations without structural changes. Nevertheless by use of the practise of ’ ‘indirect aggres sion,” Russia can by the threat of using force require opponent powers to maintain huge armies that sap rival economies. Even the United States is required to expend many added billions of dollars by this process. Russia too is affected deeply by economic warfare, for a disproportionate share of national wealth is diverted into war production. Nor has any general crisis broken out in the united States, as Varga once said it would not, like many state interventionists in this country. Uhen no collapse came, Varga was reinstated. But this does not mean an end to the collapse theory, to avoid which, the Russians say, America is pouring capital into Europe. For the Russians, waiting is not being idle. By proposing increased state intervention and infiltrating 464 many states they are preparing to increase their economic penetration. The economic comparison> America is producing more than 60 per cent of world production, Russia less than 15 per cent. Together with her allies America’s share of world production may be 75 per cent, Russia’s less than 25 per cent. War production raised American industrial capacity well beyond the 1929 level; wartime destruction drove Russia’s economy back. Russia’s current rate of steel production is below 20-million tons a year, less than one-fourth that of the United States. American oil production is ten times that of Russia. Even the three five-year plans for catching up to American production levels of 1946 do not consider that the United States might expand further in the ensuing years. Russian shipbuilding capacity may reach 600,000 tons-in 1950# compared with l8-million tons for the United States. It is important to note that Russia’s croplands of 350-million acres are slightly smaller than those in the United States, yet must feed 50 per eent more people, population while large possesses less productivity at present than does the United States. If Russia is socialism, it is an economy which is far less productive than that of capitalist America. A Russian electric power station uses 9*5 times as many workers as an American, a mine at least twice the number, a steel mill 2.5 times. Lenin considered that only a productivity 465 surpassing that of capitalism could usher in socialism. Some 75-million Russian peasants produce less than six million Amer ican farmers. Britain in her greatest coal crisis easily pro duces more coal per capita than Russia. Even with satellite aid, Russia can add only some seven per cent to her industrial might. Stalinism’s plans remain appreciative of economic power as the real basis for political strength, and there is certainly no underestimation of Amer ica, ’s towering superiority industrially. But the Russians have forced even the United States into making bulk commodity sales and exchanges, such as a barter of Manchurian soy beans for American cotton in a multi-million dollar trade in 1950. VI. LIMITS OP EXPANSION By wartime reduction only two great powers remain to contest for control of the planet, Russia and America. The scene of their principal struggle remains Europe, with stabi lity and balance being imposed, so to speak, from the outside. By the nature of the division of the world Europe remains one of the keys to control of most of the world’s colonies. Pos session or control by Russia over a colonial power would give her entry to southern Asia, Africa and the Pacific. Even without this, under Russian pressure and wartime losses Britain lost her old balance of power and withdrew from Greece In 1947. With the stepping into Greece of American 466 power Russia, was thwarted from reaching a warm water opening at the Dardanelles. A conflict of attrition has ensued. Where either major power is strong it does not negotiate. Where it is weak it seeks to declare the other an enemy of democratic diplomacy. America's postwar replacement of Bri tain and even of Prance in some regions as the principal power opposing Russia has* hy eliminating the powers that once served as buffers, brought the two giants face to face. Containing Russia is a continuation by America of the older concept of a cordon sanitaire. if this system of the 1920's could not contain a weak and defeated Russia, how can it be expected to operate against the far stronger Russia of today? Such a policy would require forces other than those of the United States or that America should serve as a world police force. Yet other countries would do much to escape being caught between the two giants. In her drive outward Russia has maintained a degree of independence and freedom of action which has enabled her to shift and alter policy. But expansion is the main tendency, in and through various forms: In alliance with Hitler, in alliance with America and Britain against Hitler, and with buffer states against other nations. With the fall of Germany, Japan and Italy, Russia's ability to maneuver between possible antagonists has been reduced greatly. • Russia has gone beyond the old Czarist empire both in area and politico-economic power. Whether she can consolidate her control is a question. That she will try, and seek in addition to have influence beyond the borderlands appears certain. Her leaders are aware that empires have come and gone and that theirs may be no exception, given existing na tional, class, religious and economic conflicts. Moreover, for the first time since early revolutionary days Russia has in her military organization a potential organized group other than the official party. Millions of Russian soldiers have discovered the world outside, a factor which has been compared to the ferment created among Russian officers after the Napoleonic wars, and which led to the Decembrist uprising of 1825. The personal psychological element is a weakness of military occupation measures which can lead to resistance to Russia from without. The rise of greater inequality within Russia and possible differences within the upper ruling elements on policy for further expansion may lead to revqlu- tionary outbreaks that could unseat Stalinism. Power corrupts the powerfulj it strengthens opposition among the weak; it breeds its own gravediggers. SELECTED BIBLIOGRAPHY A. BOOKS Alsop, Joseph, and Kintner, Robert, American White Paper. lew York: Simon and Schuster, Inc., 1940. I09 pp. The Annals of the American Academy of political and Social Science--The Soviet Union Since World War II. Phila delphia: The American Academy, 1949• Vol. 263, edit ed by Philip Mosely. Balzak, S. S., Vasyutin, F. F. and Feigin, Ya. G., Economic Geography of the USSR, lew York: The Macmillan Com pany, 1949. 620 pp. Barmine, Alexander, One Who Survived, lew York: G. P. Put nam's Sons, 1945* 337 PP* Baykov, Alexander, The Development of the Soviet Economic System. London:- Cambridge University Press, 194b. 514 pp. ______, ______ , Soviet Foreign Trade. Princeton: Prince- ton University Press, 1945. IOC pp. Bernstein, Victor H., Final Judgment, lew York: Boni and Caer 1947. 289 pp. Bettlheim, Charles, La Planification Sovietique. Paris: Mar cel Rividre et Cie., 1939* Bienstock, Gregory, Schwarz, Solomon M. and Yugoff, Aaron, Management in Russian Industry and Agriculture. London: Oxford University Press, 1944'. T98 pp. Bishop, Robert and Crayfield, E. S., Russia Astride the Balkans lew York: Robert M. McBride and "Company, 1948. 287 pp. Blake, William J., Elements of Marxian Economic Theory and Its Criticism, lew York: Cordon Company,1939 * 746 ~pp. Buchanan, Sir Georges, My Mission to Russia and Other Diplo- matic Memoirs. Boston: LiTTEle, Brown and Company, 1923. 2 voIs. 469 Bukharin, Nikolai and Preobrazhensky, Eugen, The ABC of Com munism. London: Communist Party of Great Britain. 1922. 428 pp. ________ , j The Economic Theory of the Leisure Class. New York; International Publishers, 192?. 220 pp. ________ , _______ , Historical Materialism. London: George Allen and Unwin, Ltd., 1926. 31 8 pp. Bullitt, William, The Great Globe Itself♦ New York: Charles Scribner *s Sons, 19467 3T0 pp. Burnham, James, The Struggle for the World. New York: The John Day Company, Inc ., 194Y*' 248' - pp. Byrnes, James P., Speaking Frankly. New York: Harper and Brothers, 1947* J24 pp. Carr, Edward Hallett, The Soviet Impact on the Western World. New York: The Macmillan Company,~T947. 113 PP♦ Cartier, Raymond, Les Secrets de la Guerre Expo3& par Nurem berg . Paris: P. Brouty, J. Fayar et Cie., 1946. Chamberlin, William Henry, The Russian Enigma. New York: Charles Scribner’s Sons, 1944. 321 pp. __________, ___________ , Russia ’s Iron Age . Boston: Little, Brown Company, 1934. 400 pp. China Year Book. Peking and Tientsin: The Tientsin Press, 1935* Ciano, Galeazzo, The Cia.no Diaries. Garden City: Doubleday, Doran and Gompany, 1946* 584 pp. Condoide, Mikhail V., Russian-Amerlcan Trade. Columbus: Ohio State University, 1946. 160 pp. Connolly, Violet, Soviet Economic Policy in the East. London: Oxford University Press, 1933* Cressey, George B., The Basis of Soviet Strength. New York: MeGraw-Hill Book Company, Inc., 194$. 287 PP* Daliin, David J., The Real Soviet Russia. New Haven: Yale University Press, _191F48 260 pp“ a , The Rise of Russia in Asia. New Haven: Yale University Press, 1949* "^293 PP* , , Russia and Postwar Europe. Hew Haven: Yale University Press,~X943* 232 pp. _____ , _ , Soviet Russia and the Par East. New Haven: YiTe”Uni v ersTfy“Preii7"l51FH. 398"“pp“: ______ , ______ __9 Soviet Russia’s Foreign Policy, 1939-1942. New Haven: Yale University Press, 19'43. 43d pp. Grankshaw, Edward, Russia and the Russians. Hew York: The Viking Press, 194b. 223 pp. Davies, Joseph E., Mission to Moscow. Hew York: Simon and Schuster, 1942. 559 PP* Dean, Vera M., Russia; Menace or Promise. Hew York: Foreign Policy Association,’ 19'46T“ 9b pp. , ______ , The United States and Russia. Cambridge: Har vard University Press, 194b. 321 pp. Dobb, Maurice, Soviet Economic Development Since 1917* Hew York; International Publishers, 194EH 475 PP* , _______ , Soviet Economy and the War. Hew York: Inter- national Publishers, 1943* 95 pp. Dulles, Foster Rhea, The Road to Teheran. Princeton: Prince ton University Press, 1943* 279 PP* Duranty, Walter, The Kremlin and the People. Hew York: Rey- nal and Hitchcock, Inc., 1941• 222 pp. , , Stalin and Company, The Politburo. Hew York: William Sloane Associates, Inc., T949* 261 pp. Edelman, Maurice, How Russia Prepared. Hew York: Penguin Books, Inc., 19"42: 127 pp. Enke, Stephen and Salera, Virgil, International Economics. Hew York: Prentice-Ha11, Inc., 1947. 731 PP* The Finnish Blue-White Book. Hew York: J. B. Lippincott C5i^aHy7“l34U7~ T2D“pp. Fischer, Louis, Gandhi and Stalin. Hew York: Harper and Brothers, 1947* ° 183 pp. , The Great Challenge. Hew York: Duell, Sloan and Pearce, 1946* 34b pp. 471 _______ t t The Soviets in World Affairs. New York: Cape and"-Smith,193C. 2" “voTs . French Yellow Book, VIII. New York: Revnal and Hitchcock. igrwr- W P P • Gerschenkron, Alexander, Economic Relations with the USSR. New York: The Committee on International Economic Policy, 1945* Gisevius, Hans Bernd, To the Bitter End. Boston: Houghton Mifflin Company, 1947. 632 pp. Graham, Malbone W., The Peace Policy of the Soviet Union. Chicago: University of Chicago Press, 1935* Gregory, James S. and Shave, D. W., The U.S.S.R. New York: John Wiley and Sons, Inc., 1944. 636 pp. Guillaume, General Augustin, soviet Arms and soviet Power. Washington: Infantry Journal Press, 1949. 212 pp. Halm, George N ., Monetary Theory. Philadelphia; The Blak- iston Company, 19427 3 W PP* Handbook of the Soviet Union. New York: Ameriean-Russian Chamber of Commerce, 1936. 562 pp. Heaton, Herbert, Economic History of Europe. New York: Har per and Brothers, 1936* 775 PP* Henderson, Nevile, Failure of a Mission. New York: G. P. Putnam’s Sons, 1949* 334 pp. Heymann, Hans, We Can Do Business With Russia♦ New York: Ziff Davis Company, 1945• 268 pp. Hinkley, Elmer Jennings, Foreign Policy and Relations Between The USSR and the United States, 1933-194b. Los Ange- Tes: University of southern California, 1947• 191 PP* Hitler, Adolph, Mein Kampf. Boston: Houghton Mifflin Com pany, 1943. “ 694 pp. Hubbard, Leonard E., soviet Trade and Distribution. London: The Macmillan Company, 1938• 380 pp. Hull, Cordell, The Memoirs of Cordell Hull. New York: The Macmillan Company, 1948. 2 vols., 1804 pp. 472 Huss, Pierre J., The Foe We Face. Ga.rden City: Doubleday, Doran,- 194-2. 36 0 pp. Joesten, Joachim, What Russia Wants. Hew York: Duell, Sloan and Pearce, 1944. 5X4 pp. Johnson, Hewlett, The Soviet Power. New York: Modern Age Books, 1940. 352 pp. Keynes, John Maynarg, The General Theory of Employment, In terest and Money. New York: Harcourt, Brace and Com pany, 1935. ''■403 pp. Kanpp, Georg F., The State Theory of MOney. London: The Mac millan Company," 19547 305 pp. Konovalov, S. (Ed.), Russo-Polish Relations. Princeton: Princeton University Press, 1945. 102 pp. Korsch, Karl, Karl Marx. New York: John Wiley and Sons, Inc., 1935. 227 pp. Kravchenko, Victor A., I Chose Freedom. New York: C. Scrib ner 1s Sons, 1946T 496pp. Lamont, Corliss, The Peoples of the Soviet Union. New York: Harcourt Brace and Company, 1946. 229 pp. Lauterbach, Richard E., These Are The Russians. New York: Harper and Brothers, 1945. 368 pp. ___________, , Through Russia *3 Back Door. New York: Harper and Brothers, 1947* 239 PP* Lehrman, Harold A., Russia 1s Europe. New York: D. Appleton- Century Company, Inc., 194?. 341 pp. Lenin, Nikolai, Collected Works♦ New York: International Publishers, 1927• 21 vols. , _______ , Imperialism. New York; International Pub lishers, 1939* 123 pp. , , selected. Works. New York: International Pub lishers, 1938. X2 vols. Lippmann, Walter, The Cold War♦ New York: Harper and Bro thers, 1947 . 62 pp. N. Loucks, William N. and Hoot, J. Weldon, Comparative Economic Systems. New York: Harper and Brothers, 19457 336pp. 473 Lovell, M. H., The soviet Way of Life. L_ndon: Methuen and Company, Ltd., 1948. 213 PP. Mandel, William M., A Guide to the Soviet Union. Hew York: The Dial Press>”'1946. 511 PP • Marx, Karl, Capital. Chicago: Charles H. Kerr and Company, 1906. 3 "vols. , ____, A Contribution to the Critique of Political Econ omy. Chicago: Charles H. Kerr and Company, 1913* 314 pp. , _____, Selected Works. Moscow: Cooperative Publishing Society, 193b. 2 vols. Matthews, Peter, European Balance. London: Chatto and Windus, 3.945. Mikolajczyk, Stanislaw, The Rape of Poland. Hew York: Mc Graw-Hill Book Company, 19'4B'. 309 pp. Miliukov, Paul, Outlines of Russian Culture. Philadelphia: University of Philadelphia Press, 1942. 3 vols. Mosely, Philip E., Pace to Pace with Russia. Hew York: For eign Policy Association, 1948. 63 pp* Nazi Conspiracy and Aggression, Office of u. S. Chief Counsel for Prosecution of " Axis Criminality. Washington: U. S. Gov ernment Printing Office, 1946. 190 pp. Hormano, J. P., The Spirit of Russian Economics. Hew York: The John Day Company, 1945. 176 pp. Pares, Sir Bernard, Russia and the Peace. Hew York: The Mac millan Company, 1944. 29T PP• , ____________, A Wandering Student. Syracuse: Syracuse University Press, 1948.' 448 pp. Pavlovsky, Michel H., Chine se-Russian Relations. Hew York: The Philosophical Library, Inc.,1949. 194 pp. Polish White Book. London: Hutchinson and Company, Ltd., 1940. Pope, Arthur Uphan, Maxim Litvinov. Hew York: L. B. Fischer, 1943. 530 pp. Rauschning, Hermann, The Voice of Destruction. Hew York; G. P. Putnam's Sons, T947H 295 PP* 217*1 . Root, Waverly, The Secret History of the War. Hew York: C. Scribner'rs" ’ Sons, 1945. 3~vols . Salisbury, Harrison, Russia on the Way. New York: The Mac millan Company, 194b. 425 PP* Sayers, Michael and Kahn, Albert E., The Great Conspiracy. Boston: Little, Brown and Company/ 1'946~ 433' pp. Schuman, Frederick L., American Policy Toward Russia Since 1917* Hew York: International Publishers, 1928. 399 PP* Schwartz, Harry, Russia!s Postwar Economy. Syracuse: Syra cuse University Press, 1947* 119 PP* Scott, John, Duel for Europe. Boston: Houghton Mifflin Com pany, ' 1942. 3Bl pp. , ____, Europe in Revolution. Boston: Houghton Mifflin Company, 1945• 274 pp. Sherwood, Robert E., Roosevelt and Hopkins. Hew York: Harper and Brothers, 1948* 1579 PP* Shirer, William L*, Berlin Diary. Hew York: Alfred A. Knopf, 1941. 483 PP* ______ , _, End of a Berlin Diary. Hew York: Alfred A. Knopf, 1947. 389 PP* Shotwell, James T. (Ed.), Governments of Continental Europe. Hew York: The Macmillan Company, 1946. 1692 pp. Shotwell, James T. and Laserson, Max M., Poland and Russia, 1919-1945. Hew York: K ng’s Crown Press, 1945. Tl4 pp. ' ■ 1 * Simmons, Ernest J. (Ed.), U.S.S.R. Ithaca: Cornell University Press, 1947. 494 pp. Smith, Walter Bedell, My Three Years in Moscow. Hew York: J. B. Lippincott Company, 1950. 346 pp. Snow, Edgar, The Battle for Asia. Hew York: Random House, 1941. ~ ^ 3 r w .------ ’ ° , people on our Side. Hew York: Random House, 1945. '324 pp. Soloveytchik, George, Russia in perspective. Hew York: W. W. Horton and Company, Inc., 1947* 170 PP* Sontag, Raymond James and Stuart, Beddie James, Hazi-Soviet Relations, 1939-1941♦ Washington: U. S. Department of state, 1946.' 362 pp. Sorokin, Pitirim A •, Russia and the United States. Hew York E. P. Dutton and Company, Inc., 1944. 253 pp. Stalin, Joseph, Foundations of Leninism. Hew York Interna tional Publishers, 1972. 128.pp. Statistical Yearbook of the League of Nations, 1941-42. Geneva: League of Nations, 1943* Steinbeck, John, A Russian journal. Hew York: The Viking .Press, 1948. 220 pp. Stern, Bernhard J. and Smith, Samuel (Eds.), Understanding the Russians. Hew York: Barnes and Noble, Inc., 19773 246 pp. Sternberg, Fritz, How To Stop the Russians Without War. New York: The John Day Co., 1948. l46 pp. Stettinius, Edward R., Jr., Lend-Lease. Hew York: The Mac millan Company, 1944. 358 pp. Stevens, Edmund, Russia, is no Riddle. Hew York: Greenberg Publisher, 1945. 30"CT“pp. Stimson, Henry L. and Bundy, McGeorge, On Active Duty in Peace and War. New York: Harper and Brothers,“T948. 698 pp. Strong, Anna L ., Peoples of the U.S.S.R. Hew York: The Mac millan Company, '1975• 246 pp. Sweezy, Paul M., The Theory of Capitalist Development. New York: Oxford University Press, 19423 398 pp. Tiurin, S. P., The U.S.S.R. London: Methuen and Company, Ltd., 19757 258 pp. Towle, Lawrence W., International Trade and Commercial Pol icy. New YorFT Harper and"Brothers, 194?. 7^0 PP* Towster, Julian, Political Power in the U.S.S.R. Hew York: Oxford University Press, 1978. 443 PP• Trotsky, Leon, In Defense of Marxism. Hew York: pioneer Publishers, 1942. 2X1 pp. 476 _______ , ___ , Tbe Heal Situation in Russia. New York: Har- court, Brace "and Company, 1^29” 364 pp. _______ , _____ , The Revolution Betrayed. Garden City: Double day, Doran and Company, Inc., 1937. 308 pp. Troyanovsky, Alexander, For World Peaee and Freedom. New York: National Council for American-Soviet Friendship, 1943. ___________ , , The Soviet Union and World Problems. Chicago! University of Chicago Press, 1935. Van Narvig, William, East of the Iron Curtain. Chicago: Ziff- Davis, 1946. Varga, Eugene, soviet Views on the Postwar World Economy. Washington: Public Affairs Press, 194b• 125 pp. Voznesensky, Nikolai A., The Economy of the USSR . During World War II. Washington: Public Affairs Press! 1948. 115 PP* Waite, Warren C. and Cassady, Ralph Jr., The Consumer and the Eoonomic Order. New York: McGraw-Hill Book Company, Inc., 1935! 589 pp• Wallace, Henry A., Soviet Asia Mission. New York: Reynal and Hitchcock, 194b. 254 pp. Wallbank, T. Walter and Taylor, Alastair N.., Civilization Past and Present. OhlC&go: Scott Foresman and Company, 1942. 2 vols. Walsh, Warren R. and Price, Roy A., Russia, A Handbook. Syra cuse: Syracuse University Press, 1947*" 140 pp. Watts, Franklin, Voices of History. New York: F. Watts, Inc., 1942. ‘ : Webb, Sidney and Beatrice, Soviet Communism: A New Civiliza tion? New York: C. Scribner*s Sons, 1^36. 2 vols. Welles, Sumner, An Intelligent American’s Guide to the Peace. New York: The Dryden Press, 1945• 370 pp. Williams, Albert Rhys, The Russians. New York: Harcourt, Brace and Company, 1943• 548 pp. Wolfe, Bertram D., Three, Who Made a. Revolution. 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Creator Mayers, Jackson (author)

Core Title Russian-expansion and state export of capital

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