What was the Classical System?

Hi.

My name is Emilio Carnevale,

and I teach macroeconomics at Notre Dame University in

Newcastle upon Tyne.

This lecture will be,

about the Khrushchev's economic reform in the Soviet Union and

therefore, it will cover, a period approximately,

from the death of Stalin in nineteen fifty three up to

nineteen, sixty four, when Khrushchev was removed from the

leadership of the Soviet Communist Party.

I said approximately nineteen fifty three because Stalin died

in nineteen fifty three, but there was a short period of

a so called collective leadership.

So it took some time for Khrushchev to affirm himself as

the, unique the undisputed leader of the of the Soviet

Communist Party.

I would say since the resignation of, Malenkov as

the, the head of the government in

the Soviet Union,

he became both the general secretary of the Communist

Party and the head of the government and therefore,

the supreme leader of the country.

So Khrushchev is a very interesting character.

He's a very interesting figure in the history of the twentieth century.

I think he's he's very telling to to to have a look of what

he said in his memoir about his childhood,

which is a very significant indicator of his character.

So he he said, after a year of two of school, I had learned

to count up to thirty and my father decided that was

enough of schooling.

He said that all I needed was to be able to count money and

would never have more than thirty rubles to count anyway.

So thirty was enough for him.

The ruble was the currency of the czarist empire of the

Soviet Union and it's the currency also the name of the

currency in present day Russia.

So he came from a very, very poor background.

He barely had, a formal education, just a couple of

year in the primary school.

And the fact that he became the the supreme leader of one of

the two superpower at the time tells a lot of how, incredible,

dramatic, and surprising,

and revolutionary were the years in which he lived.

He tried to reform the the Soviet system, the Soviet economy,

but in order to understand how he tried to do that,

we need to understand how was the system that he inherited

from from Stalin.

This is the the system that a very famous scholar of the

Soviet economy, the Hungarian economist, Janos Kornay,

called the classical, system.

Why classical?

Because this was the benchmark of the communist economy.

The benchmark where that was imitated by many other

countries after the second World War when they tried to

build socialism.

I'm talking about the the Eastern European countries, but

also China when the,

when the world there was the victory of the revolution in

nineteen forty nine.

Even later on, countries like Cuba basically imitated this,

classical system.

The pillars, the element that qualify the classical system,

Stalin's, socially, were basically three.

The first one was the the political element, which was,

made of the undivided power of the communist party and the

dominance of its ideology.

Its ideology was a mix of element from the so

called founder fathers of communism,

of scientific communism, Karl Marx and Friedrich Engels,

with contribution of revolutionaries like Lenin and

Stalin in the Soviet Union or Mao in China.

With respect to the economic system, the two main elements

of the of the socialist economy where the public ownership

of firms on one hand and the plan,

on the other hand.

The plan that replaced the market

as a means of allocation of resources.

With respect to the first element, mainly all, industrial

firms were publicly owned, state owned.

Most of,

firms in the agricultural sector were comparative.

There were some state owned farms, but the the comparative

form was was very common in the in the countryside.

And very little role was played by,

by private enterprises,

and by the the market.

The only enterprise that somehow resembled an a private

firm in the Soviet economy was the so called private plot.

The private plot was a piece of land which was assigned to a family.

It was not the property of the of the of the family.

It was just cultivated by the family.

They were entitled to sell the product of this plot to local

markets and they could, keep the profits of these sales.

And this played a very important role in the in the,

supply of food,

of the population and generally speaking the in the Soviet economy.

Apart from that, from that element, there were very,

very little role for private enterprises.

There were no,

enterprises that could employ higher labor because this would imply

a very close similarity to a capitalist firm and a

relationship between the owner and the worker that could have

been defined as, exploitative from a Marxist perspective.

With respect to the plan,

these were the Soviet economy was a planned economy,

a common economy.

It means that the plan, the decision of the planner,

dictated,

what to produce, how to produce with which material,

and to whom,

to sell this this product.

The the market only work for the informal

sector, so for the illegal

sector of the economy and to some extent for the for the

consumption goods.

This means that people could buy whatever they wanted in the

final step of the distribution with their money.

However, prices were administrated,

so they were decided by the planner.

And the intention was to favor some goods that were considered

worth to be consumed, like staples or cultural services.

And the planner also wanted to discourage the consumption of

other goods like luxury goods that were not considered to be incentivized.

The main problem for the consumer apart from the

rationing of some goods was the shortages.

Some goods were not easily available.

They were not very easy to find.

And some scholar regard this as a structural characteristic of

the classical system, the problem of shortages.

Apart from that, apart from the the final,

consumption sector, the allocation of investment goods,

capital goods was dictated by the the market provision were

given to firms on where to find their supply

and to whom they had to sell, these products.

They were targets of production that the manager,

had to meet.

And,

these targets somehow,

explain, to some extent some if inefficiencies of the system

that Khrushchev tried to address with his reform at the

end of the fifties and in the first year of the sixties.