Lecture 6 Communist Economics Principle of economics

What do markets do

• They allocate resources efficiently.

• -They do this to indicate allocate resources with price mechanisms. They ensure an

  efficient allocation of resources through the use of price mechanisms.

Indeed, markets play a crucial role in allocating resources efficiently, and this process is largely facilitated by price mechanisms. Here's a breakdown of how markets achieve efficient resource allocation through price mechanisms:

1. Allocation of Resources:

- Markets enable the allocation of scarce resources to various competing uses based on consumer preferences and demand.

2. Price Mechanism:

- Prices are determined by the interaction of supply and demand in the market.

- The price of a good or service reflects its scarcity, demand, and the cost of production.

3. Information Transmission:

- Prices serve as signals that convey information about the relative scarcity or abundance of a particular resource.

- Higher prices indicate increased demand or reduced supply, signaling the need for more production or conservation of resources.

4. Incentives for Producers:

- High prices provide an incentive for producers to increase the supply of goods or services, as they see the potential for higher profits.

- Conversely, low prices signal oversupply, encouraging producers to adjust production levels or explore alternative products.

5. Consumer Decision-Making:

- Consumers make choices based on their preferences and budget constraints.

- Prices guide consumers in making decisions about what to purchase, reflecting the value they place on goods and services.

6. Efficiency in Production:

- Competition among producers to attract consumers fosters efficiency in production.

- Producers strive to minimize costs and improve the quality of goods and services to stay competitive in the market.

7. Adaptability to Changes:

- Markets can quickly adapt to changes in supply and demand conditions.

- If there's a sudden increase in demand or a disruption in supply, prices adjust, signaling to producers and consumers to adapt accordingly.

8. Dynamic Equilibrium:

- The continuous interplay of supply and demand helps maintain a dynamic equilibrium in the market.

- Prices adjust until the quantity supplied equals the quantity demanded, ensuring efficient resource allocation.

9. Decentralized Decision-Making:

- Markets facilitate decentralized decision-making, allowing individual actors to respond to local conditions and preferences.

- This decentralized nature contributes to the flexibility and adaptability of market systems.

In summary, markets allocate resources efficiently by utilizing the price mechanism to convey information, guide decision-making, and create incentives for both producers and consumers. The dynamic nature of market interactions ensures that resources are allocated to their most valued uses based on the ever-changing conditions of supply and demand.

• -  Communism and central planning did not seem like such a bad idea as it does now why?

• In production the only way people with the capital know what to produce is because the

  price mechanism says exactly how much of a product needs to be produced and when.

• -For the demand side, if the prices of a resource go up, they say that you need to use the resource less or sparingly until the supply is addressed.

• -  If the price of a resource goes way up, then it makes extracting the product

  economically feasible, because the supplier (such as with gass)

Why capitalism is so efficient

The one who gets rewarded when there is a new price signal and there is a whole spectrum of producers in the market, is the person who is the most efficient; the person who finds out the right answer first.

• -  This is why capitalism is so efficient

• -  This is what central planners have to cope with

Indeed, markets play a crucial role in allocating resources efficiently, and this process is largely facilitated by price mechanisms. Here's a breakdown of how markets achieve efficient resource allocation through price mechanisms:

1. Allocation of Resources:

- Markets enable the allocation of scarce resources to various competing uses based on consumer preferences and demand.

2. Price Mechanism:

- Prices are determined by the interaction of supply and demand in the market.

- The price of a good or service reflects its scarcity, demand, and the cost of production.

3. Information Transmission:

- Prices serve as signals that convey information about the relative scarcity or abundance of a particular resource.

- Higher prices indicate increased demand or reduced supply, signaling the need for more production or conservation of resources.

4. Incentives for Producers:

- High prices provide an incentive for producers to increase the supply of goods or services, as they see the potential for higher profits.

- Conversely, low prices signal oversupply, encouraging producers to adjust production levels or explore alternative products.

5. Consumer Decision-Making:

- Consumers make choices based on their preferences and budget constraints.

- Prices guide consumers in making decisions about what to purchase, reflecting the value they place on goods and services.

6. Efficiency in Production:

- Competition among producers to attract consumers fosters efficiency in production.

- Producers strive to minimize costs and improve the quality of goods and services to stay competitive in the market.

7. Adaptability to Changes:

- Markets can quickly adapt to changes in supply and demand conditions.

- If there's a sudden increase in demand or a disruption in supply, prices adjust, signaling to producers and consumers to adapt accordingly.

8. Dynamic Equilibrium:

- The continuous interplay of supply and demand helps maintain a dynamic equilibrium in the market.

- Prices adjust until the quantity supplied equals the quantity demanded, ensuring efficient resource allocation.

9. Decentralized Decision-Making:

- Markets facilitate decentralized decision-making, allowing individual actors to respond to local conditions and preferences.

- This decentralized nature contributes to the flexibility and adaptability of market systems.

In summary, markets allocate resources efficiently by utilizing the price mechanism to convey information, guide decision-making, and create incentives for both producers and consumers. The dynamic nature of market interactions ensures that resources are allocated to their most valued uses based on the ever-changing conditions of supply and demand.

why capitalism is efficient 2

- Allocation of Resources:

- Capitalism allows for resource allocation based on consumer preferences and demand, guided by price signals indicating scarcity, demand, and opportunity costs.

- Price Mechanism:

- Prices, determined by supply and demand interactions, incentivize efficient resource allocation, balancing production and consumption.

- Efficient Production:

- Competition in capitalism drives producers to minimize costs and innovate, enhancing overall production efficiency.

- Adaptability:

- Capitalism's market system facilitates quick adjustments to changing conditions, fostering adaptability and resilience in response to emerging trends.

- Incentives for Innovation:

- Strong profit incentives in capitalism drive entrepreneurial innovation and technological advancements.

- Consumer Choice:

- Capitalism promotes a diverse range of choices as businesses compete to meet consumer preferences.

- Decentralized Decision-Making:

- Capitalism relies on decentralized decision-making, allowing for a flexible system that adapts to diverse circumstances.

Summary:

Capitalism's efficiency stems from free markets and the price mechanism, facilitating resource allocation, production efficiency, adaptability, innovation, diverse consumer choices, and decentralized decision-making. However, ongoing debates involve issues such as income inequality, externalities, and the role of government intervention. The system's effectiveness is also influenced by legal frameworks, regulations, and societal values.

Summary of Economic Changes during the Soviet Takeover of Eastern Europe

Summary of Transition to Communist Economics under Soviet Occupation in Eastern Europe (Late 1940s):

- Introduction of Stalinization:

- A threefold program of Stalinization was implemented during the Soviet Occupation of Eastern Europe in the late 1940s.

- Military Occupation and Communization:

- Military occupation was achieved, and local military forces were communized.

- Political Stalinization:

- Governments were forcibly converted into puppet states with dictators, ensuring obedience to Stalin. Tito's Yugoslavia was a major exception.

- Ideological Communization:

- Through show trials and various means, people were convinced to embrace Stalinist-Marxism. Ideological communication aimed at enforcing party loyalty.

Ideological communication: How people are taught to follow the official ideology and follow the party, or else

- Total Communism as the Ostensible Goal:

- The state aimed for 'Total Communism,' primarily an economic concept rather than a political one.

- Economic Model and Initial Attempts:

- The original idea was to reward every worker justly for their labor.

- Attempts were made to implement a Stalinist-type central plan for the entire economy.

- Realization of Imperfections:

- Leaders acknowledged the impossibility of achieving 'perfect' communism immediately, involving the complete absence of private property, capital, money, and market mechanisms.

- Transition through a 'Liberal' Phase:

- A recognition that a more gradual approach was needed, involving the retention of some aspects of market economies.

- Inclusion of Money:

- Money was acknowledged as a necessity, and communist economic systems retained currencies. For instance, the Polish Złoty remained in circulation.

- Practical Challenges:

- Currency counterfeiting, reissuing, inflation, and manipulation were challenges faced during this transition.

- Continued Use of Currency:

- Workers continued to be paid in the currency of the respective countries despite ideological shifts.

Conclusion:

The transition to communist economics in Eastern Europe involved a complex process of military, political, and ideological transformation. While aiming for 'Total Communism,' practical challenges led to the retention of some market elements, such as the use of currency, during a 'liberal' phase in the economic transition.

Summary of Transition to Communist Economics under Soviet Occupation in Eastern Europe (Late 1940s):1

1. Nationalization of Enterprises:

- Large enterprises with initially 100 and later 50 employees were taken over by the state during the Soviet takeover of Eastern Europe.

- Owners were not compensated, reflecting a belief that they were part of the bourgeois problem.

2. Collectivization of Agriculture:

- The agrarian sector, including collective farms known as Kolkhoz, was collectivized.

- Villagers retained ownership of fields, but centralized planning dictated what they could plant, resulting in chronic agricultural shortages.

3. Ideological Basis:

- The economic system was heavily influenced by Marxist ideology, emphasizing the role of workers as the key to the future.

- The goal was a revolution from capitalism to communism, marked by worker control and ownership of the entire economy.

4. Emphasis on Industry:

- Economic planners focused on making people factory workers, emphasizing industrial development.

- Workers were accorded significant space in factories to showcase their central role in the new state.

5. Neglect of Agriculture:

- Agriculture was neglected as peasants were viewed as relics of feudalism, two stages behind in the Marxist view.

• The new system was heavily based on Ideology

• -  That, is, the Ideology of Marxism, which held that the workers were the key to the future

• -  The new revolution, which would lead from capitalism to communism would result

  when a union of the workers took over the government, and imposed an ‘ownership by

  labour’ on the entire economy

- Peasants were considered almost subhuman, leading to agricultural shortfalls due to the perceived lack of importance.

6. Proletarian State and Elite Class:

- Ideologically, the government was considered a "proletarian state" based on workers.

- In practice, those at the top were often socialist party climbers with strong networking and connections.

- Party members became the elite, enjoying privileges such as better housing, cars, and access to goods, creating a divide from normal factory workers.

7. Classes and Inequality:

- By the end of the period, a clear distinction emerged between the party elite and normal factory workers, leading to classes of haves and have-nots.

- The elite were prone to self-benefiting practices, such as favoring themselves with the best accommodations and goods.

8. Competition and Nationalization in the Late 1940s:

- Collectivized firms began to compete with non-collectivized firms in the late 1940s.

- The state announced plans to nationalize some firms but, in reality, subsidized collective firms, leading to the decline and closure of others.

In summary, the economic changes during the Soviet takeover involved the nationalization of enterprises, collectivization of agriculture, and the shaping of the economic system based on Marxist ideology. This period saw a growing divide between the party elite and ordinary workers, contributing to economic challenges and inequalities. The late 1940s also witnessed competition and state subsidies favoring collectivized firms over non-collectivized ones.

Summary of Transition to Communist Economics under Soviet Occupation in Eastern Europe (Late 1940s):2

1. Economic Planning Emphasis:

   • Economic planners aimed for practicality while focusing on transforming people into factory workers.

   • Emphasis was placed on industrial development, highlighting the significance of the proletariat.

2. Extravagance for Workers:

   • Extravagant measures were taken for workers, such as providing more space in factories than necessary to symbolize their central role in the new state.

3. Neglect of Agriculture:

   • Agriculture was neglected, with peasants viewed as relics of feudalism and considered almost subhuman.

   • The system resulted in continuous agricultural shortfalls due to the perceived lack of importance placed on peasants and their produce.

4. Proletarian State Ideology:

   • The government was ideologically presented as a "proletarian state," supposedly based on the workers.

5. Elite Selection and Class Division:

   • Ideologically, those at the top were selected based on their ability to espouse official dogma.

   • In practice, the elite were often socialist party climbers and individuals skilled in networking and connections.

   • The elite class, members of 'the party,' emerged as the privileged few, prone to self-benefiting practices like securing the best accommodations, cars, and goods.

6. Separation of the Elite:

   • By the end of the period, the elite became entirely separate from normal factory workers, creating distinct classes of haves and have-nots.

7. Government Involvement in Firms:

   • In the late 1940s, the state announced plans to nationalize some firms.

   • However, the actual outcome involved the state subsidizing collective firms, leading to the decline and closure of non-collectivized businesses.

In summary, the economic planners in communist systems sought to transform society by emphasizing industrial development and making workers the central focus. This led to neglect of agriculture and the emergence of a distinct elite class within the socialist party. The late 1940s saw state involvement favoring collectivized firms over non-collectivized ones, contributing to economic challenges and class divisions.

Summary of Economic Policies in Communist States:

1. Autarky and Trade Restrictions:

   • Communist states moved towards autarky, restricting trade with the West.

   • State firms were allowed to undersell and undercut privately held firms, leading to the closure of non-state enterprises.

2. Nationalization and State Dominance:

   • State-held firms dominated the industrial sector, with about 95% of output nationalized by the early 1950s.

   • The USSR treated Eastern European countries as occupied satellites, appropriating heavy machinery and resources.

3. Asset Stripping and Economic Exploitation:

   • The USSR initiated an 'asset stripping' plan after the war, taking heavy machinery and resources from Eastern Germany.

   • Ongoing policies, including resource selling at low rates, led to economic exploitation of satellite countries.

4. Comparisons with Western Aid:

   • While the West received Marshall Aid and had access to Western technologies, Eastern European countries faced economic challenges without equivalent benefits.

5. CMEA (Comecon):

   • Created in 1949, the Council for Mutual Economic Assistance (CMEA or Comecon) aimed to foster economic cooperation among Eastern European countries.

   • Despite this, the USSR remained the dominant partner, and Eastern economies did not see significant benefits for most of the period.

6. Five-Year Plan Implementation:

   • The adoption of the 'Five-Year Plan' from Stalinist economics involved detailed blueprints outlining production targets for each factory, including the number of widgets to be produced.

   • The State Planning Commission directed inputs of land, capital, and labor for each factory.

   • Trade relationships between factories were also directed at the national and regional levels.

   • The purpose was to avoid reliance on price mechanisms.

In summary, economic policies in communist states included a move towards autarky, nationalization of industries, economic exploitation of satellite countries, and the implementation of detailed Five-Year Plans to direct production and trade. Despite the creation of economic cooperation councils, dominance by the USSR and limited benefits for Eastern economies characterized much of the period.

Summary of Economic Goals and Challenges in Communist States:

1. State Planning Offices and Economic Growth:

- The main goal of State Planning Offices was to maximize economic growth, intending to showcase the superiority of communism over capitalism to the West.

2. Emphasis on Heavy Industry:

- The belief was that economic growth would primarily come from heavy industry, aligning with the emphasis on industrialization in Eastern Europe.

3. Materialistic Measurement in National Accounts:

- The measurement of economic activity in National Accounts was materialistic, focusing on actual material production.

- This approach was ideologically based on Marxism, where the primary input considered was labor, measured in person-hours.

4. Limitations in Measuring Services:

- The service sector, which contributes significantly to Gross Output, was left out of GDP figures.

- The difficulty in measuring the value of services in a moneyless system led to an emphasis on physical machinery and products.

5. Incentive Issues and Central Planning:

- The measurement of services in terms of working hours posed challenges, as it didn't account for quality or incentivize hard work.

- The absence of real rewards for productivity contributed to problems such as absenteeism and lack of working skills in the labor force.

6. Social Services and Disillusionment:

- While the service sector was not well represented in GDP figures, social services like hospitals and childcare were initially good, helping prevent widespread disillusionment.

7. Emphasis on Heavy Industry for Growth:

- To maximize economic growth, the emphasis was placed on heavy industry, similar to the approach taken by Western European governments at the time.

8. Relative Backwardness and Population Demographics:

- Eastern European economies started relatively backward, with a relatively low population.

- Up to 80% of the workforce was in the Primary Sector (Agriculture) initially, reflecting the economic structure of primary, secondary (industry), and tertiary (services) sectors.

In summary, the communist states aimed to maximize economic growth to demonstrate the superiority of their system, with a focus on heavy industry. However, the limitations in measuring services, incentive issues, and the emphasis on material production in National Accounts revealed challenges in the central planning approach. Despite these challenges, initial social services helped maintain public support in the face of economic disparities.

Summary of Economic Growth Strategies in Communist States:

1. Emphasis on Heavy Industry:

- The main emphasis in socialist economies was on machine production and heavy industry, including industrial inputs like steel and coal.

2. High Growth Rates and Policy Choices:

- The socialist economies achieved high growth rates, around 5.7 percent per capita, compared to 4 percent in the West.

- The primary policy choice was to focus on heavy industry to maximize growth.

3. Factor Inputs and Total Factor Productivity (TFP):

- Economists considered Total Factor Productivity (TFP) to measure efficiency, accounting for inputs such as land, labor, capital, and managerial talent.

- TFP equated with GDP per capita: TFP = Technology Level x (Physical Capital + Human Capital).

4. Increasing Physical Capital and Diminishing Returns:

- There was an acknowledgment of the law of diminishing returns when increasing physical capital.

- Increasing machinery led to diminishing marginal returns in terms of productivity.

5. Strategies to Increase Growth:

- State planners sought to increase growth by throwing significant labor at industries.

- In hindsight, it seems that labor was added until the marginal productivity reached zero, leading to surplus workers.

6. Long Workdays and Efforts to Increase Productivity:

- Despite long workdays of up to 12 hours, with initiatives like Lenin Saturday (working all day without pay), the efforts were seen as "glorious."

7. Debt Issues and Economic Efficiency:

- Despite impressive growth rates, Eastern Bloc countries began to accumulate increasing debt with Western and other countries.

- Over half of available capital was invested in heavy sectors, raising questions about efficiency.

- The lack of cost for capital led to managers securing as much as possible, with later attempts to introduce prices for capital.

8. Introduction of Prices for Capital:

- Prices for capital were later introduced to prevent waste and encourage more efficient use by managers.

9. Economic Miracle in Heavy Industry:

- By 1970, there was the perception of an "economic miracle" in heavy industry, despite concerns about efficiency and increasing debt.

In summary, the economic strategies in socialist economies focused on heavy industry to achieve high growth rates. However, challenges included diminishing returns in increasing physical capital, surplus labor, debt accumulation, and issues related to the inefficient allocation of capital. The introduction of prices for capital aimed to address some of these challenges.

If this was the case, why did things continue to spiral out of control economically?

Why was the Eastern European economy become problematic by 1970:

Summary of Economic Challenges in Eastern European Economies by 1970:

The Eastern European economies faced several challenges by 1970, contributing to economic difficulties:

1. Consumer Benefits:

- Consumers did not fully benefit from economic growth due to an emphasis on heavy machinery over consumer goods.

- Certain resources were neglected as they were considered capitalistic or bourgeois.

2. Extravagant Resource Use:

- There was an extravagant use of resources without a focus on efficiency.

- Lack of rewards for efficiency contributed to inefficient resource allocation.

3. Environmental Degradation:

- Environmental quality deteriorated significantly, impacting the livability of entire villages.

4. Lack of Worker Protection:

- Despite being portrayed as the workers' paradise, workers were not adequately protected from bad industrial practices.

- Complaints from workers were often ignored.

5. Limited Incentive to Innovate:

- Lack of competition led to little incentive for innovation, resulting in the continuous production of the same products.

6. General Resource Inefficiency:

- Inefficiency in the employment of resources was widespread.

7. Hoarding of Labor and Capital:

- There was hoarding of labor and capital, with poor labor turnover and increasing absenteeism.

8. Consumer Standards of Living:

- While wages increased, the standards of living for consumers were only a fraction of Western European households.

- Consumer goods were limited, and certain items were considered bourgeois, leading to frequent shortages and rationing.

9. Limited Product Choices:

- Consumers had a limited range of product choices, and certain goods were stigmatized as capitalistic.

10. Economic Disparities:

- Despite wage increases, the growth in standards of living did not match Western European standards.

11. Social Services and Employment Security:

- Main benefits for consumers included free or nearly free social services, lower pay differentials, and greater employment security.

- However, there were limited choices, lack of glamour, and upward mobility opportunities.

In summary, the Eastern European economies faced systemic challenges related to resource allocation, environmental degradation, labor practices, and consumer welfare. Despite some benefits like free social services and employment security, the overall economic disparities and limitations in consumer choices contributed to the economic difficulties in the region.

Communist Economics: Attempts at Reform

Summary of Attempts at Reform in Communist Economies:

Early 1960s Reform Efforts:

1. Recognition of Systemic Issues:

- By the early 1960s, it became evident that the centrally planned system was not yielding desired outcomes beyond heavy industry growth.

2. Substitution of Directives:

- Reforms substituted detailed directives with broad 'indicative plans' that had general targets, including some in value terms rather than physical units.

3. Market Incentives and Profits:

- Market incentives were introduced, with profits becoming a criterion for success. However, the subjective nature of profit in a closed system without market prices led to resource inefficiencies.

4. Financial System Reforms:

- Financial systems were opened up, with enterprises encouraged to finance a larger share of investment from their cash flows.

- Managers were given more decision-making power on modernization based on cash flows.

- Depreciation charges were raised, and credit was expanded, exposing companies to risk and encouraging efficiency.

5. Expansion of Private Enterprise:

- Some attempts were made to expand private enterprise, particularly in service sectors.

6. Easing Control over Foreign Trade:

- Control over foreign trade was eased, allowing more entrepreneurs and factory managers to negotiate contracts with Western and Eastern Bloc countries.

- There were attempts to address trade deficits and expand the import of foreign goods.

Challenges and Realizations:

1. Quality and Trade Deficits:

- Eastern European economies faced challenges in exporting due to the bad quality of products.

- Trade deficits with Western Europe expanded, leading to attempts to import foreign goods and obtain foreign currency.

2. Currency Pegging:

- Currency values were kept low to make exports relatively cheap, attracting international buyers.

3. Shift Away from Autarky:

- Realization that autarky was not a viable strategy led to attempts to trade with the West and within Eastern Europe.

4. Resistance and Setbacks:

- Reform efforts faced resistance from hardline Communists/Stalinists, hindering decentralization and marketization.

- Implementation of reforms took time, and an artificial financial system isolated these economies from world prices.

5. Negative Perception of Trade with the West:

- Despite attempts at trading with the West, it was viewed as a necessary evil and looked down upon.

Later Attempts and Balance of Payments Issues:

1. Reverse Engineering and Imports:

- Attempts at reverse engineering Western products began in the 1970s to leverage low labor costs and produce superior products.

- Importing goods from the West, especially Poland, resulted in a failure as the West had little interest in Eastern products.

2. Debt Accumulation:

- To pay for imports, Eastern European countries went massively into debt, leading to an increase in the Balance of Payments problem.

3. Challenges in Adopting Capitalistic Strategies:

- Despite attempts at adopting capitalistic strategies to outproduce capitalism, success was not achieved, and economic challenges persisted.

In summary, attempts at reform in communist economies included changes in planning, market incentives, financial systems, private enterprise, and easing control over foreign trade. However, these efforts faced challenges, including resistance from hardline Communists, negative perceptions of trade with the West, and economic setbacks, leading to persistent economic difficulties.

Problems of the 1970s

Summary of Economic Challenges in Communist Systems:

Pricing Mechanism and Profit:

1. Prices are administratively determined based on costs plus planned profit, not by market forces.

2. Lack of market-driven pricing leads to no incentive for enterprises to reduce costs.

3. Government subsidies are provided when prices are fixed below costs, leading to inefficiencies.

Resource Allocation Issues:

4. Profits gained by efficient companies are absorbed by less efficient ones, hindering efficient resource allocation.

5. Artificial exchange rates with Western countries create distortions throughout the economy.

6. Growing black market for Western goods emerges due to distortions and better-quality products.

Currency and Black Market:

7. Governments maintain artificial exchange rates, creating a demand for hard currency, especially USD.

8. Obtaining dollars and Western goods involves reliance on immigrants, rare travelers, and export industries.

9. Street corner exchangers operate in the black market, leading to disparities in wealth.

Illegal Activities and Corruption:

10. People engage in illegal activities, such as bribery and illegal currency exchanges, to navigate economic challenges.

11. Corruption and bribery become common, disadvantaging those who don't engage in illegal activities.

Reform and Economic Collapse:

12. Economic reforms are necessary due to massive debt, leading to the realization that the system is unworkable.

13. Inability to import from the West results in rationing, queues, and shortages, including food shortages.

14. Currency experiences massive inflation as the government prints too much money.

15. Unemployment rises as factories lay off workers due to a lack of capital, exacerbating shortages.

16. The economic system becomes heavily marketized, losing the pretense of Communism, while state control remains oppressive.

17. The remnants of Communism include state control, free social services, and nominal rents for apartments, maintaining low housing quality.

Varieties of Communism

Varieties of Communism in Eastern Europe:

1. Warsaw Pact Formation (1955):

- Formed in response to NATO's establishment in 1954.

- Aimed at mutual defense and coordination among Eastern Bloc countries.

2. Russian Leadership Concerns:

- Russia expressed concerns about potential Western invasion/first strike to eliminate its nuclear capability.

- This fear allowed Russia to exert influence over Eastern European militaries.

3. National Paths to Socialism:

- Despite the international nature of socialism, Eastern European countries sought variations that aligned with their national interests.

4. Unique Cases:

- Each Eastern European country had unique characteristics and approached socialism differently.

- The notion of a singular "Eastern Bloc" often oversimplifies the diversity within the region.

5. Monopoly of Influence:

- Russia sought to maintain its influence and control over Eastern European nations.

- Leaders in these countries, however, demonstrated a willingness to pursue distinct paths.

Examples of Varieties:

- Poland:

- Unique historical and cultural factors influenced Poland's approach to socialism.

- Hungary:

- Attempted a more liberal version of socialism with limited economic reforms.

- Czechoslovakia:

- Experienced the Prague Spring in 1968, marked by efforts to introduce political reforms, but faced suppression.

- East Germany:

- Strong Soviet influence, divided capital (Berlin), and unique challenges due to the Cold War division.

Conclusion:

- The Warsaw Pact provided a framework, but individual Eastern European countries pursued distinct paths in their implementation of socialism. National considerations, historical backgrounds, and unique circumstances led to variations in the practice of communism across the region.

Yugoslavia:

- Independence: Yugoslavia, under Josip Tito, maintained a more independent stance compared to other Eastern European countries.

- Tito's Leadership (1945-1980):

- Tito was a national hero who played a key role in driving out the Fascists during World War II.

- Implemented 5-year planning in 1947.

- Break with Stalin:

- Initially worked with Stalin but advocated for a "national path to socialism" by 1948.

- Yugoslavia was expelled from Cominform (1948), the international communist agency.

- Resistance to Russian Domination:

- Tito resisted Russian domination, gaining recognition from the U.S. and offers of aid under the Marshall Plan.

- Non-Aligned Movement:

- Tito played a crucial role in creating the Non-Aligned Movement in 1961, comprising countries wishing to remain neutral in the Cold War.

- Liberal Policies:

- Implemented liberal travel policies, allowing citizens to visit the West by the 1960s.

- Permitted Westerners to visit Yugoslavia.

- Economic and Political Liberalization:

- Reduced the secret police in 1974 and initiated economic liberalization.

- Titoism influenced Eastern Europe, causing difficulties for the Russians.

Poland:

- Gomulka's Leadership:

- Wladislaw Gomulka led Poland during different periods, emphasizing an independent "Polish way" to socialism.

- Rigged elections in 1947 to consolidate power.

- De-Stalinization Period:

- After Bierut's rule (1947-1956), a de-Stalinization period followed, encouraging anti-corruption efforts and some reforms.

- Gomulka aligned Poland with the Russians and became more conservative, supporting the invasion of Czechoslovakia in 1968.

Hungary:

- 1956 Revolution:

- In 1956, Hungary witnessed a revolutionary uprising, starting as a student demonstration.

- Soviet intervention led to casualties, displacements, and repression.

- Demonstrated the harsh consequences of attempting independence.

Czechoslovakia:

- Prague Spring (1968):

- Led by Alexander Dubček, Czechoslovakia experienced the Prague Spring, involving partial decentralization, economic denationalization, and democratization.

- Soviet invasion in 1968 crushed the reforms, and the country remained occupied until 1989.

- Repercussions:

- The invasions, especially the Hungarian Revolution and Prague Spring, highlighted the limited independence of Eastern European countries.

Eastern Europe: End of Communism:

- Economic Struggles:

- By the 1980s, communist governments in Eastern Europe faced economic challenges, high debts, and discontent among the population.

- Black markets thrived due to shortages.

- Solidarity Movement (Poland):

- The Solidarity movement in Poland, led by Lech Walesa, emerged in the 1980s, advocating for improved living standards.

- Martial law was imposed, and sanctions by the West exacerbated difficulties.

- End of Communism (1989):

- Gorbachev's reforms and a loss of will to dominate led to the fall of communism in Eastern Europe.

- The collapse occurred in 1989 with minimal resistance.

- Legacy of Poverty:

- Despite the end of communism, the legacy of poverty persisted, and integrating Eastern Germany into the West required significant investment by Germany.

The end of communism in Eastern Europe marked a transformative period, with each country facing unique challenges during and after the Cold War.

E Europe

• Under these conditions, resistances mount in Eastern Europe

• Poland’s crisis, mentioned above, is partly caused by western crisis,

  and its own debt

• It cannot export

• Food prices increase

• By 1980, the Soldiarity movement emerges

• This is aimed at raising living standards

E Europe

• Solidarity cleverly clothed as a workers’ movement

• Lech Walesa is seen as the leader of this movement

• Adopt a non-violence stance, which makes them more difficult to target

• They create a national congress

• Government declares martial law, but does not eliminate leadership

E Europe

• Polish farmers begin to withhold food supplies

• The money they are being offered pays for very little, and they are

  hungry, after selling their own food

• Poland has to stop paying western debts

• As martial law is imposed, the Americans slap sanctions on the Polish government, which further exacerbates the difficulties

E. Europe: End of Communism

• Many attempts at reform were tried

• People were given more land to work

• More imports were allowed

• Different types of banks were even allowed to open up

• There were limited experiments with private enterprise

• The problem is, as each of these was tried, it proved to be a half measure, which either produced disappointing results

• Or else only made people clamor for more freedom to try different things

End of Communism

• By 1989, very suddenly it seemed, Russia lost the will to continue dominating E. Europe

• Gorbachev’s reform programmes, including ‘Glasnost’ and ‘Perestroika’ spun out of control, and people demanded democracy

• Gorbachev chose not to send in the tanks

• And E. European communism fell, with barely a whimper

• But, the legacy of poverty remained as a big problem for the future EU

Varieties of Communism in Eastern Europe:

Varieties of Communism in Eastern Europe:

1. Warsaw Pact Formation (1955):

- Formed in response to NATO's establishment in 1954.

- Aimed at mutual defense and coordination among Eastern Bloc countries.

2. Russian Leadership Concerns:

- Russia expressed concerns about potential Western invasion/first strike to eliminate its nuclear capability.

- This fear allowed Russia to exert influence over Eastern European militaries.

3. National Paths to Socialism:

- Despite the international nature of socialism, Eastern European countries sought variations that aligned with their national interests.

4. Unique Cases:

- Each Eastern European country had unique characteristics and approached socialism differently.

- The notion of a singular "Eastern Bloc" often oversimplifies the diversity within the region.

5. Monopoly of Influence:

- Russia sought to maintain its influence and control over Eastern European nations.

- Leaders in these countries, however, demonstrated a willingness to pursue distinct paths.

Examples of Varieties:

- Poland:

- Unique historical and cultural factors influenced Poland's approach to socialism.

- Hungary:

- Attempted a more liberal version of socialism with limited economic reforms.

- Czechoslovakia:

- Experienced the Prague Spring in 1968, marked by efforts to introduce political reforms, but faced suppression.

- East Germany:

- Strong Soviet influence, divided capital (Berlin), and unique challenges due to the Cold War division.

Conclusion:

- The Warsaw Pact provided a framework, but individual Eastern European countries pursued distinct paths in their implementation of socialism. National considerations, historical backgrounds, and unique circumstances led to variations in the practice of communism across the region.

Countries

Yugoslavia:

- Independence: Yugoslavia, under Josip Tito, maintained a more independent stance compared to other Eastern European countries.

- Tito's Leadership (1945-1980):

- Tito was a national hero who played a key role in driving out the Fascists during World War II.

- Implemented 5-year planning in 1947.

- Break with Stalin:

- Initially worked with Stalin but advocated for a "national path to socialism" by 1948.

- Yugoslavia was expelled from Cominform (1948), the international communist agency.

- Resistance to Russian Domination:

- Tito resisted Russian domination, gaining recognition from the U.S. and offers of aid under the Marshall Plan.

- Non-Aligned Movement:

- Tito played a crucial role in creating the Non-Aligned Movement in 1961, comprising countries wishing to remain neutral in the Cold War.

- Liberal Policies:

- Implemented liberal travel policies, allowing citizens to visit the West by the 1960s.

- Permitted Westerners to visit Yugoslavia.

- Economic and Political Liberalization:

- Reduced the secret police in 1974 and initiated economic liberalization.

- Titoism influenced Eastern Europe, causing difficulties for the Russians.

Poland:

- Gomulka's Leadership:

- Wladislaw Gomulka led Poland during different periods, emphasizing an independent "Polish way" to socialism.

- Rigged elections in 1947 to consolidate power.

- De-Stalinization Period:

- After Bierut's rule (1947-1956), a de-Stalinization period followed, encouraging anti-corruption efforts and some reforms.

- Gomulka aligned Poland with the Russians and became more conservative, supporting the invasion of Czechoslovakia in 1968.

Hungary:

- 1956 Revolution:

- In 1956, Hungary witnessed a revolutionary uprising, starting as a student demonstration.

- Soviet intervention led to casualties, displacements, and repression.

- Demonstrated the harsh consequences of attempting independence.

Czechoslovakia:

- Prague Spring (1968):

- Led by Alexander Dubček, Czechoslovakia experienced the Prague Spring, involving partial decentralization, economic denationalization, and democratization.

- Soviet invasion in 1968 crushed the reforms, and the country remained occupied until 1989.

- Repercussions:

- The invasions, especially the Hungarian Revolution and Prague Spring, highlighted the limited independence of Eastern European countries.

Eastern Europe: End of Communism:

Eastern Europe: End of Communism:

- Economic Struggles:

- By the 1980s, communist governments in Eastern Europe faced economic challenges, high debts, and discontent among the population.

- Black markets thrived due to shortages.

- Solidarity Movement (Poland):

- The Solidarity movement in Poland, led by Lech Walesa, emerged in the 1980s, advocating for improved living standards.

- Martial law was imposed, and sanctions by the West exacerbated difficulties.

- End of Communism (1989):

- Gorbachev's reforms and a loss of will to dominate led to the fall of communism in Eastern Europe.

- The collapse occurred in 1989 with minimal resistance.

- Legacy of Poverty:

- Despite the end of communism, the legacy of poverty persisted, and integrating Eastern Germany into the West required significant investment by Germany.

The end of communism in Eastern Europe marked a transformative period, with each country facing unique challenges during and after the Cold War.

the banking system in the Soviet Union during the era of state socialism

The description you provided outlines the banking system in the Soviet Union during the era of state socialism. Here are some key points:

1. Centralization and Monopoly:

   • In the 1920s, various banks in the Soviet Union were replaced by a single central bank known as Gosbank (State Bank).

   • Gosbank had a monopoly on issuing the Soviet currency, the Ruble.

2. Currency Control:

   • The Ruble was not freely exchangeable with foreign currencies except by official importers and exporters. This control over the currency aimed to manage international trade and prevent the outflow of currency.

3. Cash Transactions and State Stores:

   • Workers were paid in cash, and they used this cash to purchase goods at state stores.

   • State stores sent the cash back to the bank in exchange for stocks, and the bank then distributed the cash to factories to pay workers, completing the cycle.

4. Gosbank Branches:

   • Gosbank had three main branches, each serving specific functions:

     • Sperbank (Savings Bank): Encouraged saving by offering a small interest rate. It was where people could keep money.

     • Stroibank: Handled the crediting and debiting of firms for their goods and produce.

     • Vneshtorgbank (Foreign Trade Bank): Managed foreign currency transactions, handling imports and exports.

5. Bookkeeping System:

   • Gosbank used a bookkeeping system to manage short-term credits for industry.

   • Industries received debits for the goods they obtained and were expected to earn credits by producing goods.

   • Failure to pay off debits could theoretically result in the denial of new inputs.

6. Bartering and Coincidence of Wants:

   • Due to shortages and mismatches in production, managers often engaged in elaborate systems of bartering.

   • Bartering systems faced challenges due to a lack of coincidence of wants, emphasizing the value of money as a medium of exchange.

7. Stroibank's Role in Long-Term Investment:

   • Stroibank managed long-term investments in various sectors, including heavy industry, transport, communication, construction, education, science, culture, public health, housing, and municipal economies.

   • Credits were given to industries with the expectation that they would demonstrate the ability to pay back by producing goods over the long term.

8. Application in Eastern Europe:

   • The Soviet banking model was replicated in Eastern European countries aligned with the Soviet Union, with national banks, savings banks, foreign trade banks, and investment banks following a similar structure.

The banking system outlined reflects the central planning and control characteristic of communist economies during this period. It emphasizes the role of banks in implementing economic plans, managing credits and debits, and serving as a tool for the central government to direct economic activities.

summary till banking

- Centralization and Monopoly:

- In the 1920s, various banks in the Soviet Union were replaced by Gosbank, a single central bank.

- Gosbank held a monopoly on issuing the Soviet currency, the Ruble.

- Currency Control:

- The Ruble was not freely exchangeable with foreign currencies except by official importers and exporters.

- Currency control aimed to manage international trade and prevent the outflow of currency.

- Cash Transactions and State Stores:

- Workers were paid in cash and used it to purchase goods at state stores.

- State stores sent the cash back to Gosbank in exchange for stocks, completing the economic cycle.

- Gosbank Branches:

- Sperbank (Savings Bank) encouraged saving by offering a small interest rate.

- Stroibank handled crediting and debiting of firms for goods and produce.

- Vneshtorgbank (Foreign Trade Bank) managed foreign currency transactions for imports and exports.

- Bookkeeping System:

- Gosbank employed a bookkeeping system to manage short-term credits for industries.

- Industries received debits for goods and were expected to earn credits by producing goods.

- Bartering and Coincidence of Wants:

- Due to shortages, managers engaged in elaborate bartering systems.

- Bartering faced challenges due to a lack of coincidence of wants, highlighting the value of money as a medium of exchange.

- Stroibank's Role in Long-Term Investment:

- Stroibank managed long-term investments in various sectors.

- Credits were given with the expectation that industries would demonstrate the ability to pay back over the long term.

- Application in Eastern Europe:

- The Soviet banking model was replicated in Eastern European countries with national banks, savings banks, foreign trade banks, and investment banks.

- This system reflected the central planning and control characteristic of communist economies, directing economic activities through banks.