Lenin's influence and insistence won. His critics had no valid alternative to offer. The New Economic Policy (called "NEP") was confirmed by a decree published Aug. 9, 1921. It permitted freedom of trading within the country, sanctioned overtime and piece work payment for workers, offered encouragement to foreign capitalists and concessionaires, and recognized by implication the rights of private property which had been abolished under Mili tant Communism. NEP not only made private business legal and possible in Russia, but also opened the door for commercial inter course with the outer world. To many orthodox Communists this new freedom was a backward step.
New Financial Policies.—During the period of Civil War and Militant Communism the financial tools of capitalist states had been laid aside. Private banks, cheques, securities—all had gone. Money had depreciated rapidly as more and more of the national budget was covered by inflation. Frumkin, vice-com missar of finance, stated that 85% of the 1920 budget was pro vided by the emission of notes. The remaining 15% came from food requisitions and other sources.
If the New Economic Policy was to succeed it must clearly have banking facilities and a more convenient medium of exchange than commodity cards. The shift of policy was quickly made. The State bank was established in the autumn of 1921 and given the authority to issue banknotes as well as to serve as a credit institution. On Nov. 16, 1921, it began credit operations. By a year from that time the essentials of currency reform had been prepared, and the Bank began to issue notes. The monetary unit chosen for the new banknotes was the chervonetz, with a gold value of io pre-war roubles, that is, 119.4826 grains of fine gold or $5.146 in United States currency. The rouble was thus given its pre-war gold equivalent. The law provided that the new bank notes should be secured to 25% by precious metals and foreign currencies.
For a time the chervontsy (State bank notes) circulated side by side with the earlier sovznaky (Government or "Soviet" notes), whose value was adjusted to the chervonetz from day to day. The State bank notes were strictly controlled, but the sovznaky were printed in great quantities in the succeeding months. The public, especially the peasants, grew to distrust them, and the remaining steps in currency reform were pushed through as quickly as possible. In March 1924, the emission of sovznaky was stopped and in May they passed out of circulation. Small denomination Treasury notes were issued for purposes of conve nience, and silver and copper coins were minted. Henceforth the currency system of the Soviet Government was on the same gen eral basis as that of western countries.
The reform of the currency required in turn the establishment of the State budget on a solid foundation, since the Government could no longer print notes to meet the deficits. Agricultural taxa
tion, which had been substituted for requisitions early in 1921, was again revised. In May 1922, a single tax in kind was estab lished by decree, and the peasants were permitted to pay in speci fied commodities the graduated taxes imposed. In May 1923, a more extensive reform was made. Cumbrous miscellaneous taxes were swept aside, a "Single Agricultural Tax" was provided, and money payments were gradually substituted for commodity ments. Meanwhile urban taxation had been developed by indirect taxes and income and property taxes, so that the peasants, instead of forming the principal tax-paying body of the State, came to furnish only a small fraction of the national tax income.
Changes in Organization.—The most radical change involved in the New Economic Policy was the restoration of the whole internal economy of the country, industry, commerce, transport, housing and employment, to a straight money basis. Instead of the vague system of accounting prevalent under Militant .Com munism, every state enterprise was compelled to issue a regular balance-sheet and to show profit and loss in the old-fashioned way. Instead of commodity cards, employees received a regular wage paid in cash. Housing committees were entitled to charge rent on a graduated scale in accordance with the social position and earnings of the tenant, and were expected to maintain the premises under their charge in a reasonable state of repair and comfort. The railways and tram companies were allowed to charge fares for passengers and freight to cover expenditure and enable them to maintain an adequate service.
Communist critics of the New Economic Policy were perhaps justified in declaring it a reversion to capitalist methods. In later years there was acrid discussion upon this point, and an attempt was made to resolve ideological doubts by the adoption of the self-contradictory phrase "Socialist Capitalism" to define the pre cise significance of the policy. The commoner and less anomalous expression "State Capitalism" was probably more accurate. In any case, the Soviet Government could not avoid the process of decentralization which was a phase of post-war reconstruction in all of the belligerent countries. For them, no doubt, war-time centralization and "control boards" were matters of necessity rather than choice. For the Bolsheviks, choice and necessity co incided. But if centralization proved unwieldy in the advanced industrial countries of the west, it was a yet heavier burden upon the backward economy of Russia. Under the New Economic Policy a great many nationalized enterprises were "released," not to former proprietors or private owners, but to face competition in the open market. The financing of such corporations was car ried out by the Industrial and Commercial Bank and by other new banking establishments.