Price Crises in Soviet Economy 1920s and Institutional Effects of the Fundamental Impossibility of Socialism

Abstract

The article analyzes the impact of institutional factors on the economic system of the Soviet Russia at the period of New Economic Policy. The first group of factors is associated with the social structure of the soviet village. The specifics of agricultural business activities (in particular, long production period, a gap in the movement of cash flows, impossibility of agricultural labors during the long winter season) led to the potential for localization of the village market in the event of an increase in prices for industrial products. This has repeatedly led to a crisis in the marketing of manufactured goods and food shortages in the cities. The second group of factors concerns institutional changes in ownership. The nationalization of the means of production led to the absence of a capital and labor market and to the impossibility of forming a system of relative prices, which, in a capitalist economy, signals entrepreneurs about the directions of efficient allocation of resources. The article demonstrates that Soviet economists in the 1920s used the same arguments in discussions about economic policy tools that market advocates used in discussion on economic calculation under socialism. The NEP as a system of a mixed economy was doomed due to the inability of the planning authorities to determine the directions of capital investments corresponding to the needs, which, given the relative isolation of the countryside, inevitably led to permanent crises.