Vladimir Lenin, Report of the Substitution of a Tax in Kind for the Surplus Grain Appropriation System. March 15, 1921

In this speech to the Tenth Party Congress in March 1921, Lenin laid out the core economic turn that became known as the New Economic Policy. The centerpiece was the tax in kind, which replaced the forced grain requisitioning of War Communism and allowed peasants to keep and trade any surplus after meeting a fixed levy. Lenin presented the change as a necessary “retreat” to defuse rural hostility, revive production, and rebuild the shattered economy after civil war, even as the party tightened political discipline at home. The congress resolution was soon translated into law by the Central Executive Committee’s decree of 21 March.

Original Source: Krasnaia nov', No. 1 (May 1921)

Comrades, the question of substituting a tax for surplus-grain appropriation is primarily and mainly a political question, for it is essentially a question of the attitude of the working class to the peasantry. We are raising it because we must subject relations of these two main classes, whose struggle Or agreement determines the fate or our revolution as a whole, to a new or, I should perhaps say, a more careful and correct re-examination and some revision. There is no need for me to dwell in detail on the reasons for it. You all know very well of course what totality of causes, especially those due to the extreme want arising out of the war, ruin. demobilization, and the disastrous crop failure--you know about the totality of circumstances that has made the condition of the peasantry especially precarious and critical and was bound to increase it swing from the proletariat to the bourgeoisie.

A word or two on the theoretical significance of, or the theoretical approach to, this issue. There is no doubt that in a country where the overwhelming majority of the population consist-, of small agricultural producers, a socialist revolution can be carried out only through the implementation of a whole series of special transitional measures which would be superfluous in highly developed capitalist countries where wage-workers, in industry and agriculture make up the vast majority. Highly developed capitalist countries have a class of agricultural wage-workers that has taken shape over many decades. Only such a class can Socially, economically. and politically support a direct transition to socialism. Only in countries where this class is sufficiently developed is it possible to pass directly from capitalism to socialism. without any special country-wide transitional measures. We have stressed in a good many written works, in all our public utterances, and all our statements in the press, that this is not the case in Russia, for here industrial workers are a minority and petty farmers are the vast majority. In such a country, the socialist revolution can triumph only on two conditions. First. if it is given timely support by a socialist revolution in one or several advanced countries. As you know, we have done very much indeed in comparison with the past to bring about this condition, but far from enough to make it a reality.

The second condition is agreement between the proletariat, which is exercising its dictatorship, that is, holds state power. and the majority of the peasant population. Agreement is a very broad concept which includes a whole cries or measures and transitions. I must say at this point that our propaganda and agitation must be open and above-board. We must condemn most resolutely those who regard politics as a series of cheap little tricks, frequently bordering on deception. Their mistakes have to be corrected. You can't fool a class. We have done very much in the past three years to raise the political consciousness of the masses. They have been learning most from the sharp struggles. In keeping with our world outlook, the revolutionary experience we have accumulated over the decades, and the lessons of our revolution, we must state die issues plainly-the interests of these two classes differ, the small farmer does not want the same thing as the worker.

We know that so long as there is no revolution in other countries. only agreement with the peasantry can save the socialist revolution in Russia. And that is how it must be stated, frankly, at all meetings and in the entire press. We know that this agreement between the working class and the peasantry is not solid--to put it mildly, without entering the word 1. mildly" in the minute--but, speaking plainly, it is very much worse. Under no circumstances must we try to hide anything; we must plainly state that the peasantry is dissatisfied with the form of our relations, that it does not want relations of this type and will not continue to live as it has hitherto. This is unquestionable. The peasantry has expressed its will in this respect definitely enough. It is the will of the vast masses of the working population, We must reckon with this, and we are sober enough politicians to say frankly: let us re-examine our policy in regard to the peasantry. 'Me state of affairs that has prevailed so far cannot be continued any longer.

We must say to the peasants: "if you want to turn back, if you want to restore private property and unrestricted trade in their entirety, it will certainly and inevitably mean falling under the rule of the landowners and the capitalists. This has been proved by a number of examples from history and examples or revolutions. The briefest examination of the ABC of communism and political economy will prove that this is inevitable. Let us then look into the matter. Is it or is it not in the interest of the peasantry to part ways with the proletariat only to slip back-and let the country slip back-to the rule of the capitalists and landowners? Consider this. and let us consider it together."

We believe that if the matter is given proper consideration, the conclusion will be in our favor, in Spite of the admittedly deep gulf between the economic interests of the proletariat and the small farmer.

Difficult as our Position is in regard to resources, the needs or the middle peasantry must he satisfied. There are far more middle peasant- now than before, the antagonisms have been smoothed out, the land has been distributed for use far more equally, the kulak's position has been undermined and he has been in considerable measure expropriated-in Russia more than in the Ukraine. and less in Siberia. On the whole. however, statistics show quite definitely that there has been a leveling out, an equalization, in the village, that is, the old sharp division into kulaks and cropless peasant has disappeared. Everything has become more equable, the peasantry in general has acquired the status of the middle peasant.

Can we satisfy this middle peasantry as such. with its economic peculiarities and economic roots? Any Communist who thought the economic basis, the economic roots, of small farming could be reshaped in three year,; was, of course, a dreamer. We need not conceal the fact that there were a good many such dreamers among us. Nor is there anything particularly bad in this. How could one start a socialist revolution in a country like ours without dreamer? Practice has, of course, shown the tremendous role all kinds of experiments and undertakings can play in the sphere of collective agriculture. But it has also afforded instances of these experiment-, as such playing a negative role, when people, with the best of intentions and desires, went to the countryside to set up communes but did not know how to run them because they had no experience in collective endeavor. The experience of these collective farms merely provided examples of how not to run farms: the peasants around either laughed or jeered.

You know perfectly well how many cases there have been of this kind. I repeat that this is not surprising, for it will take generations to remold the small farmer, and recast his mentality and habits. The only way to solve this problem of the small farmer-to improve, so to speak, his mentality-is through the material basis, technical equipment, the extensive use of tractors and other farm machinery and electrification on a mass scale. This would remake the small farmer fundamentally and with tremendous speed. If I say this will take generations, it (foes not mean centuries. But you know perfectly well that to obtain tractors and other machinery and to electrify this vast country is a matter that may take decades in any case. Such is die objective situation.

We must try to satisfy the demands of the peasants who are dissatisfied and disgruntled, and legitimately so, and who cannot be otherwise. We must say to diem: "Yes, this cannot go on any longer." How is the peasant to be satisfied and what does satisfying him mean? Where is the answer? Naturally it lies in the demands of the peasantry. We know these demands. But we must verify them and examine all that we know of the farmer's economic demands from the standpoint of economic science. If we go into this, we shall see at once that it will take essentially two things to satisfy the small farmer. The first is a certain freedom of exchange, freedom for the small private proprietor, and the second is the need to obtain commodities and products. What indeed would free exchange amount to if there was nothing to exchange, and freedom of trade, if there was nothing to trade with! It would all remain on paper. and classes cannot be satisfied with, scraps of paper, they want the goods. These two conditions must be clearly understood. The second--how to get commodities and whether we shall be able to obtain them-we shall discuss later. It is the first condition-free exchange--that we must deal with now.

What is free exchange? It is unrestricted trade, and that means turning back towards capitalism. Free exchange and freedom of trade mean circulation of commodities between petty proprietors. All of us who have studied at least the elements of Marxism know that this exchange and freedom of trade inevitably lead to a division of commodity producers into owners of capital and owners of labor-power, a division into capitalists and wageworkers, i.e., a revival of capitalist wage-slavery, which does not fall from the sky but springs the world over precisely from the agricultural commodity economy. This we know perfectly well in theory, and anyone in Russia who has observed the small fanner's life and the conditions under which he farms must have seen this.

How then can the Communist Party recognize freedom to trade and accept it? Does not the proposition contain irreconcilable contradictions? The answer is that the practical solution of the problem naturally presents exceedingly great difficulties. I can foresee, and I know from the talks I have had with some comrades, that the preliminary draft on replacing surplus-grain appropriation by a tax-it has been handed out to you-gives rise to legitimate and inevitable questions, mostly as regards permitting exchange of goods within the framework of local economic turnover. Ibis is set forth at the end of Point 8. What does it mean, what limits are there to this exchange, how is it all to be implemented? Anyone who expects to get the answer at this Congress will be disappointed. We shall find the answer in our legislation; it is our task to lay down the principle to be followed and provide the slogan. Our Party is the government party and the decision the Party Congress passes will be obligatory for the entire Republic: it is now up to us to decide the question in principle. We must do this and inform the peasantry of our decision, for the sowing season is almost at hand. Further we must muster our whole administrative apparatus, all our theoretical forces and all our practical experience, in order to see how it can be done, Can it be done at all, theoretically speaking: can freedom of trade, freedom of capitalist enterprise for the small farmer, be restored to a certain extent without undermining the political power of the proletariat? Can it be done? Yes, it cart, for everything hinges on the extent. If we were able to obtain even a small quantity of goods and hold them in the hands of the state--the proletariat exercising political power--and if we could release these goods into circulation, we, as the state, would add economic power to our political power. Release of these goods into circulation would stimulate small farming, which is in a terrible state and cannot develop owing to the grievous war conditions and the economic chaos. The small farmer, so long as he remains small, needs a spur, an incentive that accords with his economic basis, i.e., the individual small farm. Here you cannot avoid local free exchange. If this turnover gives the state, in exchange for manufactured goods, a certain minimum amount of grain to cover urban and industrial requirements, economic circulation will be revived, with state power remaining in the hands of the proletariat and growing stronger. The peasants want to be shown in practice that the worker who controls the mills and factories-industry--is capable of organizing exchange with the peasantry. And, on the other hand, the vastness of our agricultural country with its poor transport system, boundless expanses, varying climate, diverse farming conditions, etc., makes a certain freedom of exchange between local agriculture and local industry, on a local scale, inevitable. In this respect, we are very much to blame for having gone too far; we overdid the nationalization or industry and trade, clamping down on local exchange of commodities. Was that a mistake? It certainly was.

In this respect we have made many patent mistakes, and it would be a great crime not to see it, and not to realize that we have failed to keep within bounds, and have not known where to stop. There has, of course, also been the factor of necessity-until now we have been living in the conditions of a savage war that imposed an unprecedented burden on us and left us no choice but to take war-time measures in the economic sphere as well. It was a miracle that the ruined country withstood this war, yet the miracle did not come from heaven, but grew out of the economic interest of the working class and the peasantry, whose mass enthusiasm created the miracle that defeated the landowners and capitalist. But at the same time it is an unquestionable fact that we went further than was theoretically and politically necessary, and this should not be concealed in our agitation and propaganda. We can allow free local exchange to an appreciable extent, without destroying, but actually strengthening the political power of the proletariat. How this is to be done, practice will show. I only wish to prove to you that theoretically it is conceivable. The proletariat, wielding state power, can, if it has any reserves at all, put them into circulation and thereby satisfy the middle peasant to a certain extent--on the basis of local economic exchange.

Now a few words about local economic exchange. First of all. the cooperatives. They are now in an extreme state of decline, but we naturally need them as a vehicle of local economic exchange. Our Program stresses that the cooperatives left over from capitalism are the best distribution network and must be preserved. That is what the Program says. Have we lived up to this? To a very slight extent, if at all, again partly because we have made mistakes, partly because of the war-time necessity. The co-operatives brought to the fore the more business-like, economically more advanced elements, thereby bringing out the Mensheviks and Socialist-Revolutionaries in the political sphere. This is a law of chemistry-you can't do anything about it! (Laughter.) The Mensheviks and Socialist Revolutionaries arc people who either consciously or unconsciously work to restore capitalism and help the Iudeniches. This too is a law. We must fight them. And if there is to he a fight, it must be done the military way; we had to defend ourselves, and we did. But do we have to perpetuate the present situation? No, we do not. It would be a mistake to tic our hands in this way. Because of this I submit a resolution on the question of the cooperatives; it is very brief and I shall read it to you:

"Whereas the resolution of the Ninth Congress of the RCP on the cooperatives is based entirely on the principle of surplus-grain appropriation, which is now superseded by a tax in kind, the Tenth Congress of the RCP resolves:

"That the said resolution be rescinded.

The Congress instructs the Central Committee to draw up and carry out through Party and Soviet channels decisions to improve and develop the structure and activity of the cooperatives in conformity with the Program of the RCP and with a view to substituting the tax in kind for the surplus-grain appropriate system.

You will say that this is rather vague. Yes, it is, and should necessarily be so to some extent. Why necessarily? Because if we are to he absolutely definite, we must know exactly what we are going to do over the year ahead. Who knows that? No one.

But the resolution of the Ninth Congress tics our hands by calling for "subordination to the Commissariat for Food." This is a fine institution. but it would be an obvious political mistake to subordinate the co-operatives to it and to no other, and to tie our hands at a time when we are reviewing our attitude to the small farmers. We must instruct the newly elected Central Committee to elaborate and carry out definite measures and changes, and to chock up on every step we take forward or back-to what extent we must act, how to uphold our political interest, how much relaxation there must be to make things easier, how to check up on the result-, of our experience. Theoretically speaking, in this respect we are facing a number of transitional stages, or transitional measures. One thing is clear the resolution of the Ninth Congress assumed that we would be advancing in a straight line, but it turned out, as has happened again and again throughout the history Of revolutions, that the movement took a zigzag course. To tic one's hand-, with such a resolution would be a political mistake. Annulling it. we say that we must be guided by our Program, which stresses the importance of the co-operative machinery.

As we annul the resolution, we say: work with a view to replacing surplus-grain appropriation by a tax. But when are we to do this? Not before the harvest, that is, in a few months' time. Will it be done the same way everywhere? In no circumstances. It would be the height of stupidity to apply the same pattern to central Russia, the Ukraine, and Siberia. I propose that this fundamental idea or unrestricted local exchange be formulated as a decision of this Congress. I presume that following this decision the Central Committee will without fail send out a letter within the next few days and will point out-doing it better than I can do here (we shall find the best writers to polish up the style)--that there are to be no radical changes, no undue haste, or snap decisions, and that things should be done so as to give maximum satisfaction to the middle peasantry without damaging the interests of the proletariat. Try one thing and another, study things in practice, through experience, then share your experience with us, and let us know what you have managed to do, and we shall set up a special commission or even several commissions to consider the experience that has been accumulated. I think we should issue a special invitation to Comrade Preobrazhenskii, the author of Paper Money in the Epoch of the Proletarian Dictatorship. This is a highly important question. for money circulation is a splendid test of the state of commodity circulation in the country-, when it is unsatisfactory, money is not worth the paper it is printed on. In order to proceed on the basis of experience, we must check and recheck the measures we have adopted.

We shall be asked where the goods are to come from, for unrestricted trade requires goods, and the peasants are shrewd people and very good at scoffing. Can we obtain any goods now? Today we cam for our international economic position has greatly improved. We are waging a fight against the international capitalist-, who, when they were first confronted by this Republic, called us "brigands and Crocodiles" (I was told by an English artiste that she had heard these very words spoken by one of the most influential politicians). Crocodiles are despicable. That was the verdict of international capital. It was the verdict of a class enemy and quite correct from his point of view. However, the correctness of such conclusions has to be verified in practice. If you are world capital--a world power--and you use words like "crocodile" and have all the technical means at your disposal, why not try and shoot it! Capital did shoot-and got the worst of it. It was then that the capitalists. who are forced to reckon with political and economic realities, declared: "We must trade." This is one of our greatest victories. Let me tell you that we now have two offers of a loan to the amount of nearly one hundred million gold rubles. We have gold, but you can't sell gold, because you can't cat it. Everybody has been reduced to a state of impoverishment, currency relations between all the capitalist countries are incredibly chaotic as a result or the war. Moreover, you need a merchant marine to communicate with Europe, and we have none. It is in hostile hands. We have concluded no treaty with France-, she considers that we are her debtors and, consequently. that every ship we have is hers.

They have a navy and we have none. In these circumstances we have so far been in a position to make use of our gold on a limited and ridiculously insignificant scale. Now we have two Offers from capitalist banker-, to float a loan or one hundred million. Of course. they will charge us an exorbitant rate of interest. Still it is their first offer of this kind; so far they have said: "I'll shoot you and take everything for nothing." Now, being unable to shoot us, they are ready to trade with us. Trade agreements with America and Britain can now be said to be almost in the bag; the same applies to concessions. Yesterday I received another letter from Mr. Vanderlip, who is here and who, besides numerous complaints, sets forth a whole series of plans concerning concessions and a loan. He represents the shrewdest type of finance capitalist connected with the Western States of the USA, those that are more hostile to Japan. So it is economically possible for us to obtain goods. How we shall manage to do it is another question, but a certain possibility is there.

I repeat, the type of economic relations which on top looks like a bloc with foreign capitalism makes it possible for the proletarian state power to arrange for free exchange With the peasantry below. I know-and I have had occasion to say this before--that this has evoked some sneers. There is a whole intellectual-bureaucratic stratum in Moscow, which is trying to shape "public opinion." "See what communism has come to!" these people sneer. "It's like a man on crutches and face all bandaged up-nothing but a picture puzzle." I have heard enough of gibes of this kind-they are either bureaucratic or just irresponsible. Russia emerged from the war in a state that can most of all be likened to that or a man beaten to within an inch of his life, the beating had gone on for seven years, and it's a mercy she can hobble about on crutches! That is the situation we are in! To think that we can get out of this state without crutches is to understand nothing! So long as there is no revolution in other countries, it would take us decades to extricate ourselves, and in these circumstances we cannot grudge hundreds of millions' or even thousands of millions' worth of our immense wealth, our rich raw material sources, in order to obtain help from the major capitalists. Later we shall recover it all and to spare. The rule of the proletariat cannot be maintained in a country laid waste as no country has ever been before--a country where the vast majority are peasant,; who are equally ruined-without the help of capital, for which, of course, exorbitant interest will be extorted. This we must understand. Hence, the choice is between economic relations of this type and nothing at all. He who puts the question otherwise understands absolutely nothing in practical economics and is side-stepping the issue by resorting to gibes. We must recognize the fact that the masses are utterly worn-out and exhausted. What can you expect after seven years of war in this country, if the more advanced countries still feel the effects of four years of war?!

In this backward country, the workers, who have made unprecedented sacrifices, and the mass of the peasant,; are in a state of utter exhaustion after seven years of war. This condition borders on complete loss or working capacity. What is needed now is an economic breathing space. We had hoped to use our gold reserve to obtain some means of production, It would be best of all to make our own machines, but even if we bought them, we would thereby build up our industry. To do this, however, you must have a worker and a peasant who can work; yet in most cases they are in no condition for it, they are exhausted. worn-out. They must be assisted, and contrary to our old Program the gold reserve must be used for consumer goods. That Program was theoretically correct, but practically unsound. I shall pass on to you some information I have here from Comrade Lezhava. It shows that several hundred thousand poods of various items of food have already been bought in Lithuania, Finland, and Latvia and are being shipped in with the utmost speed. Today we have learned that a deal has been concluded in London for the purchase or 18,500,000 poods of coal, which we decided to buy in order to revive the industry of Petrograd and the textile industry. If we obtain goods for the peasant, it will, of course, be a violation of the Program, an irregularity, but we must have a respite, for the people are exhausted to a point where they are not able to work.

I must say a few words about the individual exchange of commodities. When we speak of free exchange, we mean individual exchange of commodities, which in turn means encouraging the kulaks. What arc we to do? We must not close our eyes to the fact that the switch from the appropriation of surpluses to the tax will mean more kulaks under the new system. They will appear where they could not appear before. This must not be combated by prohibitive measures but by association under state auspices and by government measures from above. If you can give the peasant machines you will help him grow, and when you provide machines or electric power. tens or hundreds of thousands of small kulaks will be wiped out. Until you can supply all that, you must provide a certain quantity of goods. If you have the goods. you have the power; to preclude deny or renounce any such possibility means making all exchange unfeasible and not satisfying the middle peasant, who will be impossible to get along with. A greater proportion of peasants in Russia have become middle peasants, and there is no reason to fear exchange on an individual basis. Everyone can give something in exchange to the state: one, his grain surplus; his garden produce; a third, his labor. Basically the situation is this: we must satisfy the middle peasantry economically and go over to free exchange; otherwise it will be impossible--economically impossible-in view of the delay in the world revolution, to preserve the rule of the proletariat in Russia. We must clearly realize this and not be afraid to say it. In the draft decision to substitute a tax in kind for the surplus appropriation system (the text has been handed out to you) you will rind many discrepancies, even contradictions, and that is why we have added these words at the end: "The Congress, approving in substance the propositions submitted by the Central Committee to substitute a tax in kind for surplus-grain appropriation, instructs the Central Committee of the Party to coordinate these propositions with the utmost dispatch." We know that they have not been coordinated, for we had no time to do so. We did not go into the details. The ways or levying the tax in practice will be worked out in detail and the tax implemented by a law issued by the All Russia Central Executive Committee and the Council of People's Commissars. The procedure outlined is this: if you adopt the draft today, it will he given the force of a decision at the very first session of the All-Russia Central Executive Committee, which will not issue a law either, but modified regulations; the Council of People's Commissars and the Council of Labor and Defense will later make them into a law, and, what is still more important, issue practical instructions. It is important that people in the localities should understand the significance of this and help us.

Why must we replace surplus appropriation by a tax? Surplus appropriation implied confiscation of all surpluses and establishment of a compulsory state monopoly. We could not do otherwise, for our need was extreme. Theoretically speaking, state monopoly is not necessarily the best system from the standpoint of the interests of socialism. A system of taxation and free exchange can be employed as a transitional measure in a peasant country possessing an industry--if this industry is running--and if there is a certain quantity of goods available.

The exchange is an incentive, a spur to the peasant. The proprietor can and will surely make an effort in his own interest when he knows that all his surplus produce will not be taken away from him and that he will only have to pay a tax, which should whenever possible he fixed in advance. The basic thing is to give the small fanner an incentive and a spur to till the soil. We must adapt our state economy to the economy or the middle peasant, which we have not managed to remake in three years, and will not be able to remake in another ten.

The state had to face definite responsibilities in the sphere of food. Because of this the appropriation quotas were increased last year. The tax must be smaller. The exact figures have not been defined, nor can they be defined. Popov's booklet. Grain Production of the Soviet and Federated Republics, gives the exact data issued by our Central Statistical Board and shows why agricultural production has fallen off.

If there is a crop failure, surpluses cannot be collected because there will be none. They would have to be taken out of the peasants' mouths. If there is a crop, everybody will go moderately hungry and the state will be saved. or it will perish, unless we take from people who do not eat their fill as it is. This is what we must make clear in our propaganda among the peasants. A fair harvest will mean a surplus of up to five hundred million poods. This will cover consumption and yield a certain reserve. The important thing is to give the peasants an economic incentive. The small proprietor must be told: "It is your job as a proprietor to produce, and the state will take a minimum tax."

My time is nearly up, I must close; I repeat: we cannot issue a law now. The trouble with our resolution is that it is riot sufficiently legislative-laws are not written at Party congresses. Hence we propose that the resolution submitted by the CC be adopted as a basis and that the CC be instructed to coordinate the various propositions contained in it. We shall print the text of the resolution and Party officials in the various localities will try to coordinate and correct it. It cannot be coordinated from beginning to end; this is an insoluble problem, for life is too varied. To find the transitional measures is a very difficult task. If we are unable to do this quickly and directly, we must not lose heart, for we shall win through in the end. No peasant with the slightest glimmer of political consciousness will fail to understand that we, as the government, represent the working class and all those working people with whom the laboring peasants (and they make up nine-tenths of the total) can agree, that any turn back will mean a return to the old, tsarist government.

Source: V. I. Lenin, Collected Works (New York: International Publishers, 1934), Vol. XXXII, pp. 214-228.