Finances of the Soviet Union in

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1 Indian Journal of Science and Technology, Vol 9(46), DOI: /ijst/2016/v9i46/107544, December 2016 ISSN (Print) : ISSN (Online) : Finances of the Soviet Union in Anastasia V. Zotova* Saint Petersburg State University of Telecommunications, Named Professor M. A. Bonch-Bruevich, Saint Petersburg, Russia; anastasiyazotova@mail.ru Abstract Objectives: To evaluate the financial contribution of the Soviet Union to the victory over fascism inworld War II. Methods: In this paper the author proposes a new approach to assessing the financial activities of the USSR during World War II. Contrary to the traditional historiography, the author uses the method of economic modeling, as well as methods of analysis, deduction, induction, synthesis, and a comparative method to study the financial activities of the Soviet Union not only during the USSR fighting Germany and its allies, but also during the period of Findings: The article proves that episodes of the Soviet Union fighting Japan and Finland, as well as the Red Army entering the territory of the Western Belarus and Western Ukraine, Moldova and the Baltic states, though not perceived by historians as the direct participation of the USSR in World War II, in fact, were part of the global process of the world repartition. The author examines the finances of the USSR during the years of World War II using the approach chosen for the assessment of the events. The article presents a comparative analysis of the published data of financial activities of the Soviet Union and the results of the summarized data of archival documents. In the end, the author concludes that the USSR military costs in amounted to nearly 126 billion US dollars at the exchange rate of the 1940s.Improvements/Novelty: The findings can be used by researchers when writing monographs, academic papers and theses on World War II. Keywords: Financial System of the Soviet Union, State Budget, World War II 1. Introduction At the turn of the s the Soviet leaders, as well as most people in the USSR, clearly realized that the Soviet Union joining World War II was just a matter of time. In Soviet and Russian historiography one can find publications relating to the finance analysis of the Soviet Union during the Great Patriotic War, published at different times. Having analyzed the historio-graphic data, we can conclude that historians have not so far given a clear answer to the question when the Soviet Union started to perceive the country s defense as a political priority. Meanwhile, the Soviet Union s budget, formed during the war, to a considerable extent continued the trends that had emerged at the beginning of World War II. 2. Method When working on the article, the author familiarized the academic community with some documents of the State Archive of the Russian Federation (State Archive), the Russian State Archives of Economics (RGAE), thus providing a fresh look at the budget management in the USSR during World War II. The historiography analysis made it possible to compare this data with archival documents, thus improving the accuracy of the study. The research methodology is grounded on the following: methods of analysis, deduction, induction, synthesis and comparison. The historical methods applied are historical and systematic, historical and typological, comparative historical and retrospective methods, as well as the method of historical periodization. 3. Results Having studied the budget of the Soviet Union for 1938, we stated that it was the last state budget of the peace time. The country was actively developing, with the growth of industrial production being the top priority. For this purpose in 1938 the country spent 23,616 mil- *Author for correspondence

2 Finances of the Soviet Union in lion rubles, i.e. 19% of the total budget. It was the last year when the Soviet military spending was not a priority for the state budget. In 1938 those costs amounted to 23,151 million rubles, which accounted for 18.7% of the state budget expenditures 1. For Europe and the whole world the year of 1939 was the time of political boiling point when political and economic contradictions between the states could not be resolved peacefully any more. Three months before the outbreak of World War II by Germany, the Soviet Union adopted the state budget for that year which implied substantial military spending. For the first time in the history of the Soviet state its military expenditures exceeded the investments into the development of industrial production. In accordance with the 1939 budget, 31,112 million rubles was to be spent on the industrial development (20.3% of the total expenditure), while 39,181 million rubles was invested in the development of the defense (25.6%). Presenting his report on the country s budget at the meeting of the Third Session of the Supreme Soviet of the USSR of the 1st convocation, USSR People s Commissar of Finance A.G. Zverev made it clear to the deputies that the significant increase in military spending in the 1939budget was largely due to the recent armed conflict at Lake Hassan. The audience realized that it was necessary to increase the military budget, that it was the only way to ensure the inviolability of the Soviet frontiers 1. A year later, in 1940, the country s military spending exceeded the costs of the industrial development almost twofold. While 28,576.1 million rubles (16.4%) was spent on the industrial production, 56,752 million rubles was invested to improve the defense which amounted to 32.6% 2 of the total government expenditure. In fact, more than a third of the budget was aimed at making the army and navy stronger. By the time the budget for 1940 was adopted, the country had had a hard experience of the Soviet-Finnish War, which made it clear that the Red Army needed a great number of modern military equipment and weapons. It was also obvious that the main fighting was still to take place. The budget of 1941 is a complex issue in the history of the USSR. Adopted right before the war outbreak, it was aimed at the training of the army and the navy to defend the state to the largest possible extent. In that budget, 32.8% was intended to provide the armed forces with everything necessary. Besides, the state invested 70.9 billion rubles in improving its military potential during the first year of the war against Nazi Germany 3. However, it was not possible to fully meet the budget targets due to large scale hostilities. While in 1940 its revenues were accomplished by 98% and expenses by 96.9%, then in 1941 the situation was qualitatively different. The revenues were met by only 79.6%, while expenditure by only 88.6% 4, which in those circumstances was quite a high rate. Due to the work of financial institutions of the USSR, in the second half of 1941 it was possible to significantly increase the country s spending on the army and navy. It increased by 20.6 billion rubles 5,6. This financial maneuver allowed the Soviet Union to resist the pressure of the German state machinery. The only year of the war for the Soviet country when, compared to the previous year, the budget revenues did not increase, but considerably decreased, was While in 1941 the state budget revenues amounted to 176,984.5 million rubles, in 1942 they totaled only 163,975.7 million rubles 7. The main reasons for the budget failure in 1942 were smaller than planned revenues from tax on sales, taxes from enterprises and organizations, government bonds, and social insurance. This shortfall was to some extent covered by other revenue items: customs revenue, deductions from profits, and revenues from a monetary and clothing lottery. The revenues from fees and non-tax revenues were particularly significant, as well as revenues from the Defense Fund and the Red Army. Failure to comply with the budget was largely due to a sharp decline in citizens deposits put onto their personal accounts in savings banks. Having analyzed archival documents, we can conclude that the government did not consider the following fact: during the war people have a great need for money, which makes them withdraw their savings. As a result, in 1942 Soviet citizens withdrew more than 550 million rubles from their accounts, which turned out to be a big surprise for the financial bodies. Another negative fact was that banks received 1,735 million rubles less than it was planned in the budget for compensation to workers for unused leave in Probably, it was largely due to the fact that the number of workers and employees in 1942 significantly reduced: many had joined the army, had been evacuated where not all of them could find a job. But the main reason was a high mortality rate, which reached the maximum in the same year. The budget deficit was also a result of the insufficient income from the country s collective farms. The latter failed to meet the plan by 583 million rubles 9. Such a failure, according to 2 Indian Journal of Science and Technology

3 Anastasia V. Zotova the author, was associated, on the one hand, with the fact that a significant part of farmers had to join the army, and, on the other, that a large part of the collective farms were located on the territory occupied by the enemy. In 1942 the finance and economy of the USSR finished their transformation from a peacetime to a wartime one. It was when the country achieved a huge success: largely due to the transformation of the financial activities, the Soviet economy began working in a totally new mode, previously unknown. Although in 1942 the USSR military spending reduced by 10%, compared with the first year of the war, which accounted 65.3% of the total budget, this figure enabled the stability of the Soviet Union in the planning and implementation of the cash expenditures associated with military operations 5. Military expenditures amounted to 108,404 million rubles, compared to 98,709 million rubles planned in the annual budget 10. The sum of 702 million rubles, or 23% allocated from the budget to finance the working assets, was higher than the planned figure. The staff of the USSR People s Commissariat of Finance analyzed the use of the working capital of various commissariats. As a result, it was found that some commissariats had increased the volume of their working capital: the People s Commissariat of Aviation Industry up to 935 million rubles, the People s Commissariat of Ammunition up to 608 million rubles, the People s Commissariat of Weapons 430 million rubles, the People s Commissariat of the Tank Industry up to 256 million rubles, the People s Commissariat of Electrical Industry up to 235 million rubles, the People s Commissariat of Grain and Livestock Farms up to 212 million rubles, the People s Commissariat of Nonferrous Metallurgy up to 192 million rubles, the People s Commissariat of Medium Machine Building up to 178 million rubles, the People s Commissariat of Machine Tool Building up to 150 million rubles. Despite positive dynamics, the commissariats and departments still lacked working capital, and the government was forced to allocate additional finance to replenish their accounts 11. The fact that the Soviet financial policy implemented in 1942 allowed the country s economy to resist the military and economic pressure of Germany and its allies was the key to the development of the national budget in the following years of the war. In 1943, as we know, many significant military events took place, including breaking the siege of Leningrad, the battle of Kursk, the liberation of Crimea, Novorossiysk and many other major economic centers of the USSR. On the one hand, it improved the prospects for the Soviet economy development and made it possible to increase the state budget, but on the other hand all this required immediate investments to restore the national economy in the areas liberated from the enemy. Taking this into account, even before the events of 1943, as well as during them, the USSR formed its state budget for The state bodies and, in particular, the People s Commissariat of the Finance of the USSR, found it possible to reduce the costs of production of various types of weapons. In many ways it was possible due to the fact that military industry enterprises had been relocated to other regions. In addition, new technologies of military equipment and weapons had been mainly adjusted and did not require new financial injections. Thus, the released funds could be allocated to financially support immediate military operations 12. At the beginning of 1944, the Council of People s Commissars of the USSR defined the state budget balance for the year s revenues and expenditures. The revenues and expenditures amounted to 245 billion 566 million rubles 13. This amount was the highest among all other annual budgets during World War II. Probably, many of those participating in the budget formation counted on the fact that 1944 would be the last year of World War II. However, the financial planning needed follow-on revision and adjustments. This was mainly done by the Budget Commission of the Union Council on the State Budget. On January 22, 1944, the Commission concluded that for that year the main source of budget revenues would continue to be the revenues from the national economy and, above all, industrial production. The commission also counted on the turnover tax, deductions from profits and other payments from state and cooperative enterprises and industry. They were expected to supply two-thirds of all budget revenues. It was also anticipated that a significant part of revenues would come from the state loans, the monetary and clothing lottery and other voluntary public contributions 14. It is hard to say that all those loans, lotteries and other contributions by Soviet citizens were purely voluntary. Definitely, the attitude of the Soviet people during the war on the whole was patriotic, and in 1944 it became even more so. However, the reality was that during the war years the living conditions of most people were very bad. Naturally, all kinds of loans, whatever form they might take, made the already difficult lives of people even harder, whereas the government policies aimed to achieve victory at any cost. The government believed that the Soviet people still had a reserve of moral strength which Indian Journal of Science and Technology 3

4 Finances of the Soviet Union in would not only keep, but even increase the total amount of funds owned by the USSR citizens for years to come. This assumption was confirmed by the analysis of various forms of attracting people s funds carried out in During that year, according to the Budget Commission of the Union Council, the USSR population in a single day gave more than 20 billion rubles instead of the planned 12 billion during the second state military loan. In addition, the revenues from the tickets of the monetary and clothing lottery distributed among the population exceeded the planned amount by almost 1 billion rubles. Such social strength was characteristic of the consciousness of the Soviet people during the whole period of the war. It was no mere chance that cash contributions to the Red Army Fund and the restoration of areas liberated from the enemy by the beginning of 1944 amounted to 13 billion rubles 15. According to the Supreme Soviet of the USSR, budget revenues in 1944 were expected to be quite high. This allowed spending on the army and navy plan even bigger than before. It was planned to spend more than 128 billion rubles only on the immediate needs of war during that year 16. It should be added that due to the budget execution the military spending was increased by another 450 million rubles and amounted to 51.4% of the total expenditure 17-19,4. We would also like to highlight that the funds allocated for the restoration of the national economy over the liberated territories were not considered as military spending and were allocated separately 20. After weighing all the pros and cons, the Budget Committee of the Union Council decided to increase budget revenues by 4.01 billion rubles. Certainly, this increase was planned mainly through increasing the taxes on the population (by 300 million rubles) and turnover taxes (by 1260 million rubles). A large part of money was to come from government loans (1,500 million rubles more than originally planned). For the first time in all war years the increase in the turnover tax was achieved largely due to the increase of sales plan of vodka and beer through the foodservice industry. The price of alcoholic beverages went up almost twofold 21. After a drop of the budget revenues in 1942, the state revenues increased in 1943 by 40 million rubles and amounted to 204,383.4 million rubles. Next, in 1944, the budget revenues increased even more, reaching 268,743.3 million rubles. In the victorious year of 1945 the state budget revenues estimated 302,034.1 million rubles 22,23,5. 4. Discussion Russian and international historians have different opinions on the expenditures of the Soviet Union during the Great Patriotic War. For example, let us compare the data of Russian historian 5 with the data of Canadian researcher 24, comparing them with those of the USSR budget, taken from Russian archive funds which are presented in Table 1. Table 1. The expenditures of the USSR during the great patriotic war. (billion rubles) The data of Y.E. Chadaev 5 The data of P.L. Kovankovskiy or The data of A.V. Zotova, based on the documents of the Russian State Archive of Economy and The State Archive of the Russian Federation As we can see from the table, in his monograph Y.E. Chadaev presented the data in which the Soviet Union spending in WWII was understated about tenfold. Unfortunately, this error with a reference to the monograph by Y.E. Chadaev was repeated by other researchers 6. Canadian researcher P.L. Kovankovsky, who in his study used the data of the Soviet periodicals, was more accurate. The comparison of his data and the archival documents, apart from many other findings, allowed us to make the following important conclusion: during the war the Soviet press published truthful information about the financial activities of the Soviet Union. P.L. Kovankovsky did not take into account the fact that billion rubles, he marked as the total amount of expenditure of the Soviet Union in 1941, stood only for the sum of the planned costs that were approved by the Council of People s Commissars in January , but in reality, the final figure was different. Hostilities between Germany and the Soviet Union began in June 1941, which significantly influenced the adjustments of the state budget for the current year. After its execution, it equaled the amount shown in the last col- 4 Indian Journal of Science and Technology

5 Anastasia V. Zotova umn of Table 1. It should be noted that the data for 1941, given in the last column of Table 1, are taken from the document of the Budget Commission of the Council of Nationalities of the State Budget of the USSR which analyzed the implementation of the budget. International researchers focus on studying the history of finance during World War II 32,33. Despite this, researchers have not agreed on the financial contribution of the Soviet Union in the victory of the anti-hitler coalition 34,35. The Soviet and Russian historiography states that the Soviet Union spent billion rubles on military operations during World War II 22. This figure could be corrected using archival documents and published sources. According to them, the Soviet Union defense expenditures during World War II were as follows: billion rubles 4, in billion rubles 36, billion rubles 37, billion rubles 38, in billion rubles 39. Thus, according to the updated data, hostilities costs during the Second World War estimated not 582.4, but billion rubles. At the same time, it is necessary to make some significant comments. One should be very accurate estimating the amount of military expenses for 1941 and 1945 as they do not reflect the real situation. The sums representing the execution of the budget were given for the year as a whole, while in 1941 the military operations were held for a little over six months, and in 1945 a little more than four months. All other months of 1941 and 1945 were the period when the Soviet Union was not conducting a war. 5. Conclusion The author provides a new estimation of the time frame of the issue studied. World War II began, as we know, on September 1, The Soviet Union did not take part in it until 22 June However, in there was fighting going both on Khalkhin-Gol and during the Soviet-Finnish war. As we know, the agreement signed in Moscow on August 23, 1939, became known as the Molotov-Ribbentrop Pact. The secret protocol to the document specified the spheres of influence of Germany and the Soviet Union. Only after signing the document did the USSR acquire the Western Ukraine, Western Belarus, the Baltic States, Bessarabia and Northern Bukovina. It is well-known that entering the territory that belonged to Poland on September 17, 1939, the Red Army was not hypothetically, but truly collaborating with the Wehrmacht. Thus, it is crucial to analyze the information on the Soviet military budget both in 1939 and In 1939, military spending of the Soviet Union amounted to 39.2 billion rubles 1, while in 1940 it was 56.8 billion rubles 40. If we add these costs undertaken during the first two years of the Second World War to the military expenditure of the USSR during the Great Patriotic War, the total amount will equal billion rubles, which corresponded to billion dollars at the exchange rate of that time. Although formally the Soviet Union did not participate in the hostilities in the first two years of World War II, in fact the country was conducting military hostilities parallel to its future opponents, which required funds from the state budget. 6. Acknowledgment The research was supported by the Russian President s grant for state support of young Russian Scientists, Candidates of Sciences (Agreement of 16 February 2015 No. 14.W MC). 7. References 1. The Third Session of the Supreme Soviet of the USSR of 1st Convocation. On the State Budget of the USSR in 1939 and the Execution of the State Budget of the USSR for 1937, Report of the People s Commissar of Finance of the USSR Comrade A.G. Zverev. Izvestia, 1939, 26 May. 2. Russian State Archives of Economics. Fund: Inventory 25. File 992: 2-13,16, Rovinskiy NN. State Budget of the USSR. Gosfinizdat: Moscow, State Archive of the Russian Federation. Fund Inventory 15. File 6: Chadaev YE. The Economy of the USSR during the Great Patriotic War ( ). Mysl: Moscow, Muraveva LA. Finance of the USSR during the Great Patriotic War. Finance and Credit. 2004; 14, State Archive of the Russian Federation. Fund Inventory 15. File 6: Russian State Archives of Economics. Fund Inventory27. File 154: Russian State Archives of Economics. Fund Inventory 27. File 154: Russian State Archives of Economics. Fund Inventory 27. File 154: Russian State Archives of Economics. Fund Inventory 27. File 154: 15. Indian Journal of Science and Technology 5

6 Finances of the Soviet Union in Russian State Archives of Economics. Fund Inventory 28. File 124: State Archive of the Russian Federation. Fund Inventory 15. File 2: State Archive of the Russian Federation. Fund Inventory 15. File 2: State Archive of the Russian Federation. Fund Inventory 15. File 2: State Archive of the Russian Federation. Fund Inventory 15. File 2: Russian State Archives of Economics. Fund Inventory 29. File 146: State budget of the USSR in News of the Council of Workers Deputies of the USSR January State Archive of the Russian Federation. Fund Inventory 15. File 2: State Archive of the Russian Federation. Fund Inventory 15. File 2: Plotnikov KN. Essays on the History of the Soviet State Budget. Gosfinizdat: Moscow, The History of the Ministry of Finance of Russia. INFRA-M: Moscow, 2002; 3: Kovankovskiy PL. Finance of the USSR during WWII. Munich, State Archive of the Russian Federation. Fund Inventory 15. File 6: State Archive of the Russian Federation. Fund Inventory 15. File 6: Russian State Archives of Economics. Fund Inventory 27. File 154: Russian State Archives of Economics. Fund Inventory 29. File 146: State Archive of the Russian Federation. Fund Inventory 15. File 6: Russian State Archives of Economics. Fund Inventory 30. File 130 b: State Archive of the Russian Federation. Fund Inventory 12. File 1: Friedman M, Schwaartz A. World War II Inflation, September 1939-August In: From New Deal Banking Reform to World War II Inflation; Petrone K. The Great War in Russian Memory. The American Historical Review, 2012, Eloranta J. Military Spending Patterns in History. Date accessed: 08/11/2016. Available at: Tharoor I. How the Soviet Union Helped Save the World from Hitler during World War II Independent. May 9, Date accessed: 08/11/2016. Available at: independent.co.uk/news/world/the-soviet-union-helpedsave-the-world-from-hitler-a html. 36. Russian State Archives of Economics. Fund Inventory 27. File 154: Russian State Archives of Economics. Fund Inventory 29. File 146: State Archive of the Russian Federation. Fund Inventory 15. File 2: Russian State Archives of Economics. Fund Inventory 30. File 130b: Russian State Archives of Economics. Fund Inventory 25. File 992: Indian Journal of Science and Technology