Lenin’s New Economic Policy (NEP)
Lenin’s NEP was an instructive chapter in economic history:
Allowing some private ventures, the NEP allowed small animal businesses or smoke shops, for instance, to reopen for private profit.
Rather than repossess all goods produced, the Soviet government took only a small percentage of goods. This left the peasants with a marketable surplus which could be sold privately
The state, after starting to use the NEP, migrated away from Communist ideals and started the modernizing of the economy, but this time, with a more free-minded way of doing things. The Soviet Union stopped upholding the idea of nationalizing certain parts of industries. Some kinds of foreign investments were expected by the Soviet Union under the NEP, in order to fund industrial and developmental projects with foreign exchange or technology requirements.
Agricultural production increased greatly. Instead of the government taking all agricultural surpluses with no compensation, the farmers now had the option to sell their surplus yields, and therefore had an incentive to produce more grain. This incentive coupled with the breakup of the quasi-feudal landed estates not only brought agricultural production to pre-Revolution levels but surpassed them.
The only problem with the policy was that the state still maintained control over significant other aspects of the economy, leading to the usual problems of interventionism:
While the agricultural sector became increasingly reliant on small family farms, the heavy industries, banks and financial institutions remained owned and run by the state. Since the Soviet government did not yet pursue any policy of industrialization, and did not allow it to be facilitated by the same private incentives that were increasing agricultural production, this created an imbalance in the economy where the agricultural sector was growing much faster than heavy industry. To keep their income high, the factories began to sell their products at higher prices. Due to the rising cost of manufactured goods, peasants had to produce much more wheat to purchase these consumer goods. This fall in prices of agricultural goods and sharp rise in prices of industrial products was known as the Scissor crisis (from the shape of the graph of relative prices to a reference date). Peasants began withholding their surpluses to wait for higher prices, or sold them to “NEPmen” (traders and middle-men) who then sold them on at high prices, which was opposed by many members of the Communist Party who considered it an exploitation of urban consumers.
And when government intervention in free markets creates problems, what do bureaucrats always inevitably pursue as panacea? Right, more government intervention:
To combat the price of consumer goods the state took measures to decrease inflation and enact reforms on the internal practices of the factories. The government also fixed prices to halt the scissor effect.
Naturally, a policy that increases the wealth of the common man is a thorn in the side of tyrannical sociopaths, thus Josef Stalin ended the NEP in 1928 with the Soviets’ first 5 year plan.