GLOBAL EARTHQUAKE
On Monday morning, September 21, 1931—nearly simultaneously with the Japanese aggression in Manchuria—Great Britain stunned the world, abandoning the gold standard, even though it had not run out of reserves.119 Within four weeks, eighteen countries followed the UK off gold. Stocks on the New York exchange lost half their value, the second crash in eighteen months. The pound’s resulting devaluation had global consequences, because Britain, along with the United States, served as the world’s principal short-term lender.120 Soon London would embrace “imperial free trade,” meaning free only for British dominions, alongside protectionist tariffs for other countries, and would improvise a sterling bloc. This effectively ended a long epoch of Britain upholding an open global economic order.121
Pravda (September 22, 1931) triumphantly deemed the gold-standard démarche “not only a weakening of Britain, but a weakening of international imperialism as a whole.” Marxists like Stalin assumed the crisis inhered in the functioning of capitalism. In fact, human decisions transformed structural problems into what came to be known as the Great Depression. Central bankers and their acolytes had long believed in the necessity of convertibility between currencies and gold, but a fixed-exchange-rate system works only if there is convergence in the macroeconomic performance of the participants (similar levels of wage and price inflation, public and private deficits, competitiveness) and an absence of shocks. Now, confronted with a shock, monetary authorities chose to raise interest rates, exacerbating the problems. And finances became unglued anyway. By year’s end, nearly 3,000 banks in the United States, the citadel of world finance, would fail or be taken over as confidence and GDP cratered, accompanied by deflation in asset and commodity prices, disruption of trade, and mass unemployment.122
The Depression’s impact proved worse in Eastern Europe than in Western, because largely peasant countries were whiplashed by the commodity price crash while their governments (Czechoslovakia excepted) depended on foreign financing, which dried up. Most Eastern European countries hesitated to depreciate their currencies, for fear of a repeat of hyperinflation, but they closed banks, imposed foreign-exchange and trade controls, raised tariffs, and postponed or suspended foreign debt payments—moves toward autarchy that magnified arbitrary bureaucratic power at the expense of markets and imparted further impetus to authoritarianism, right-wing populism, and xenophobia.123 The USSR was also a predominantly peasant country, and although capitalist economic troubles initially had allowed Stalin to enjoy nearly unfettered Western technology transfer, now he was caught out, dependent on commodity prices and foreign financing for those industrial purchases.124
Stalin had been preoccupied with a possible French-led collective boycott that could cut the Soviets off from all advanced technology, and Orjonikidze had bent over backward to a delegation of German industrial luminaries, while Stalin restrained the insurrectionist impulses of the German Communists.125 Berlin, for its part, faced shrinking foreign markets and rising unemployment—and was coming around to the idea that Stalin’s crazy building of socialism might work. A bilateral trade agreement had been signed that extended German government-guaranteed credits to the USSR for a period of twenty-eight months, longer than the usual. The Soviets were to use the funds to purchase an additional 300 million marks’ worth of German industrial goods, at favorable prices.126 The deal was supposed to underwrite the wild industrial leap of 1931 and put to rest, for now, the feared anti-Soviet boycott. German exports to the USSR would jump to double the level of 1929. But the agreement had not resolved the severe Soviet balance-of-payment problems.127 The Soviets even failed to reap the benefits of the pound’s devaluation because of their renewed economic reliance on Germany.128
Soviet reliance on expensive short-term credits—the only kind predominantly available to the Communist regime—imposed relentless pressure to retire maturing debt and obtain new loans. With Soviet foreign debt more than doubling in the period 1929–31 (it would increase 50 percent in 1931 alone), rumors of a pending default spread in the Western press. (Turkey and much of Latin America defaulted at this time.)129 On October 6, 1931, the British chargé d’affaires in Moscow wrote to London that the severe Soviet balance-of-payments crisis, on top of the failures to meet 1931 output targets, would even compel Moscow to break off rapid industrialization and collectivization.130 Wishful thinking aside, the worsening terms of trade and tariffs did force the Soviets to curtail imports of consumer and even capital goods.131 But the Soviets meticulously paid their debts. The pressure to do so partly explains the regime’s continued export of grain despite fears for the harvest and low global prices.132 Only state-imposed deprivation allowed the USSR to avoid external default.
THE STRUGGLE AGAINST KULAK SABOTAGE
Compared with the robust 1930 harvest—officially estimated at 83.5 million tons, but closer to 73–77 million—the 1931 harvest would come in somewhere between 57 million and 65 million tons. A cutback in grain exports loomed, but Stalin stalled the reckoning, continuing to lash out at the “liberalism” of rural officialdom for failing to extirpate “the kulak.”133 He also countenanced intensified religious persecution and ruination of churches.134 Still, he had grudgingly allowed a slight reduction in procurement targets for the Volga, the Urals, Siberia, and Kazakhstan, the most drought-stricken regions, while holding the line on Ukraine’s targets and raising the quotas for the North Caucasus (which had largely escaped the drought).135 Mikoyan, on October 31, 1931, told a Central Committee plenum that on the eve of the harvest, “we had awaited the season of the grain collections with rainbow perspectives.”136 Regional party bosses, given the floor, uttered the truth: drought and a poor harvest had rendered even the reduced quotas impossible. Stalin—who got his back up when officials cited natural causes as excuses—exploded, sarcastically mocking one speaker’s “exactitude” in adducing data on lower crop yields.137 And yet, the dictator agreed to gather separately with plenum delegates from the grain-growing regions, which resulted in additional procurement reductions.138
Growers were reluctant to sell even what they had at the regime’s punishingly low prices: in 1931, the market price per tsentner of rye was 61.53 rubles, versus the state price of 5.50; for wheat, the disparity was greater still.139 But now, procurement agents grabbed even the food for minimal consumption. State collections in fall 1931 (and into early 1932) would leave farmers with less grain, meat, and dairy than in any year since the mid-1920s. “Comrade Stalin, I ask you to look into how collective farmers live on the collective farms,” urged one of the countless letters pouring in about the starvation. “At the meetings it is impossible to speak up; if you do speak up, then they say you are an opportunist.”140