Soviet Power Struggles and Keynesian Economic Theory

Lenin's Death and the Struggle for Power

Lenin, the Bolshevik leader and promoter of the new Soviet state, died in 1924. His death unleashed a power vacuum and a struggle within the Bolshevik Party known as the Great Debate (1924–1928). This conflict occurred on several fronts: leadership of the party, control of the Soviet state, and the future direction of the revolution.

The debate polarized around Stalin and Trotsky:

• Trotsky represented the radical wing of the party. He advocated for abandoning the New Economic Policy (NEP) to deepen the socialist revolution, promoting the concept of permanent revolution and internal party democracy.
• Stalin represented the more conservative position. He proposed continuing the mixed economy system and building socialism in one country.

In 1927, the struggle intensified, and Stalin seized power. He established an authoritarian, absolute regime. Stalin chose to end the mixed economy (NEP) and enforced the collectivization of property. Once in power, Stalin eliminated all opponents, establishing a dictatorship based on his absolute control over the CPSU and the state.

The Keynesian Proposal

Against those who insisted on lowering wages as the only solution to increase production, John Maynard Keynes defended the argument that the 1929 crisis was not temporary. He argued that the main problem of the economy was a lack of aggregate demand due to a fall in investment. Without demand, employers had no incentive to increase production.

Keynes proposed that the state increase public spending through activities such as public works, which would employ many workers. While state spending would generate a deficit, he argued this was not a problem. If the government increased spending, the demand would grow by a higher proportion than the initial expenditure—as money transformed into wages and goods, it created new demands in other sectors (the Keynesian multiplier). The state could then increase revenue through taxes.

The Mechanism of Keynesianism

• State Intervention: Distribution of allowances to the unemployed, employers, and families.
• Major Infrastructure: Construction of roads, dams, and public works.
• Budgetary Strategy: State budget deficit moving toward a balanced budget.

The Cycle: Increased tax revenue ← Increased income for families ← Growth in consumption ← Production growth ← Recruitment.

The Great Depression

Causes of the Great Depression

The industrial overproduction, the first signs of which were already evident before the collapse.