Two Systems

TWO SYSTEMS

EUGEN VARGA AS STALIN'S FAITHFUL PROPAGANDIST

1937-1939







ANDRÉ MOMMEN















CEPS



MAARSSEN

APRIL 2010


Introduction





With the rising tide of the Popular Front and Hitler's aggressive foreign
policy, Eugen Varga's role and attitude changed considerably. As Stalin's
faithful propagandist was praising the merits of socialism and denouncing
capitalism's inability to secure economic growth. In addition, Varga's
institute specialized in studying some recent changes having occurred the
main capitalist countries, especially in the US where the New Deal had
broken with laissez-faire capitalism or the prospects of Hitler's economic
reforms. However, he still believed that no real recovery was possible and
that stagnation at a low level of production with small recoveries was the
irremediable fate of capitalism.

From now on, Varga kept on publishing books and articles commissioned by
the Central Committee's propaganda department. His book Two Systems
published in 1937, which was destined to a large public in the US, had to
promote the realizations of the Soviet regime and to stress capitalism's
inability to cope with the economic crisis.



Nazism and New Deal



In 1933 and 1934 s slight economic recovery was signaled, especially in
Nazi Germany and New Deal's US. Would there be a cyclical upswing
necessarily postponing the attended breakdown of capitalism thanks to
interventionism of the capitalist state creating an outlet on domestic
'market'. Or was capitalism nonetheless creating[1] its own market? Soviet
economists were unable to answer these questions. Varga maintained that the
economic upswing of that period had to be attributed to 'internal forces'.
Finance capital was however unable to continue ruling in the old way. It
had mobilized the petty-bourgeois masses against the working class with the
aid of slogans against predatory capital. Soviet analysts qualified
Roosevelt's National Recovery Act (NRA) as an astute supported by big
business in order to distribute 'reasonable profits' to monopoly capital.
Hence, Varga denounced NRA as a form of 'disguised Fascism'. He identified
the Agricultural Adjustment Act as a twin of Hitler's Hereditary Farm Act
increasing agricultural prices. His colleague V. Lan (Kaplan) discovered in
the close collaboration between industrialists and trade unions a form of
fascism.[2] Lajos Magyar argued that replacement of fixed capital had to
occur at the end of the depression. Hence, state subsidies to finance
capital were discouraging the normal recovery process. Magyar claimed that
recent signs of economic recovery could only have been pulsed by a
'military-inflationary boom'.[3] His colleague M. Yuelson adhered to this
idea and proposed to use it as an analytical category, that was, however,
nothing else than Hilferding's 'organized capitalism'.

At the Thirteenth Plenum of the ECCI in November-December 1933, Kuusinen
shared that opinion. He argued that the revival of industry was bearing the
characteristics of military-inflationary expenditures.[4] In his speech to
the Thirteenth Plenum, Varga,[5] who did not believe in the possibility of
a real economic recovery, thought that the internal mechanisms working in
accordance with the laws of capitalism to overcome every cyclical crisis
were not strong enough owing to the pressure of the general crisis of
capitalism. Hence, bourgeois optimism about an economic upswing was
therefore unfounded and inspired by a recent 'crisis rationalization'.[6]
Profits were rising because of low wages paid, diminished earnings of the
peasants, plundering of the state budget, subsidies, war production,
etc.[7] Excess productive capacity still constituted an unsurmountable
obstacle to new investments that depended on higher consumption, thus on
the volume of purchasing power.[8] Expansion of the market was impossible
as there were in the colonies no additional groups of peasants to be
exploited. Apparently, Varga had returned to the imperialism theory of Rosa
Luxemburg and Fritz Sternberg, but in the mean time he preferred quoting
from Lenin's The Development of Capitalism in Russia which contained an
analogous explanation.[9]

Stalin did not share Varga's opinion. At the Seventeenth Party Congress in
January 1934, he warned in his report for those people inclined to adhere
entirely to the concept of the 'military-inflationary boom.' Stalin: 'Such
an explanation would be incorrect, if only for the reason that the changes
in industry which I have described are observed, both in separate and
chance districts, but in all, or nearly all, the industrial countries,
including the countries with a stable currency. Apparently, in addition to
the war and inflation boom, the internal economic forces of capitalism are
also operating there.'[10]

Varga was still clinging to his "law", when referring to the devastating
effects of 'crisis rationalization' on employment. Artificial state
initiatives could not reverse this tendency. They only lead to a sudden
relapse, which was illustrated by the recent economic setback at the end of
1933 in the USA.[11] Varga felt back on his theory that the current crisis
was not a 'normal depression', but one of a 'special kind'.[12] Meanwhile,
Varga's Institute of World Economy and World Politics was analyzing of
Roosevelt's New Deal and the development of American monopoly capitalism.
Sergey Dalin and Esfir Gurvich[13] denied capitalism's capability of
planning economic growth when pointing to financial capital domination.

However, this kind of analysis did not meet the aspirations of the American
Communists who had joint a Democratic Front with all progressive forces. At
a Politburo meeting in November 1937, Earl Browder claimed that this
recession was not a necessary development and that the roots of the crisis
were political, not economic. Browder accused monopoly capital of a power
play to cancel the mandate of the people.[14] He won Dimitri Manuilsky's
Comintern endorsement of his pro-Roosevelt policy views on purely pragmatic
grounds. Then, Varga did an about-face, arguing that the recession was
'largely due to political factors' such as 'the deliberate sabotage of the
most reactionary sections of the United States bourgeoisie'.[15]

Varga's dilemma was clear when Roosevelt's Planning Board expanded its
scope to include a variety of investigations into public works, natural
resources conservation, the impact of technology, declining population, and
the structure of the American economy. Using the Planning Board as an elite
group of policy advisers, a strong president such as Franklin Roosevelt
could bring together the varied economic interest groups (industry, labor,
agriculture, and the professions).[16] Though Varga remained critical to
Roosevelt's planning activities, he was also impressed by American
capitalism's capacity to recover from the slump.



The USSR and the capitalist world



After the Seventh Congress of the Comintern in 1935, Varga became closely
associated with Stalin's foreign propaganda. Two publications, Two Systems
- Socialist Economy and Capitalist Economy[17], and The U.S.S.R. and the
Capitalist Countries,[18] saw the daylight. These publications deserve some
attention as they were supposed to popularize the achievements of the
Soviet system and to promote socialism as an alternative to capitalism, but
this time without preaching the proletarian revolution. In 1938 Varga
authored with Stalin's private secretary Lev Mekhlis[19] and V. Karpinsky a
propagandistic book The U.S.S.R. and the Capitalist Countries hailing the
Soviet Union as an economic great power. Its main author was Varga, who
took parts from his earlier writings or reports. In this poorly edited
pamphlet the three authors explain that under capitalism planning is
possible and that monopoly capitalists are responsible for low agricultural
prices.[20]

In his own contribution, Varga argued that the crisis of 1929-33 and its
'unprecedented duration' had to be explained 'by the fact that this crisis
occurred under the conditions of the general crisis of capitalism.'[21]
Varga paid much attention to the new economic crisis of 1937. This new
crisis proved that the bourgeoisie could not hope for better times. He
noticed that the American capitalists were forced for the first time to
sign collective agreements with the recently organized workers in heavy
industries. According to Varga the average amount of commodities per capita
was lower than it was before the war and that at the same time an enormous
portion of the means of production are unutilized. Because the people had
no money to buy goods and wealth was being concentrated to an ever greater
degree in the hands of a few people, 'capitalism has become a hindrance to
the development of mankind. If mankind is to advance, the rule of the
bourgeoisie must be overthrown.'[22]

In a chapter on the hard lot of the peasantry in capitalist countries is
revealed that the peasantry was still dissatisfied with the unfair
distribution of the land and they were forced to market their goods for a
pittance. A host of middlemen, merchants and big capitalists were standing
between the peasant and the consumers and taking all the profit, 'ruining
the peasant and robbing the urban consumer.'[23] In his contribution, Varga
focused on the situation of the German peasantry as well. The Fascists, who
were preparing for war, had 'deprived peasants of the right to sell their
produce. Fascist officials taking all the grain, cattle, meat milk,
vegetables and eggs from the peasantry, left the latter with barely enough
to feed their families. Optimistically, Varga argued that the 'toiling
peasants of Germany carry on a fierce and persistent struggle against the
fascist regime which dooms them to poverty and starvation'.[24] He hailed
the brave stand of the Spanish people against Fascism. He admitted that
'bourgeois democracy, half-hearted and scanty though it be in comparison
with socialist democracy, is at any rate better than fascist terror. That
is why the proletariat marches at the head of the united people's
front'.[25]



Two Systems



The central thesis in Varga's particularly well-written Two Systems (its
original title was 20 Years of Capitalism and Socialism) is that capital
was no longer in a position either to utilize the productive forces it had
created or to give the proletariat opportunity to work, while under the
dictatorship of the proletariat in the Soviet Union the productive forces
were developing at an incomparably quicker rate than in capitalism.[26] In
Varga's synthesis the Soviet Union had grown under 'the great leader of the
peoples, Joseph Stalin, a socialist society' to the status of an industrial
and military power, while during the same period two deep and severe
economic crises, lasting depressions, etc. were feeding the deep
'dissatisfaction of vast masses of the working people with the capitalist
system'.[27] Hence, the rising tide of the revolutionary movement could
only be repressed by using fascist methods.

This textbook contains long Marx, Lenin and Stalin quotations, attacks on
Trotskyists, pedantic endnotes and statistical evidences underpinning
Varga's arguments about the superiority of socialism over capitalism. Due
to a slowing down of real accumulation enormous sums of money "saved"
cannot be turned into productive capital.[28] Lenin's thesis that under
influence of monopoly capital capitalism is decaying, was 'falsified by
various Trotskyists, who afterwards turned traitors to socialism and to
their own country.'[29] According to Varga, Lenin's fundamental conception
was that imperialism is a "superstructure" on capitalism, that there is no
"pure imperialism". Varga argued that Lenin rejected as anti-Marxist 'both
the all-embracing "general cartel" of Hilferding, as well as the
Bukharinite idea of "organized capitalism".'[30] Obviously, Varga was well
aware of the role of military production since the outbreak of the economic
crisis of 1929. Whole branches of industry with military importance were
depending on state subsidies. However, Varga refrained from further
investigating the effects of military spending. He pointed to the fact that
'technical advance was restricted' now that the authorities forbade the
utilization of machines while low wages made 'technical innovations less
profitable',[31] but due to the introduction of machinery development was
more rapid in the Soviet Union than anywhere.

Varga refers to problems typical for capitalism's retarded development
caused by the narrow limits set by the power of society to consume on the
sale of the goods produced in division two and also on the sale of goods of
division one. 'On a yearly average, industrial production in the Soviet
Union has risen by 29 per cent since 1920; in the capitalist world by 2.7
per cent.'[32] More important, he also notes the complete independence of
the development of the economy of the Soviet Union from the cyclical
movement of production of the capitalist world', as well the fact that
criminal elements 'had made 'desperate attempts to put obstacles in the way
of victorious socialist construction'.[33] He argued that the possibility
of the increase of production in a socialist society extending over the
world was 'practically limitless'.[34] Varga was not blind for the fact
that inequalities in the development of separate branches of industry was
important and that production in 'old industries' was stagnating since the
First World War, while production in the new branches of industry had risen
rapidly.[35] In line with his earlier analysis of capitalism, Varga blames
the bourgeoisie for being incapable of utilizing the material productive
forces it had created. That was no accidental phenomenon, he argued, but
followed of necessity from the inner development of capitalism.[36] In the
Soviet Union the utilization of the existing productive plants and the
output of labor were incomparably better than under capitalism, as here
were never any market difficulties or work stoppages. Thus, this proved the
'tremendous superiority of the Soviet over capitalism'.[37] Varga hailed
the rise and spread of the Stakhanov movement as an important stage in the
realization of socialism. However, Varga also admitted that the average
output of the Soviet workers was still below the average output of the
workers in the technically most advanced capitalist countries. But the
output of the Stakhanovites was definitely higher in the Soviet Union.[38]

Chronic mass unemployment under capitalism and the creation of an
industrial reserve army was a necessary product of accumulation and at the
same time a condition of existence of the capitalist mode of production.
'But in the period of the general crisis this quantitative increase of the
industrial reserve army turned into a qualitative change'.[39] According to
Varga this chronic mass army of the unemployed were superfluous 'not only
for the usual but also for the greatest self-expansion of capital'.[40]
Therefore, an important part of the labor force would remain permanently
unemployed. Varga reintroduced his already previously formulated 'law' that
there was 'a tendency towards an absolute reduction in the number of
productive workers, i.e., workers who directly create value and surplus
value.'[41] But this time he also admitted that the number of employed in
the 'unproductive' occupations (trade, banks, domestic services) had
increased at the same time. Hence, Varga concluded that due to the
parasitic nature of capitalism in the period of the general crisis human
labor power was only partly used. He returned to his underconsumptionist
thesis when asserting that under capitalism workers can only find
opportunity to work when the goods produced by them can be sold as
commodities at their price of production. Varga: 'This is far from being
always the case, since under capitalism there is a standing contradiction
between the drive of capital to extend production and the narrow limits of
the consuming power of society.'[42] In the period of the general crisis of
capitalism capital was not able anymore to guarantee its workers existence,
which was the best proof that the capitalist system would succumb in the
fight with socialism. 'The period of the general crisis of capitalism is
therefore the period of the social revolution, as the victory of socialism
on one-sixth of the globe clearly shows'[43], he concluded.

With the decay of free-market capitalism by imperialism the peaceful path
of solution of the market problem had been closed and accumulation problems
had increased. Limited consumer power of the proletariat also put limits to
the sale of the means of production.[44] However, Varga had to explain why
the problem of the market had become particularly acute in the period of
the general crisis. He tried to solve this problem by the narrowness of the
market and the factors making the problem of the market more acute in the
period of the general crisis. First of all, capitalism had to draw
independent producers of the world into the capitalist market in order to
expand its market by transforming the peasantry into a rural proletariat.
In the period of the general crisis this process had as good as stopped,
the conquest of colonies had come to an end, the time of great railway
construction was past, the export of capital had diminished for a great
deal. In addition, monopolies restricted the power of society to consume by
wage reductions and by keeping selling prices high.

Varga rejected the objection that the consumption power of society taken as
a whole would not shrink under monopoly capitalism: 'The concentration of
enormous sums of surplus value by the monopolies, in the hands of the
finance oligarchy, leads to a diminution of the power of society to
consume, because the finance oligarchy – in spite of the wild luxury they
go in for – can only use for private consumption a small portion of the
enormous profits they acquire'.[45] In addition, the monopolies owned
enormous masses of accumulated money for which they could not find
investment opportunities. Whereas in an early stage of capitalism the
problem of the market was only acute in the phases of crisis, in the period
of the general crisis of capitalism it had the tendency to become
chronically acute. The chronic agrarian crisis could be catalogued as a
component of the general crisis of capitalism, because of the severe
restriction of demand by the urban population. This chronic agrarian crisis
could lead to a reduction of agricultural productive forces, to a
degradation of agriculture, thus 'to the mass ruin of the working peasantry
in the capitalist world.'[46] Varga noticed an increase of the role of the
state and propaganda for autarchy now that the market possibilities were
insufficient. The bourgeoisie tried to monopolize to the fullest extent
possible the home market by imposing bureaucratic controls on foreign trade
transactions. This growing tendency to protectionism was reflected in a
reduction in the volume of world trade. But Varga also noticed that the
reduction in the volume of foreign trade was accompanied by
industrialization in some Latin American countries where cotton spinning
was introduced. State regulation of capitalist economy had increased in
order to monopolize the home market, but also to relief the enterprises
endangered by the crisis. Measures for temporary alleviation of the
dissatisfaction of the masses were taken simultaneously with measures of
advantage to monopoly capital. 'The aim of the New Deal consisted first and
foremost in holding the farmers and workers off from revolutionary mass
action. (…) under the cover of social demagogy, the New Deal gave the big
bourgeoisie everything that they needed: billions from the state treasure
for the relief of bankrupt enterprises, not only getting rid of existing
legal obstacles to the formation of trusts, but positive advantages for the
formation of monopoly by forced trustification laid down in the codes,
prohibition of the construction of new works, minimum prices laid down by
the state, etc.'[47] The sudden increase in expenditures on armaments
coincided with the transition from depression to revival. However, Varga
denied that capitalism could ever eliminate crises by simply multiplying
armament expenditures. If armaments were financed by an equally large
increase in taxes affecting the masses, then there would be no extension of
the market. A real expansion of the market could be obtained by borrowing
capital lying fallow. In addition, the agitation for a planned economy in
capitalism aimed at making the workers believe that a capitalist planned
economy was possible. But the indispensable condition of a successful
planned economy was the elimination of profit as the moving force of
production. 'The discoverer of this demagogy was de Man, who with his plan
actually succeeded in blurring the antagonism between the right- and left-
wings of the Belgian Labour Party for a time, and diverting the
dissatisfaction of the workers into a reformist channel by the "fight for
the Plan" (which he shamefully betrayed when the longed-for opportunity
presented itself of becoming a minister in a bourgeois cabinet).'[48] In
addition, the agitation for planned economy in capitalism was seeking 'to
dampen the revolutionizing effect of the crisis-less, successful
construction of Soviet economy'.[49]

According to Varga, the laws of capitalist reproduction led to a relative
and absolute impoverishment of the proletariat. Due to increased
productivity the worker received an ever-decreasing share of the values
produced by him. Absolute impoverishment of the proletariat occurred
because capital strives to force wages below the value of labor power.
However, Varga indicated that the absolute impoverishment of the
proletariat went with 'interruptions, in continual struggle between capital
and proletariat'.[50] In the period of the general crisis of capitalism and
chronic mass unemployment supply of labor power gave capital the
possibility of a drive against wages. But Varga also noticed that in the
fascist countries state power prevented any legal defense against capital,
while in the United States and France the political and legal conditions
were more favorable than in other capitalist countries. In addition, Varga
attacked 'bourgeois statistics' being completely useless with regard to the
development of the position of the working class, for resolving the
question whether and how far an absolute impoverishment of the proletariat
was taking place.[51]

In his chapter on the mass ruin of the peasantry under capitalism, Varga
focused on high monopoly prices for manufactured goods which they had to
purchase, and the considerable fall in agricultural prices. The "scissors"
(difference between industrial and farm prices) having become an ever-
heavier burden for the peasantry, led to their ruin. He noticed that the
rich peasants had various possibilities of partially transferring the
burden of the crisis to the poor strata of the village dwellers. 'Most
terrible of all is the situation of the poor peasants, who constantly
depend on extra-earnings from wages, and who cannot find any work because
of the chronic mass unemployment'.[52] Varga pointed to the fact that in
Hungary, just as in Italy, unemployment among agricultural workers was so
tremendous that the government had forbidden the use of harvesters.[53] In
the Soviet Union, an entirely new peasantry, such as had not previously
existed in the history of mankind, had emerged after collectivization: 'a
happy peasantry, living in peace and joy, shedding its private economic
peasant skin and merging with the working class'.[54]

A chapter on the national and colonial question analyzed how the
bourgeoisie of the dominating nation oppressed national minorities in
Europe. National oppression was particularly heavily on the intellectuals,
Varga added, because they had 'to deny their nationality or renounce any
state post. The greater the unemployment among the intellectuals, the more
membership in the ruling nationality is used as a weapon in the fight to
live. In many cases the fight goes over into the sphere of religion. The
Germans of Jewish faith were subjected to the bitterest persecution as a
foreign "race" in order to get rid of them as competitors.'[55] Hence,
Varga concluded that national freedom and equal rights were impossible in
bourgeois society and that national oppression was hindering the cultural
development of peasants and workers. After the World War, the colonies were
re-divided. England appropriated the lion's share, but this post-war
agreement only would last until 1931 with Japan's attack on Manchuria. How
to explain the Kuomintang's behavior in the development of the Chinese
revolution? Varga argued that the Kuomintang wanted a bourgeois anti-
imperialist movement, and therefore it broke with the Comintern. Varga:
'The further development of the Chinese and particularly the Indian
national movement for emancipation clearly show the danger that a national
movement led by the bourgeoisie loses its striking force and makes
compromises with the imperialist bourgeoisie at the expense of the masses
of working people.'[56]

Varga argued that the general crisis of capitalism had brought about a
further worsening of the living conditions of the colonial population,
because the colonies had to get their manufactured goods to an even greater
extend from the mother country while the big monopolies were forcing down
the prices of raw materials. As a result of the economic crisis, demand for
colonial raw materials had dropped considerably. Hence, he concluded that
imperialism had succeeded in easing the position of its industry at the
expense of the peasants in the colonies and that 'the agrarian revolution'
was the 'only way out of the miserable condition of many hundreds of
millions of colonial peasants'.[57] Varga admitted that in the colonies an
alliance of the local landlords with the imperialists against the peasantry
was a fact and that the 'big bourgeoisie' had become 'altogether
reactionary' supporting the conservative elements in the colonies in order
to perpetuate pre-capitalist forms of exploitation.[58] But he also pointed
to the nascent native bourgeoisie in the colonies involved in certain
branches of the consumption industry which was gradually bringing with it
the development of 'native capital, of a native bourgeoisie.'[59] New
perspectives appeared now that the native bourgeoisie tried to develop
local industries. The further development of native industries was,
however, hampered by the narrowness of the local market and the poverty of
the colonial peasantry. Therefore, the native bourgeoisie had a direct
interest in changing the feudal agrarian constitution restricting the
development of the domestic market. But with the development of domestic
industry, an industrial proletariat also developed.

In contrast, after the October Revolution the Soviet power united the
nations in a nationally united territory. The privileged position of the
Russian language was abolished and 'full right of separation' for the Union
Republics and the Autonomous Republics existed. Varga argued, that the
'results of centuries of national oppression could not be set aside at one
blow'.[60] The new Soviet Constitution was the crown of the equal rights of
nations, though remnants of Great-Russian chauvinism and anti-Semitism
still existed. The young people growing up in the Soviet Union were now all
free from chauvinism, anti-Semitism and fascism.[61]

In his final chapter, Varga discussed bourgeois democracy. 'Bourgeois
democracy, in comparison with all reactionary forms of domination of the
exploiting classes, is an achievement; it is an evil in comparison with the
dictatorship of the working class, which – as Lenin emphasized- is many
times more democratic than the most progressive forms of bourgeois
democracy.'[62] He warned for the illusion that reformism could lead to a
peaceful transition to socialism or that the entry of Social-Democratic
leaders into the state apparatus meant the beginning of socialism. In the
period of the general crisis of capitalism the financial oligarchy wanted
to abolish bourgeois democracy and to erect an openly violent form of its
dictatorship. Because of the unequal development in the different
countries, some countries were experiencing fascism, while elsewhere a
struggle between fascism and democracy was fought out, taking more and more
'the character of a world battle between the forces of fascist reaction and
of progress.'[63] Though in the United States and England the bourgeoisie
was defending in words democracy against fascism, the 'undermining of
bourgeois democracy' was already in play.[64] Varga argued that in the
victorious countries at the outcome of the World War, the apparatus of
force had remained more or less intact, but that in the defeated countries
the authority of the ruling classes had been shattered and that the petty
bourgeoisie had been embittered. In line with Dimitrov, Varga believed that
the accession to power of fascism was 'by no means inevitable'. 'It would
undoubtedly have been possible to prevent the victory of fascism if the
working class had not been split by the reformist leaders and its
resistance weakened.' [65] But he rejected its responsibility on the
opportunist leaders of Social Democracy and the trade unions having split
the working class while cooperating with the big bourgeoisie.

In this aseptic exposé Varga attacked several times Trotsky, Kautsky and
Hilferding. But the names of foreign politicians (Hitler!) were omitted and
very little attention was paid to the fascist economies. No calls for
revolutionary uprisings were uttered. The "subjective factor" was missing
and the role of the Communist parties outside forgotten. Varga's jerky and
sloppy style had received a special treatment by a not further mentioned
editor. When criticizing notorious enemies of Socialism, Varga's tone
remained moderate, but the evils of Fascism were criticized in particular
harsh and sincere terms.[66]



Stalin's analysis of the economic crisis



Internationally, the Soviet government had participated since 1934 in the
struggle for collective security promoted by the League of Nations, but
this tactic had led to little success. Alarming was Hitler's annexation of
Austria in March 1938, while in the west Social Democratic parties became
more and more inclined to neutralism or pacifism. In September 1938, Stalin
discovered that 'the unwritten maxim of Munich was to keep Russia out of
Europe'[67] and to reorient Hitler's expansion into eastern direction. On
15th March 1939, during the Eighteenth Party Congress, Hitler's Wehrmacht
marched into Czechoslovakia. Just five days earlier, Stalin had announced
in his 'chestnut speech'[68] what his attitude would be in the next crisis.
Stalin declared that 'it looks very much as if this suspicious noise is
designed to incense the Soviet Union against Germany without any visible
grounds […] the Soviet Union is not willing to pull chestnuts out of the
fire for anyone else.' The 'suspicious noise' was a reference to Western
accusations that Germany was aiming to create an independent Ukrainian
State.[69] Stalin told his audience that a new imperialist war was already
in its second year, a war waged over a huge territory stretching from
Shanghai to Gibraltar, and involving over 500 million people.[70]

Stalin's report contained a chapter on the international economic crisis
that was largely inspired by Varga's writings. Stalin argued that the
economic crisis broken out in the latter half of 1929 had lasted until the
end of 1933. After that the crisis passed into a depression, and was then
followed by a certain revival, a certain upward trend of industry. But this
upward trend of industry had not developed into a boom, as was usually the
case in a period of revival. In stead, in the latter half of 1937 a new
economic crisis had begun which seized first of all the United States and
then Britain, France and a number of other countries. The capitalist
countries thus found themselves faced with 'a new economic crisis before
they had even recovered from the ravages of the recent one. (…) the present
crisis is not universal, but as yet involves chiefly the economically
powerful countries which have not yet placed themselves on a war economy
basis. As regards the aggressive countries, such as Japan, Germany and
Italy, which have already reorganized their economies on a war footing,
they, because of the intense development of their war industry, are not yet
experiencing a crisis of over-production, although they are approaching it.
This means that by the time the economically powerful, non-aggressive
countries begin to emerge from the phase of crisis the aggressive
countries, having exhausted their reserves of gold and raw material in the
course of the war fever, are bound to enter a phase of very severe
crisis.'[71]

Recalling that a serious economic crisis was developing, Stalin reproduced
a table showing that in Italy and Japan, who had placed their national
economies on a war footing earlier than Germany, the downward course of
industry already had begun in 1938.[72] Germany, which reorganized its
economy on a war footing later than Italy and Japan, industry was still
experiencing a small upward trend. Stalin argued that German industry must
enter the same downward path as Japan and Italy had already taken. For
Stalin an economy of a country on a war footing meant giving industry 'a
one-sided, war direction; developing to the utmost the production of goods
necessary for war and not for consumption by the population; restricting to
the utmost the production and, especially, the sale of articles of general
consumption -- and, consequently, reducing consumption by the population
and confronting the country with an economic crisis.'[73]

Stalin's report to the Eighteenth Congress of the CPSU(B) drew an alarming
picture of the development of world-economic conditions.[74] It was clear
that a new economic crisis was developing in the aftermath of a certain
revival. Stalin concluded in his report that capitalism possessed less more
reserves to combat the effects of the crisis, which developed now much more
unevenly because of the switching over of national economy to a war basis.
The fascist states had delayed the outbreak of a crisis in these states.
For that reason the new crisis would be much worse than the previous one
and it would be more protracted.

Stalin noticed that such an unfavorable turn of economic affairs could not
but aggravate relations among the powers. The preceding crisis had already
mixed the cards and sharpened the struggle for markets and sources of raw
materials. The seizure of Manchuria and North China by Japan, the seizure
of Abyssinia by Italy -- all this reflected the acuteness of the struggle
among the powers. The new economic crisis was bound to lead to a further
sharpening of the imperialist struggle. It was no longer a question of
competition in the markets, of a commercial war, of dumping. These methods
of struggle had long been recognized as inadequate. It was now a question
of a new re-division of the world, of spheres of influence and colonies, by
military action. Stalin identified three aggressive states: Japan, Germany
and Italy. 'But war is inexorable',[75] Stalin exclaimed. It was a
distinguishing feature of the new imperialist war that it had 'not yet
become a universal, a world war.'[76] Stalin saw an open re-division of the
world and spheres of influence at the expense of the non-aggressive states,
without the least attempt at resistance, and even with a certain
connivance, on their part. Stalin's strategic problem was how it had
happened that the non-aggressive countries, which possessed such vast
opportunities, had so easily and without resistance abandoned their
positions in order to please their aggressors.

Stalin attributed the weakness of the non-aggressive states to the fear
that a revolution might break out if the non-aggressive states were to go
to war and the war were to assume world-wide proportions. In addition, they
had rejected the policy of collective security, the policy of collective
resistance to aggressors, and had taken up a position of non-intervention,
a position of "neutrality." Stalin understood that the policy of non-
intervention had revealed 'an eagerness, a desire, not to hinder the
aggressors in their nefarious work.' But Stalin also remarked that Japan
was free to embroil itself in a war with China, 'or better still, with the
Soviet Union'. Germany was not hindered from enmeshing itself in European
affairs, 'from embroiling itself in a war with the Soviet Union'.[77] On
the second day of the Eighteenth Party Congress, Manuilski explained what
had changed since the previous congress. Like Stalin, Manuilski asserted
that between 1929 and 1933 capitalism had lived a depression of a special
character with a sharpening of imperialist antagonisms that were announcing
a new imperialist war.[78] According to him, the British bourgeoisie had
delivered at Munich Czechoslovakia to Fascism and he repeated that the
English-French government was diverting German Fascism into eastern
direction.[79]

On 1 May Dimitrov's speech had warned the British and French reactionaries
for allowing the fascist regimes to attack the Soviet Union.[80] Then,
Litvinov was replaced by Molotov at Foreign Affairs. Molotov, who had no
experience in international affairs, was not well fit for that job.[81]
Some officials in the Comintern misinterpreted that appointment. Gyula
Alpári still believed in an international anti-fascist congress to be
convened later that year.[82] On 11 May 1939, Izvestiya clearly explained
that because of geographical circumstances the Soviet Union would have to
bear all the weight of an eventual war.

In those days, Comintern functionaries tried to interpret Stalin's "chess
nut" speech correctly. Jürgen Kuczynski[83] tried to analyze the character
the new economic downturn in Great Britain and France in relation with the
falling purchasing power of the population[84] and in comparison with the
situation in Germany (but also Italy and Japan) where the state had
reorganized the economy on a war basis by emitting special bills.[85]
Meanwhile, production of consumer goods was kept down and inflation
repressed. Kuczynski argued that a war economy 'before the outbreak of a
large-scale war' was liable to an overproduction crisis 'just like any
other form of capitalist economy.'[86] He warned that the fascist state -
because of its terrorist nature - was also able 'to delay the outbreak of a
crisis even longer.'[87] The situation in a democratic capitalist state
such as Great Britain was different. Here, the overproduction crisis was
already in full swing in spite of increased rearmament expenditures.
Armaments expenditure was met from loans reducing the purchasing power of
the population. He believed that a 'people's front government'[88] could
relieve the masses of much effort directed to the production of armament
goods.

The German-Soviet Non-Aggression Pact of 23 August 1939 (or Molotov-
Ribbentrop Agreement) sent a shock wave across the communist world
movement. After the pact was made public, the communist parties
'promptly'[89] expressed their solidarity with Stalin's diplomatic
initiative in the hope this would contribute to safeguard peace. In the
mean time, the communist parties understood that Hitler's fascism would
remain the most dangerous enemy. Hence, they believed that they could stay
on their antifascist positions in the future.[90] The outbreak of the
Second World War a week after the inking of the treaty would change the
political and military situation in Europe fundamentally. Meanwhile, Varga
paid attention in his publications to British politics[91] and he even
ordered a Russian translation of Hermann Rauschning's book Hitler
Speaks[92] in order to elucidate what Hitler's real intentions.[93]



Conclusions


In the aftermath of the Seventh Congress of the Comintern Varga
concentrated his propagandistic work on defending Stalin's
industrialization and collectivization offensive and his foreign policy,
including the Popular Front strategy of the Comintern. Meanwhile, Varga
believed in the fatal decay of capitalism now that the general crisis of
capitalism had brought a further worsening of the living conditions of the
working class, the peasantry and the toiling masses in the colonies.
Reactionary forms of capitalist domination had succeeded bourgeois
democracy in many countries, while even in the United States and Great
Brittain the bourgeoisie was defending only in words democracy against
fascism. At the Eighteenth Party Congress in March 1939, Stalin's speech
was largely inspired by Varga's analysis of the international world
economy, which proved that Varga's position had been considerably
reinforced after the Great Purges during the previous years.


-----------------------
[1] Preobrazhensky had shown that capitalists surmounted crises not by
discovering, but by creating new markets. Richard Day, The 'Crisis' and the
'Crash'. Soviet Studies of the West (1917-1939), London: NLB, 1981, p. 249.
[2] Day, o. c., 1981, p. 260.
[3] Day, o. c., 1981, p. 261.
[4] I. I. Kuzminov, Obnishchaniye trudyashchikhsya pri kapitalizme, Moscow:
Izd. VPSh AON pri TsK KPSS, 1934, pp. 17-25.
[5] Varga's speech is reproduced in the stenographic report of the
Thirteenth Plenum, 1934. XIII Plenum IKKI. Stenograficheskiy otchet,
Moscow: Partizdat, 1934, pp. 417-423.
[6] Varga in Rundschau über Politik, Wirtschaft und Arbeiterbewegung, Vol.
2, No. 30, 25 August, 1933, p. 1132.
[7] Ibidem.
[8] Ibidem, p. 1116.
[9] Lenin
http://www.marxists.org/archive/lenin/works/1899/dcr8i/i8viii.htm#v03zz99h-
064
[10] J. Stalin, Problems of Leninism, Moscow: Foreign Languages Publishing
House, 1947, p. 459.
[11] Varga, in Rundschau über Politik, Wirtschaft und Arbeiterbewegung,
1934, Vol. 3, No. 18, 27 February, p. 665.
[12] Eugen Varga, The Great Crisis and Its Political Consequences, London:
Modern Books Limited, 1935, p. 73.
[13] On this subject, Sergey A. Dalin and Esfir I. Gurvich published two
books. Especially Gurvich's book published in 1937 reported in a purely
Stalinist style on the economic policy of the Roosevelt Administration,
while Dalin's paid more attention to the different capital factions
competing for power. Esfir I. Gurvich was a former companion to Bukharin
from whom she owned a child. S. A. Dalin, Ekonomicheskaya politika
ruzvelta, Moscow: Ekonomicheskoe izd-vo, 1936; E. I. Gurvich, Poslevoennaya
Amerika. Zagnivanie amrikanskogo kapitalizma, Moscow: Gos. Ekonomicheskoe
izd-vo, 1937.
[14] Harvey Klehr, The Heyday of American Communism. The Depression Decade,
New York: Basic Basic Books, 1984, p. 218.
[15] Quoted in ibidem.
[16] Patrick D. Reagan, Designing a New America. The Origins of New Deal
Planning, 1890-1943, Amherst: University of Massachusetts, 1999, p. 198.
[17] In order to be accessible to a general public, they were largely
stripped of Marxist concepts or congress resolutions. Originally published
as Kapitalizm i sotsializm za 20 let, Moscow: Partizdat, 1938. In French:
Deux systèmes. Économie socialiste et économie capitaliste, translated by
Alix Guillain, Paris: Éditions sociales internationales, 1938. In German:
20 Jahre Kapitalismus und Sozialismus, Moscow: Verlag für fremdsprachige
Literatur. In order to impress his foreign public, Varga had added to his
name the qualification 'formerly professor of economics at the University
of Budapest'. In English: Two Systems, London: Lawrence & Wishart edition,
New York: International Publishers (translation by R. Page Arnot from the
German original), 1939. Italian (in Rome) and Spanish (Buenos Aires)
translation would follow after the Second World War.
[18] L. Mekhlis, Y. Varga and V. Karpinsky (eds), The U.S.S.R. and the
Capitalist Countries, Moscow: Foreign Languages Publishing House, 1938.
[19] At that moment Stalin's longtime favorite, Colonel-General Lev
Zakharovich Mekhlis (1889-1953), who had been Stalin's secretary, was
editor of Pravda. In 1937 he had become head of the Main Political
Administrative Directorate (1937-1941). He was People's Commissar of State
Control (1941-1946); Political Commissar of the 6th Army; Minister of State
Control and Deputy Chairman of Council of Ministers (1946-1950). Miklós
Kun, Stalin. An Unknown Portrait, Budapest and New York: Central European
University Press, 2003, pp. 285-287.
[20] Mekhlis, Varga, and Karpinsky, o. c., 1938, p. 8.
[21] Ibidem, p. 9.
[22] Ibidem, p. 10.
[23] Ibidem, p. 25.
[24] Ibidem, p. 31.
[25] Ibidem, p. 41.
[26] Varga's textbook was praised by Mulford Q. Sibley (University of
Illinois). 'This is a good Communist textbook; but as a treatment of
comparative economic systems it would have been much more effective had
obvious over-statements been avoided and an endeavor made to raise the
plane of argument above the level of party polemic.' American Political
Science Review, 1940, Vol. 34, No. 2, p. 351. However, this 'textbook' was
nothing else than an updated and expanded version of his famous report to
the Seventh Congress of the Comintern.
[27] Eugene Varga, Two Systems. Socialist Economy and Capitalist Economy,
New York: International Publishers, 1939, p. 236.
[28] Ibidem, p. 22.
[29] Ibidem, p. 28.
[30] Ibidem, p. 29. The association of Hilferding with Bukharin is
particularly astute. However, it was Kautsky who was the father of the
"general cartel" and Hilferding's was the idea of "organized capitalism".
In his The Great Crisis, on p. 28, Varga also criticized Hilferding.
[31] Ibidem, pp. 29-30.
[32] Ibidem, p. 40.
[33] These 'criminals' were the Trotskyites. Ibidem, p. 41.
[34] Ibidem, p. 42
[35] Ibidem, pp. 42-45.
[36] Ibidem, pp. 46-70.
[37] Ibidem, p. 57.
[38] Ibidem, p. 70.
[39] Ibidem, p. 71.
[40] Ibidem, p. 72.
[41] Ibidem, p. 72.
[42] Ibidem, pp. 72-73.
[43] Ibidem, p. 83.
[44] Varga argued that for this reason the theory of Tugan-Baranovsky,
according to which the expansion of the sale of the means of production is
unlimited in capitalism was untenable. Ibidem, p. 89.
[45] Ibidem, p. 93.
[46] Ibidem, p. 102.
[47] Ibidem, p. 135.
[48] Ibidem, p. 140.
[49] Ibidem, p. 140.
[50] Ibidem, p. 143.
[51] Ibidem, p. 146.
[52] Ibidem, p. 178.
[53] Ibidem, p. 186.
[54] Ibidem, p. 202.
[55] Ibidem, p. 203.
[56] Ibidem, p. 208.
[57] Ibidem, p. 210.
[58] Ibidem, pp. 210-211.
[59] Ibidem, p. 211.
[60] Ibidem, p. 216.
[61] Ibidem, pp. 220-221.
[62] Ibidem, p. 223.
[63] Ibidem, pp. 225-226.
[64] Ibidem, p. 226.
[65] Ibidem, p. 227.
[66] 'In the fascist countries: suppression of the most elementary rights
of the working people, a return to barbarism, medieval persecution of the
Jews; in Germany, persecution even of the Christian churches, a state-
supported resurrection of old German heathenism, and the burning of books.
In the sphere of foreign policy: after the short-lived democratic-pacifist
period, the sharpening anew of the imperialist antagonisms, emergence of a
bloc of fascist aggressors, feverish arming, organization of capitalist
economy in peace time for the coming war'. Ibidem, p. 237.
[67] Isaac Deutscher, Stalin. A Political Biography. London, New York and
Toronto: Oxford University Press, 1949, p. 427.
[68] Former US ambassador in Moscow and actual ambassador in Brussels
Joseph E. Davis had coined Stalin's speech a 'chestnut speech'. Ingeborg
Fleishhauer, Der Pakt. Hitler, Stalin und die Initiative der deutschen
Diplomatie 1938-1939, Berlin and Francfort am Main: Ullstein, 1990, p. 114.
[69] Gerald Reitlinger, The House Built on Sand. The Conflicts of German
Policy in Russia 1939-45, London: Weidenfeld and Nicolson, 1960, p. 40.
[70] J. Stalin, 'Report on the Work of the Central Committee to the
Seventeenth Congress of the C.P.S.U.(B),' in J. Stalin, Problems of
Leninism, Moscow: Foreign Languages Publishing House, 1947, p. 596.
[71] J. Stalin, o. c., 1947, p. 598.
[72] It seems that Varga had been the author of this part of Stalin's
report to the 18th Party. Congress. At any rate, the impoverishment thesis
was his.
[73] J. Stalin, o. c., 1947, p. 599.
[74] Fleishhauer, o. c., 1990, pp. 108-120.
[75] J. Stalin, o. c., 1947, p. 601.
[76] J. Stalin, o. c., 1947, p. 601.
[77] J. Stalin, o .c., 1947, p. 602.
[78] Manuilsky in Rundschau über Politik, Wirtschaft und Arbeiterbewegung,
Sondernummer, Basel, 13 March 1939, Vol. 8, No. 12, p. 357.
[79] Ibidem, p. 361.
[80] D. Dimitroff, 'Das Land des Sozialismus und der Kampf des
internationalen Proletariats', in Rundschau über Politik, Wirtschaft und
Arbeiterbewegung, 1939, Vol. 6, No. 27 (4 May), pp. 701-705.
[81] Walter Bedell Smith, who had got acquainted with the Molotov's in
Moscow in 1946-1949, described Molotov as a cold, humorless man becoming a
stutter when being nervous. Molotov's wife had visited the United States in
1936, where she had been received at the White House. Her brother, Sam
Karp, was a businessman living in Connecticut. Molotov arrived for the
first time in his life in 1943 in the US.
[82] Rundschau über Politik, Wirtschaft und Arbeiterbewegung, 1939, Vol. 6,
No. 29 (11 May), pp. 781-785.
[83] His pseudonym was John Knight.
[84] John Knight, 'Economic crisis and armaments', in Labour Monthly, 1939,
Vol. 21, No. 5, pp. 290-296.
[85] Ibidem, p 292.
[86] Ibidem, p. 292.
[87] Ibidem, p. 293.
[88] Ibidem, p. 296.
[89] Dimitar Sirkov, 'On the policy of the Communist International on the
eve and at the beginning of World War II', in Jahrbuch für Historische
Kommunismusforschung, 1995, p. 55.
[90] Sirkov, o. c., 1995, p. 57.
[91] Varga published a review of Winston Churchill's book Step by Step in
Mirovoye Khozyastvo i Mivovaya Politika, 1939, No. 9, pp. 249-250.
[92] Hermann Rauschnig, Gespräche mit Hitler, Zürich-New York: Europa
Verlag, 1940. English translation: Hitler Speaks, London: Thorton
Butterworth, 1939. In America, Hitler Speaks was given a different title:
The Voice of Destruction, New York: G. P. Putnam's Sons, 1940.
[93] 'I knew the book of Rauschnig (sic) and let it Varga recommend to the
Politburo. It was for that use hastily translated; our employees dictated
continuously sixteen hours long.' Béla Fogarasi, Parallele und Divergenz
(Ausgewähkte Schriften), Budapest: MTA Filozófia Intézet (Archívumi Füzetek
VIII.), 1988, p. 227.