POLITICAL ECONOMY - STATE BUDGET, CREDIT, AND CURRENCY CIRCULATION

Political Economy

Part III : THE SOCIALIST MODE OF PRODUCTION

B. THE SOCIALIST ECONOMIC SYSTEM

CHAPTER XXXVIII : STATE BUDGET, CREDIT,

AND CURRENCY CIRCULATION IN SOCIALIST SOCIETY

The Finance of Socialist Society

Owing to the existence of commodity production and commodity circulation in socialist economy, the output of all socialist enterprises is expressed in money (value) terms as well as in physical terms. Both State and co-operative collective farm enterprises receive money for their output, and use it to make good production outlays (depreciation, acquiring raw and other materials and fuel, payment of labour, etc.) and to extend production. Thus definite money funds are formed and expended in socialist enterprises. This is the financial side of their economic activity.

Part of the money received by enterprises is transferred into a general State fund, which is used centrally for public needs and for national economic and cultural development. The essential function of the State Budget is to form and distribute this centralised fund of monetary resources. Monetary funds are formed for the purposes of social insurance and insurance of persons and property.

The money of enterprises which is temporarily not in use is concentrated and used centrally through credit.

All these forms under which monetary funds are constituted, regardless of their special features and differences between them, are organically connected together, making up a single system of finance. The finance of socialist society is a system of economic relationships expressed in the planned formation and distribution of money funds in the economy in the interests of securing a continuous growth of production, a steady rise in the material and cultural standards of the people and a strengthening of the power of socialist society. The finance of socialist society includes the State Budget, the finances of State enterprises, collective farms, producer and consumer co-operatives, State social insurance, State property and personal insurance, and various forms of credit.

The material basis of the financial system is socialist production; and the financial system rests on the growth of industry and agriculture and the extension of trade. At the same time, finance exercises an active influence on the development of production and commodity circulation.

With the help of the financial system the gross social product is distributed in a money form among the sectors of socialist production—State and co­operative collective farm—among branches and enterprises, between different parts of the country, and between society as a whole and its members. The financial system has to ensure the most rational use of all the resources of socialist economy, to strengthen the regime of economy, economic accounting and financial discipline in the national economy and increase the profitability of production. By means of finance, the Socialist State enforces rouble control over the whole economic activity of enterprises and branches of the economy.

The Budget of the Socialist State

The State Budget occupies a leading place in the financial system of socialism. In socialist society the State Budget is the main form in which the centralised fund of monetary resources is formed and used in a planned way to extend socialist production and satisfy the growing needs of society as a whole. A considerable part of the national income is distributed through the State Budget. The Budget includes revenue (monetary resources made available for centralised disposal by the State) and expenditure (allocation of these resources for the needs of society). The plan for budgetary revenue and expenditure is the basic financial plan of socialist society.

The State Budget under socialism differs radically in its essential character from the State. Budget under capitalism, which is an instrument for additional exploitation of the working masses and enrichment of the monopolies, and is used for the purpose of militarising the economy and conducting an arms drive. In harmony with the basic economic law of socialism, the Budget in socialist society functions as a very important factor in the development of peaceful economy and the growth of the productive forces for the purpose of satisfying the growing material and cultural demands of society as a whole. "The incomes which the exploiters used to squeeze out of the labour of the people now remain in the hands of the working people and are used partly for the expansion of production and the enlistment of new detachments of working people in production, and partly for directly increasing the incomes of the workers and peasants." (J.V. Stalin, "Report to the Seventeenth Party Congress", Works, vol. XIII, P.34I.)

Thanks to the predominance of social ownership of the means of production, the State Budget under socialism is closely connected with the whole national economy, and is an instrument for the planned development of socialist economy and rational use of productive resources in all branches of the national economy. Reflecting the plan for the national economy, the Budget at the same time exercises an all-round influence upon its fulfilment. In the hands of the Socialist State it serves as a necessary means of ensuring observance of those proportions in the national economy demanded by the law of planned development of the national economy. By means of the Budget the Socialist State mobilises the monetary resources of the national economy and makes these resources available to enterprises and branches in accordance with their planned tasks and how they are fulfilling them; it carries out a check on the state of the financial affairs of the branches and enterprises, On how far they are observing a regime of economy. The State Budget is based on the development of the whole of the socialist national economy. First, it is integrally connected with the finances, the revenues and expenditures of State enterprises. Most of the net income of society created in these enterprises passes to the State Budget. A considerable part of capital construction in all branches of the national economy, and of the increase in the fixed and circulating funds of State enterprise, is paid for out of the State Budget. The connections between the State Budget and the collective farms are of great importance: part of the net income of collective farms is trans­ferred to the Budget and used for public needs. The State, through the Budget, gives financial assistance to the collective farm sector in developing production, and maintains schools, hospitals and other social and cultural institutions serving the collective farmers.

The main source of the revenue side of the State Budget of the U.S.S.R. is the net income of society, or more exactly that part of it which is the centralised net income of the State. In 1954, 86 per cent of all budgetary revenue came from the net income of society (receipts from socialist economy).

The centralised net income of the State enters the State Budget in the form of (i) "turnover tax", as it is called, (ii) deductions from the net income (profits) of State enterprises, (iii) charges calculated on the basis of the wages bill for social insurance purposes, (iv) income tax from collective farms and other co-operative enterprises, and so on. The first two sources constitute the bulk of the total revenues in the State Budget of the U.S.S.R.

Resources from the population, received as taxes and loans, are also one of the sources of State budgetary revenue. Taxes on the population are a form in which part of the personal incomes of members of society is compulsorily transferred to the Budget. In socialist society, unlike capitalism, taxes are a very small part of the income of working people, and are used for public needs. In 1954 they amounted to only 8.3 per cent of the total revenue of the U.S.S.R. State Budget. Payments and allowances of all kinds to the population out of the Budget amount to several times more than the taxes collected from the population.

Part of the working people of the U.S.S.R. are completely freed from paying taxes, and the rates of taxation depend on the size of the income. In 1954 the agricultural tax on the peasantry amounted to less than 1 per cent of the revenue of the State budget; and in that year the total taxation on the rural population was reduced to less than 40 per cent of the level of 1952.

State loans in socialist society are a form in which the State attracts resources from the population for the needs of society as a whole for a definite period. When working people subscribe to loans, they voluntarily transfer part of their personal incomes to the State for its temporary use. At the same time loans are a form of savings for the working people, and provide them with income in the shape of cash prizes and interest. In the State Budget of the U.S.S.R. between 1951 and 1954, an average of more than 5 per cent of all revenue came from this source.

The expenditure side of the Budget consists of State financing, i.e., non-returnable expenditure, for the following main purposes: (1) development of the national economy; (2) social and cultural measures; (3) maintaining State administration; (4) ensuring the defence capacity of the State. The bulk of the resources of the State Budget of the U.S.S.R. is used to finance the economy and social and cultural measures; more than two-thirds of all the State budgetary expenditure was allocated to these purposes in the post-war period.

Financing out of the Budget is one of the most important factors in developing the economy of the Soviet Union. In 1946-54 State budgetary expenditure on the national economy amounted to 1,462 milliard roubles. Budgetary resources are used to secure the preferential growth of production of means of production, to develop heavy industry, to improve agriculture and to extend the production of consumer goods. The Socialist State spends tremendous budgetary sums annually on capital investments in all branches of the economy. The U.S.S.R. State Budget finances extensive capital construction of new works, mines, factories, power-stations, State farms, M.T.S., railways, municipal enterprises, housing, schools, hospitals, sanatoria, and so on. Part of the Budget resources is used to increase the circulating resources of existing enterprises, supplementing the amount remaining for this purpose from the net amount of the enterprises themselves. The State material reserves needed for the planned conduct of the economy and for the country’s defence needs are formed out of budgetary funds.

A considerable proportion of the budgetary funds is expended on social and cultural services, which are an important source of steady improvement in the material and cultural standards of living of the people. With this object in view, Budget allocations are made for scientific development, education, health, physical culture, pensions and allowances, and so on.

In socialist society part of the budgetary resources is expended on maintaining the machinery of State, which is responsible for activities of many kinds in the fields of economic and cultural development. In order to put into effect the regime of economy, in the interests of an extension of production and the satisfaction of the growing needs of the people, the cost of administration and management has to be reduced in every possible way. In view of this, the Socialist State systematically carries out a policy of rationalising the administrative and managerial machinery and cutting down expenditure on maintaining it.

Part of the budgetary resources are spent on strengthening the country’s defence. In the Soviet Union, which follows a policy of peace, expenditure on the armed forces constitutes a comparatively small share of the Budget.

In the first five post-war years alone (1946-50), the Soviet State expended 524.5 milliard roubles out of the Budget on social and cultural services; in four years of the fifth Five-Year Plan (1951-4) it spent 512.5 milliard roubles.

In 1932 expenditure on maintaining State administrative bodies amounted to 4.2 per cent of budgetary resources in the U.S.S.R., in 1940 to 3.9 per cent, and in 1955 to 2.2 per cent. In the 1955 Budget 19.9 per cent of total expenditure was allotted to national defence, whereas in the U.S,A. direct expenditure for military purposes in 1954-5 alone amounted to two-thirds, approximately, of the entire Budget.

The size of the State Budget in socialist society steadily increases on the basis of the continuous development of the national economy. The rapid and uninterrupted growth of the national income in socialist society makes it possible also to increase continuously that part of it which is transferred to the State Budget. Thus, the revenue of the U.S.S.R. State Budget in 1954 was more than treble the pre-war 1940 level. A distinguishing feature of the State Budget of the U.S.S.R. is its stability. Budgets in capitalist countries are in deficit as a rule, but the U.S.S.R. Budget is not merely balanced—it always has a considerable surplus.

Execution of the Budget directly depends on actual achievements in output, sale of commodities, reduction in outlays on production and circulation, and growth of accumulation; and it therefore depends on the extent to which reserves within production are utilised and economic accounting is applied. At the same time the Budget contributes to the bringing to light and putting to use of these reserves and to increasing the profitability of production.

During the actual carrying out of the Budget, the financial institutions are required to exercise "rouble control" of the fulfilment of economic plans and of the observance of the regime of economy and financial discipline. This control is carried out both in fixing the amounts to be deducted into the Budget, and in checking to see that obligations to the Budget have been fulfilled. The financial institutions analyse the economic activity of enterprises and organisations, and disclose their faults; they check how far State resources have been conserved and correctly spent, and the efficiency of book-keeping and financial accounting in enterprises; and they struggle against waste of resources. To this end budgetary payments to economic organisations are frequently made dependent on the quality of their work.

The U.S.S.R. State Budget includes: (1) the All-Union Budget and (2) the State Budgets of the Union Republics, divided in their turn into (a) Republican and (b) Local Budgets.1 The leading part in the whole budgetary system is played by the All-Union Budget, which handles the bulk of budgetary resources. This budgetary structure makes it possible to put into practice the principles of democratic centralism and a correct nationality policy in a multi-national Socialist State. The State Budget of the U.S.S.R. covers a period of a year, and is approved by the Supreme Soviet of the U.S.S.R. as a law. Budgets of Union Republics are approved by the Supreme Soviets of these Republics.

A considerable part of the centralised distribution of monetary resources is carried out through the machinery of State social insurance and the State property and personal insurance system.

State social insurance is a means of providing material security for manual and clerical workers and members of their families if they lose their capacity to work, temporarily or permanently. It includes free medical aid, the maintenance of rest homes, sanatoria, hospitals, and so on; Social insurance of manual and clerical workers in the U.S.S.R. is administered by trade union bodies out of State funds or the funds of the appropriate co-operative organisations. The source of social insurance funds is the net income of society, received in the form of contributions paid by enterprises, organisations, and institutions, calculated as a definite percentage of the total sum paid in wages to manual and clerical workers.2 Both the revenue and the expenditure side of State social insurance funds are included in the State Budget and expended by the trade unions. Expenditure on social insurance grows continuously and rapidly. In 1954 it stood at more than 2.9 times the 1940 level.

State property and personal insurance is a means of reimbursing and preventing losses by citizens, enterprises, and organisations, from misfortunes and accidents. It is a State monopoly in the U.S.S.R., and is administered by insurance organs mainly for individual citizens and for collective farms and co­operative bodies. The main source of its funds is insurance payments made by the population and by enterprises and organisations.

Credit in Socialist Economy

Credit is one of the economic tools of socialist society. The need for credit under socialism arises from the existence of commodity production and money economy, and the development of the function of money as a means of payment. Socialist economy presupposes planned organisation of the entire payments turnover of the country with an extensive development of credit. Of, enormous importance, moreover, is the rational utilisation on the scale of the national economy as a whole of temporarily liberated monetary resources. Monetary resources accumulate in the economy which are temporarily not in use, and on the other hand socialist enterprises temporarily need supplementary resources.

The primary cause of this is that, in the process of rotation of the resources of socialist enterprises, the dates at which money is received from the sale of output do not coincide with the dates at which outlays in money have to be made for the requirements of production. Part of the resources of enterprises is always held in money form but it is spent at definite intervals. As output is sold, money accumulates, earmarked for the purchase of raw materials and fuel, stocks of which are renewed periodically. As output is sold, the wage fund also steadily accumulates, but wages are paid out usually twice a month. The depreciation fund systematically accumulates in a monetary form, but is spent on new machines and equipment, and on the erection and capital repair of buildings only at definite intervals. The net income of enterprises is used for capital construction after sufficient has accumulated for this purpose. In this way State enterprises have money at their disposal which is temporarily not in use. Collective farms also have money which is temporarily not in use in the form of (a) deductions made from cash income to the indivisible funds intended to be spent in the future, and (b) cash incomes which have not yet been distributed to collective farmers, and so on. During the execution of the Budget, money which is temporarily not in use appears in the form of surpluses of revenue over expenditure, of balances in hand in the current accounts of institutions financed out of the Budget, and of special Budget resources. The growth in the incomes of working people is also accompanied by the formation of increasingly large unspent sums of money in their hands. At the same time socialist enterprises and economic organisations periodically need money temporarily, e.g., for seasonal outlays, for purchase of raw materials, and so on. Thus an economic need for credit arises. Credit is closely connected with the rotation of the resources of socialist enterprises and is one of the means by which this is effected.

Credit in socialist economy is the form in which monetary resources which are temporarily not in use are gathered by the State and used in a planned way to meet the needs of the national economy, on condition of being returnable. In socialist economy, unlike capitalism, loan capital does not exist: by far the greater part of the money entering the credit system is socially-owned property; the rest is the personal property of the working people. These resources are made use of to serve socialist enterprises and the mass of working people. Credit in socialist conditions is supplied in a planned way. In accordance with the requirements of socialist national economy the State lays down credit plans in which the amount of credit, its sources and allocation are indicated, The credit plan reflects the national economic plan and has the task of contributing to its fulfilment.

In socialist society, money which is temporarily not in use is accumulated in State credit institutions: banks and savings banks. Thus enterprises operating on the basis of economic accounting have to keep their cash resources on clearing accounts In the State Bank. Cash belonging to collective farms is deposited in current accounts in the State Bank or in savings banks. Money accumulated by socialist enterprises is also concentrated in special banks (for example, deductions by State enterprises for new construction, indivisible funds in collective farms, etc.). Unspent Budget resources are also kept with the State Bank, as are the cash resources of State institutions, trade unions, insurance, and so on. Credit is also a channel through which the free monetary resources of the population are made available, by inducing them to keep accounts in the State savings banks.

Credit given by the banks is divided into long-term and short-term : short-term credit serves the movement of the circulating resources of State enterprises, collective farms, and other co-operative organisations; long-termcredit mainly serves the sphere of capital construction. The State assists collective farms and co-operative unions with long-term credits (for economic installations); and it assists working people with credits (for individual housing construction, for the purchase of cows by collective farmers, and so on). Sums which they themselves accumulate are also a source of long-term credits to collective farms and co­operative bodies. State enterprises receive resources for capital investment from the State in the form of non-repayable Budget allocations; they also finance capital investments partly from their own resources (the depreciation fund and their net income).

In conformity with the plan, enterprises and economic bodies receive .loans in the form of direct bank credits. All enterprises must obtain their loans only from a bank. In the U.S.S.R. there is no commercial credit (the supplying of goods by one enterprise to another on credit). If commercial credit were to be allowed, this would lead to a weakening in control by the banks over the economic activity of enterprises and make possible planless and uncontrolled redistribution of resources among enterprises. The bank grants loans to an enterprise for definite economic measures, such as the seasonal purchase of raw material and the formation of temporary stocks of finished or semi-finished output. This form of credit ensures the direct connection between bank credit and the process of production and circulation.

Direct short-term credits are made by the bank to enterprises and economic organisations on the following main principles: (1) loans must be returned at a definite date; (2) loans are for a stated purpose; (3) bank loans must be secured by material values. The fact that loans are returnable, and at a definite date, promotes a quicker turnover of the resources of economic organisations and enterprises, and facilitates rouble control by the bank. The requirement that loans must be secured by definite material values enables the bank to supervise the proper use of the credit for the stated purpose, and links credit with the movement of material resources.

The banks pay a definite interest on deposits and charge a somewhat higher interest on loans. Interest in socialist economy is that part of the net income of the enterprise which is paid by them to the bank for the temporary use of money on loan. Under capitalism the level of interest is formed spontaneously, as a result of competition. As against this, in socialist economy rates of interest are fixed by the State in accordance with a plan. The State in doing so starts from the need to give enterprises and organisations a material incentive both to keep their free resources in the banks, and to use their own and borrowed money as efficiently as possible.

Credit under socialism is connected with rational organisation of the resources of enterprises and of settlements between them. In socialist society wide use is made of book-keeping transactions without transfer of cash. Settlements between enterprises and organisations are made through the banks by the transfer of money from the account of one enterprise or organisation to that of another on the instructions of the owners of the accounts. Planned centralisation of accounting and credit functions makes it possible in the U.S.S.R. to use internal clearing accounts (i.e., the cancellation of the mutual claims of economic bodies) on a vast scale, unknown under capitalism. In the U.S.S.R. payments in cash are made between enterprises only for small amounts. Book­keeping settlements replace cash in economic transactions, and thus reduce the amount of money needed in the national economy for purposes of circulation. Book-keeping settlements speed up the turnover of money and of the whole social product, and promote the strengthening of the currency system.

Credit given to State enterprises is of great importance in the organisation of production. A considerable part of the working resources of enterprises is in the form of credit. It promotes the growth of socialist production, rational utilisation and acceleration of the rate of turnover of resources and reduction in the cost of production and increase in the profitability of enterprises.

Socialist credit is a powerful instrument of rouble control by the State of the work of enterprises and economic organisations. Granting credit is bound up with preliminary and subsequent checks on the financial position of the enterprise. For this the credit institutions check fulfilment of plans of income and accumulation, the use of the enterprises’ own and borrowed circulating resources for the stated purpose, and so on. When loans are granted the credit institutions check how the enterprise is using its resources and making its payments as they fall due, and also the extent to which the enterprise is financially stable enough to use the credit properly. The credit institutions take steps to improve the efficiency of enterprises in making payments, their economic accounting and the regime of economy.

Banks in Socialist Society

Banking in the U.S.S.R. is in the hands of the Socialist State. Banks in socialist society are State institutions which carry out in a planned way in the interests of the socialist economy the supply of credit to enterprises, the financing of capital investments, and settlements and payments in the national economy. Thus banks in socialist society retain their old form but have changed their essential character in comparison with-that of capitalist banks.

The banking system of the Soviet Union includes the State Bank of the U.S.S.R. and the specialised State long-term investment banks. The leading position in the banking system is occupied by the State Bank.

The State Bank of the U.S.S.R. is the country’s issue bank, short-term credit bank and clearing centre. It performs the following functions:

First, it controls currency circulation, the movement of cash in the country. It takes currency out of circulation and issues currency according to the plan and by the methods laid down by the Government of the U.S.S.R..

Secondly, it serves as cashier for the national economy; i.e., it concentrates in its branches the cash of socialist enterprises, State and voluntary organisations, and issues cash to them for their current payments.

Thirdly, it provides short-term credit to those enterprises and economic organisations in all branches of the national economy (with the exception of building organisations) which are run on the system of economic accounting.

Fourthly, it is a clearing centre; i.e., it organises and carries out monetary settlements between enterprises institutions and organisations within the country.

Fifthly, it administers the cash side of the execution of the Budget: it repays payments provided for in the Budget, issues budgetary resources strictly as specified and within the limits of the allocations made, and keeps account of Budget revenues and expenditure.

Sixthly, it holds the country’s foreign currency funds and settles international accounts on trading and other economic operations between the U.S.S.R. and foreign countries; part of these settlements are effected through the U.S.S.R. Bank for Foreign Trade (Vneshtorgbank).

The U.S.S.R. State Bank is the largest bank in the world. It has its subordinate institutions in the republican, territory, regional, and almost all the district centres of the country. By organising settlements through clearing accounts and by credit operations the State Bank fulfils its function of being the most important instrument of the State for rouble control of the financial and economic work of enterprises and organisations. Clearing settlements effected by the State Bank embrace the overwhelmingly greater part of the payments turnover of enterprises and economic organisations.

Long-term investment banks serve particular branches of socialist economy. Their main function is to finance and provide long-term credits for capital investments by enterprises in the appropriate branches of the national economy. All monetary resources allocated by plan to capital investment are concentrated in the appropriate investment banks, which administer all payments or construction, issue funds for building work and supervise its expenditure In conformity with the plan.

In the U.S.S.R. there are: the bank for financing capital investments of State enterprises and building organisations in industry, transport, and posts and telegraphs (Prombank); the bank for financing capital investments by State enterprises and organisations in agriculture and forestry, and for long-term credits to collective farms and the rural population (Selkhozbank); the bank for financing capital investments in trade and co-operation (Torgbank); and the central bank for financing municipal economy and housing (Tsekombank),together with local municipal banks which come under local authorities.

The banks carry out rouble control of production and circulation, and thus assist the strengthening of the regime of economy and economic accounting. This control is effected (i) by financing and granting credits for measures envisaged by plan and in accordance with the actual fulfilment of the plan; (ii) by requiring that loans should be returned in accordance with the appointed dates for achievement of planning targets; (iii) by applying appropriate penalties when the approved regulations for use of funds and the fixed dates for repayment of loans are not adhered to (these penalties include, for example, the exacting of a higher interest rate and withdrawal of the right to receive further credits).

In order to improve the economic work of enterprises and to enforce a strict regime of economy it is necessary to increase rouble control of production by the banks and to bring pressure to bear on enterprises which are badly managed.

It is very important for the strengthening of economic accounting and control by the rouble that the State Bank approaches differently the allocation of credit to enterprises which are working well and enterprises which are working badly. To enterprises which have not fulfilled their tasks in reducing costs, or their accumulation plans, or have not preserved their own circulating resources, a harsher credit and settlements regime is applied, which may go as far as ceasing to give further credit, the calling-in before they are due of loans previously given, and other measures. At the same time, enterprises which have worked well receive a number of benefits in connection with credit, especially in the form of increased loans. This differentiated approach enhances the role of rouble control by the bank in stimulating an improvement in the quality of an enterprise’s work and observance by it of a regime of economy.

The banks work on the basis of economic accounting. The net income of a bank is the difference between the amount it receives in interest on the one hand and the total interest it pays out, together with the cost of maintaining its machinery on the other.

On the basis of the growth of socialist economy and the development of credit relations the turnover of the banks is continuously increasing. Total credit investments by the State Bank in the national economy amounted to 190 milliard roubles at the end of 1954, 340 per cent of the 1940 level.

State savings banks accept cash deposits from individual citizens and from collective farms and voluntary organisations, paying a definite rate of interest on deposits and rendering services to the working people in paying their accounts, e.g., for municipal services, rent, etc. The steady increase in the deposits placed in the savings banks by the population is an index of the continuous improvement of the material well-being of the working people. By the end of 1954 total deposits by the population in the savings banks amounted to 48.4 milliard roubles, compared with 18.5 milliard in 1950. Savings banks also effect operations in connection with State loans: they pay out lottery prizes and interest.

Currency Circulation in Socialist Economy

Soviet money is a gold token, a universal equivalent. As stated above, its stability is primarily assured by the vast commodity stocks held by the State and released for sale at fixed prices. Soviet currency also has a gold backing.

The steady growth of socialist production and commodity turnover constitutes the firm foundation of Soviet money. Of great importance for increasing the purchasing power of the Soviet rouble is the reduction of prices, based on the reduction of the cost of production and costs of circulation and on increasing the volume of commodities available.

Soviet money circulates in the form of 10-, 15-, 50-, and 100-rouble banknotes, which are backed by gold, precious metals, and other assets of the U.S.S.R. State Bank. In addition to banknotes, 1-, 3-, and 5-rouble State treasury notes, and metal coins of small denominations, are also in circulation.

Soviet money can fulfil in a normal way its role as a gold token if the amount of this money available is in accordance with the actual requirements of the national economy for means of circulation and of payment.

In socialist economy currency circulates in conformity with the economic law that the quantity of money required for commodity circulation is determined by the sum of the prices of the commodities in circulation and the velocity of circulation of money. Book-keeping settlements without cash payments, made in the course of commodity circulation, have the effect of reducing the amount of currency required. The total sum of currency in circulation, required by society over a definite period, depends in addition on the total currency payments which are made over the period involved. In socialist economy these payments include wage payments, money payments for work-days, lottery prizes, and others. Current payments by the population include house-rents, taxes, savings bank deposits, and others.

Thus in socialist society the quantity of currency required in circulation is determined by the sum-total of prices of the commodities sold for cash, the size of current payments in cash, and the velocity of circulation of currency. Normal functioning of monetary circulation is an important condition for the planned development of the national economy.

On the basis of the law of planned development of the national economy and utilising the law of currency circulation, the Socialist State plans the circulation of currency in the country in inseparable connection with the planning of the entire national economy as a whole. In the Soviet Union emission is strictly centralised. Currency is issued into circulation by the State Bank of the U.S.S.R., and each supplementary issue by the State Bank is made by a Government decision. The bulk of the cash issued by the State Bank is used in conformity with plans to pay wages, to make money payments on account of work-days, and to pay for State purchases, compulsory and voluntary, of agricultural produce from collective farmers. In the reverse direction the main channel along which money returns to the Bank is the receipts of trading organisations, which provide more than four-fifths of all State Bank receipts, and also the receipts of municipal undertakings, transport, and posts and telegraphs, which are paid into the Bank daily.

Currency is also issued from the State Bank to pay interest, lottery prizes and redemption of bonds of State loans, pensions, allowances, insurance moneys, small accounts, etc. The State Bank regularly receives money on account of taxes and other payments under the Budget, and also of deposits in the savings banks, insurance contributions, and so on. Thus a mass of currency continuously passes through the branches of the State Bank.

One of the essential conditions influencing currency circulation is the relationship between the monetary incomes of the population on the one hand, and the volume of trade and of services which are paid for by the population on the other. A balance of money incomes and expenditures of the population is compiled in order to ascertain these relationships and to ensure in the national economic plan the requisite proportions between the increase in the money incomes of the population and the increase in the corresponding total mass of commodities and chargeable services. In this balance all the money incomes and expenditures of the population which are due to take place in the planned period are taken into account. Definite proportions in the movement of currency laid down for the various elements in the national economic plan (the wage-fund, commodity turnover, the State Budget, etc.) make it possible to fix the appropriate plan targets in the sphere of currency circulation.

An important instrument in planning currency circulation is the cash plan of the State Bank, which has to be approved by the Government. The cash plan is a plan of the cash turnover for the whole system of the State Bank. It shows all the cash receipts expected by the Bank in the. planning period concerned, and all its cash payments. In compiling it, the balance of money incomes and expenditures of the population is taken into account. It therefore takes into account the volume of retail trade, the volume of procurements of agricultural produce, the sum-total of wages of manual and clerical workers, and other indices which determine the size of cash receipts and payments. The cash plan makes provision for the emission of currency and its withdrawal from circulation, in accordance with the relationship between the cash income and expenditure of the State Bank over the country as a whole.

The State Bank also regulates currency circulation in the country by means of the credit plan.

The planned organisation of currency circulation makes it possible to increase or reduce the total mass of currency and to provide the right quantity of currency required for circulation at each period, in every district, and throughout the country as a whole. In this way currency circulation is put on a firm footing.

The currency reform at the end of 1947 was of tremendous importance in stabilising the Soviet currency system.

In the currency reform, the former currency, which had been devalued to a certain extent during the war, was exchanged for new 1947 currency of full value, in accordance with conditions which were laid down. Unlike the currency reforms in capitalist countries, carried through by worsening the conditions of the working people, the Soviet currency reform was carried out in the interests of the working people. The wages of manual and clerical workers continued to be paid at the same rates, but in new money of full value. The currency reform was accompanied by a reduction in the prices of commodities. It eliminated the effects of the war in the sphere of currency circulation, restored the full-value Soviet rouble, increased the importance of money in the national economy, facilitated the return to retail trade at uniform prices without ration-cards, and led to a rise in the real wages of manual and’ clerical workers and the real incomes of the collective farmers.

Currency circulation was put in order, the production of consumer goods increased, retail trade expanded and the prices of goods were reduced. All these factors led to a rise in the purchasing power of the rouble and of its exchange rate. From March 1, 1950, the Soviet Government raised the official exchange rate of the rouble; and the rate was henceforth fixed directly in terms of gold, in conformity with the gold content of the rouble, instead of on the basis of the dollar, as had been laid down in 1937.

In socialist economy there is a State foreign currency monopoly, i.e., the Socialist State handles all accounts with foreign States and the purchase, sale and possession of foreign currency. The State foreign currency monopoly and the monopoly of foreign trade make Soviet currency independent of the changeable situation on the capitalist market. This independence is constantly reinforced by the accumulation of gold reserves and the favourable trading and payments’ balances of the U.S.S.R.

BRIEF CONCLUSIONS

(1) The finance of socialist society includes the State Budget, the finances of socialist enterprises, State social insurance, State property and personal insurance, and various forms of credit.

(2) The State Budget is the main form by which a centralised fund of monetary resources is formed and utilised in a planned way to meet public needs. The main source of the revenue side of the Budget is the net income of society, which is primarily used to finance economic construction and cultural development.

(3) Credit in socialist society is a method of concentrating in State hands money which is temporarily not in use, and using it in a planned way, on condition of repayment, for fulfilling the needs of socialist economy. Interest is the payment fixed by the State for the temporary use of money loans; its source is the net income of enterprises. Credit is effected by the banks and by the savings banks. There are two kinds of banks in the U.S.S.R.: the State Bank, which is the bank of issue, the short-term credit bank, and the centre of accounting for the country; and the specialised State long-term investment banks. The banks carry out rouble control in respect of production and circulation, and assist in strengthening economic accounting.

(4) The Socialist State plans currency circulation in the country on the basis of the law of planned development of the national economy and the law of currency circulation. By the planned organisation of currency circulation in socialist economy, the total mass of currency is made to conform to the cash requirements of commodity circulation. On the basis of the growth of production, increase in commodity turnover and reduction of prices the Socialist State ensures. a strengthening of currency circulation and rising purchasing power of the rouble.