Lenin Announces the New Economic Policy

The New Economic Policy changed the implementation of communism, allowing more private entrepreneurship and giving greater incentives to individual farmers and businesspeople.

Summary of Event

In early 1921, the Soviet economy was in a deep crisis. Forced collections of grain and centralized control of the economy helped the Red Army fight its enemy, but such tough measures led to widespread discontent among peasants, workers, and soldiers. Bolshevik leader Vladimir Ilich Lenin was forced to reject what was known as War Communism. War Communism In March, 1921, Lenin persuaded his colleagues Joseph Stalin, Nikolay Ivanovich Bukharin, Grigory Yevseyevich Zinovyev, and others to adopt the New Economic Policy (NEP) in an attempt to stabilize the economy and to consolidate the Soviet regime. The NEP represented a retreat from radical policy. It reduced centralized control of the economy and gave farmers and small businesses access to the market. As a result, it helped Soviet economic recovery following the Russian Civil War. The NEP lasted for about seven years. It was finally rejected by Stalin in 1928, when he imposed an authoritarian central planning system. New Economic Policy
Communism;Soviet Union
Soviet Union;New Economic Policy
[kw]Lenin Announces the New Economic Policy (Mar., 1921)
[kw]New Economic Policy, Lenin Announces the (Mar., 1921)
[kw]Economic Policy, Lenin Announces the New (Mar., 1921)
New Economic Policy
Communism;Soviet Union
Soviet Union;New Economic Policy
[g]Russia;Mar., 1921: Lenin Announces the New Economic Policy[05390]
[c]Government and politics;Mar., 1921: Lenin Announces the New Economic Policy[05390]
[c]Economics;Mar., 1921: Lenin Announces the New Economic Policy[05390]
Lenin, Vladimir Ilich
[p]Lenin, Vladimir Ilich;New Economic Policy
Stalin, Joseph
Bukharin, Nikolay Ivanovich
Zinovyev, Grigory Yevseyevich
Tomsky, Mikhail
Trotsky, Leon

Vladimir Ilich Lenin addresses a gathering in Petrograd in 1922.

(Library of Congress)

In the early twentieth century, the Russian economy was predominantly agricultural rather than industrial, thus the treatment of peasants was a vital issue for any regime. When the Bolsheviks seized power after the October Revolution (1917), October Revolution (1917) they had few specific plans concerning direction of the economy. Early economic measures amounted to little more than recognition of de facto developments. Nationalization of the land, the first measure, in effect recognized real peasant possession. Similarly, the decree on workers’ control accepted that many factories had been taken over by workers. In December, 1917, the Supreme Economic Council Supreme Economic Council was created, marking a significant step in establishing central control over the economy. The land decree became law in January, 1918. Under its provisions, land was to be in possession of those who used it. This was not a socialist measure but one that recognized the traditional Russian concept of ownership.

The seizure of power in the capital by the Bolsheviks was relatively peaceful, but the consolidation of power was a violent and difficult process. Civil war Russian Civil War (1918-1921) broke out in 1918 and lasted until 1921. The period of the civil war ushered in a new form of economic organization that became the precedent for a command economy. The demands of war gradually called forth more and more central control. Nationalization was extended to all industrial enterprises, trade was outlawed, and money essentially lost all its value. Market mechanisms were replaced by administrative orders. The main problem was securing food supplies for towns and for the army. A state grain monopoly had been introduced in February, 1918, but this proved unworkable as the money paid to peasants in return for their produce was virtually useless.

In May, 1918, a decree on grain control was issued with urgency. This decree called for compulsory delivery of all surpluses, over and above subsistence needs and seed, to the state. Any concealment could lead to seizure without payment. Specific provision was made in the decree for the use of armed force if necessary. Clearly, the Soviet government was attacking the peasantry, although the attack was nominally only against rich peasants and participants in the black market. Armed workers and political police became involved in the collection of grain.

The basis of War Communism was the compulsory seizure of foodstuffs and their distribution without the market mechanism. The policy perhaps helped to win the war by keeping the army fed at least minimally, but it had negative consequences. Peasants reduced their planting to meet only their consumption needs, did their utmost to conceal their reserves from the requisitioning authorities, and occasionally responded to seizures with violent attacks on food collectors. Not only were peasants alienated by this policy, but a sharp decline in production also ensued.

Agricultural production fell by about 40 percent. Sown area was reduced, in passive response to grain seizure, by 34 percent from 1917 to 1920. Compared with production in 1913, yields of the major grains had fallen by more than 25 percent by 1920. Industrial production fell by 70 percent between 1913 and 1921, and that of heavy industry by nearly 80 percent. Coal extraction fell by 77 percent between 1913 and 1920. The results were serious famine and supply shortages. By the winter of 1920-1921, the civil war had essentially ended, and perhaps for this reason the resentment of the workers and peasants about the standard of living became stronger. The country witnessed a swelling tide of sporadic peasant uprisings; police counted 118 in February of 1921. Revolt was threatened in the countryside and workers rioted in the streets of Petrograd (St. Petersburg’s new name). In March, 1921, sailors at the major naval base in Kronstadt Kronstadt rebellion mutinied, calling for economic reform and political change. There was urgent need for reform. In the same month as the Kronstadt rebellion, the Tenth Party Congress approved the ending of War Communism.

The economy of the Soviet Union was in ruins. Seven years of war and civil war had produced catastrophe. In 1921, industrial production stood at 13 percent of prewar volume. The grain harvest had fallen from 74 million tons in 1916 to 30 million tons in 1919 and continued to decline. At the Tenth Party Congress in March, 1921, Lenin announced a series of measures that collectively became known as the New Economic Policy. The most important reversal of policy was the abandonment of forced requisitions in favor of a tax in kind that left peasants free to dispose of any surpluses that remained after the tax assessment had been met. The in-kind tax represented a determined effort to win back the favor of the peasantry. In order to persuade peasants to part with their surpluses, incentives had to be provided in the form of increased supplies of consumer goods. This made a revival of industrial production imperative.

Over the following months, the regime moved to restore private trade and to permit the establishment of small private industries and industrial cooperatives, in the hope that they could readily increase the flow of consumer goods. New enterprises were promised freedom from nationalization. Small enterprises that had been nationalized were leased to their former owners or industrial producers’ cooperatives for fixed terms, with the provision that rents were to be paid in the form of a definite proportion of the output of the enterprise. In 1922, Lenin further allowed operation of small private farms as a means of adding to food production. Peasants were permitted to lease land and hire labor, although both the purchase and the sale of land were still prohibited.

Under the NEP, nearly twenty-five million peasants were permitted to farm their holdings on legally nationalized land and sell their produce after paying a tax to the state. Small-scale entrepreneurs were given a free hand in light industry and in the service trades. Small traders carried on the functions of buying and selling, sometimes through private trading concerns of their own, sometimes concealed as cooperatives, and not infrequently as official agents of the state trading organizations themselves. Although the food tax was prompted by basically political motives, it initiated the revival of the economy. The law provided that a peasant must pay the government a tax in kind consisting of a certain percentage, varying somewhat from region to region, of farm production. The peasant could then dispose of the remainder on the free market. In 1922, the tax was fixed at a standard 10 percent. By the Fundamental Law on the Exploitation of Land by the Workers, enacted in May, 1922, the government guaranteed peasants freedom of choice of land tenure. Land could be held individually, communally, or in other ways. Villagers thus were permitted, within rather broad limits, to manage their own economic lives as they saw fit.

Most of the land taken during the revolution was redistributed through peasant communes. The 1922 land code recognized the legal position of the land society, which in nearly all cases was the same as the traditional village commune. The land society was a community of households, usually within the same village, that performed an administrative function, exercised control over land use, and generally governed the farming program. The commune or land society organization became more extensive in the NEP period. Land formerly the property of the czarist state was for the most part taken over by land societies. In 1926, 83.4 percent of such land in the central industrial region and 61.7 percent in the central agricultural region was in land societies.

Under the New Economic Policy, private enterprise was encouraged, within set limitations, in the areas of agriculture, domestic trade, light industries, and public services. The state, however, retained its monopoly over the so-called commanding heights: banking, heavy industries, transportation and communication, and foreign trade. Small businesses were granted a measure of economic freedom. Entrepreneurs were permitted to resume management of smaller concerns, to hire labor, and to trade more freely with the goods produced. The new class of small urban capitalists, however, suffered social pressures from which the peasants were exempt. It was difficult for them to obtain credit at banks, the rents on their apartments were often higher than their neighbors’, and their children had to pay higher tuition fees at schools. Many of them expressed their suspicion that their situation was precarious and temporary by free spending and high living, taking advantage of liberties while they existed. The new era of “free enterprise” benefited not only the peasants and small-business owners but also individual workers. Trade unions, organized under the leadership of Mikhail Tomsky, were permitted to strike against the private capitalists. It was thought necessary that they be allowed to strike against state enterprises as well, even though they were urged not to do so and were reminded that by doing so they were by definition striking against themselves.


The most important impact of the New Economic Policy was the transformation of state-market and state-society relations. Specifically, the Soviet state no longer saw all market relations as negative. The main features of the NEP were the abandonment of forced requisitions in agriculture and the substitution for them of a tax in kind, the toleration of private ownership in trade and small-scale industry, and the attempt to entice foreign capitalists into the Soviet Union in order to acquire their badly needed skills and capital. Replacing the policy of forced acquisition of grain with the tax in kind enabled farmers to sell their surplus food, giving a degree of market freedom to farmers. By allowing the operation of small private farms, the Soviet regime sought reconciliation with the peasantry. Many scholars have viewed the period of the NEP (1921-1928) as a relatively free period for agricultural and business activities under the Soviet government.

Under the new dispensation, the economy began to revive. Lenin told rank-and-file Communists to “master trade.” State industries and state farms were commanded to show a profit and to operate on commercial principles. Financial stability was slowly recovered. By the end of 1922, a third of government revenue was coming from the food tax, another third from a variety of direct money taxes, and the final third from the issuance of bank notes. The New Economic Policy restored a considerable measure of capitalism to the Soviet economy, particularly in agriculture and trade. Lenin’s idea was that by this strategic retreat the Communist Party could keep control of the country but stimulate its recovery from the destruction and disorganization of the war years. Once the pressing problem of getting the economy functioning again was solved, the party could then resume its advance toward socialism.

Internal trade was conducted by state trading organs (which were relatively few), private traders, and cooperatives. Cooperative trading bodies were actively encouraged by the government and became relatively successful in the sale of consumer goods in rural areas. State-controlled trade was confined primarily to wholesale trade in urban areas. In Moscow in 1922, 83 percent of retail trade was in private hands and only 7 percent in state hands, whereas 77 percent of wholesale trade was handled by the state. In the NEP period, agriculture developed along capitalistic lines. The peasants paid taxes that, with the passage of time, became more and more monetary taxes rather than in-kind taxes. The land belonged to the state, but the peasants did what they saw fit with it. In seven years, agriculture reached levels that were unsurpassed in prerevolutionary Russian history. These levels would never again be reached in the Soviet system under the increasingly repressive agricultural policies pursued by Joseph Stalin. New Economic Policy
Communism;Soviet Union
Soviet Union;New Economic Policy

Further Reading

  • Campbell, Robert. Soviet Economic Power. 2d ed. Boston: Houghton Mifflin, 1966. Provides a concise introduction to the Soviet economy with critical analysis.
  • Carr, E. H. The Bolshevik Revolution, 1917-1923. Vol. 2. Baltimore: Penguin Books, 1966. A treatment known for its admiration for Lenin, who is portrayed as always being abreast of developments in the Soviet Union and ready with correct “realistic” action.
  • Davies, R. W. The Socialist Offensive: The Collectivization of Soviet Agriculture, 1929-30. Cambridge, Mass.: Harvard University Press, 1980. The authoritative study of the sources, process, and consequences of Soviet agricultural collectivization.
  • Dziewanowski, M. K. “From War Communism to the New Economic Policy.” In A History of Soviet Russia. Englewood Cliffs, N.J.: Prentice Hall, 1989. A basic historical introduction to the background, policies, and impact of NEP on Soviet economics, politics, and culture.
  • Fitzpatrick, Sheila, Alexander Robinowitch, and Richard Stites, eds. Russia in the Era of NEP: Explorations in Soviet Society and Culture. Bloomington: Indiana University Press, 1991. Examines the social and cultural background of the New Economic Policy.
  • Hosking, Geoffrey. The First Socialist Society: A History of the Soviet Union from Within. Cambridge, Mass.: Harvard University Press, 1985. Highlights major events in the history of the Soviet Union.
  • Hough, Jerry F., and Merle Fainsod. How the Soviet Union Is Governed. Cambridge, Mass.: Harvard University Press, 1979. This influential text examines the development of the Soviet political and economic system, with an emphasis on the policy process.
  • Hutchings, Raymond. Soviet Economic Development. 2d ed. Oxford, England: Basil Blackwell, 1982. A comprehensive introduction to the Soviet economy and the forces that promoted or retarded its development until the late 1960’s.
  • Nove, Alec. An Economic History of the U.S.S.R., 1917-1991. New York: Penguin Books, 1992. Detailed economic history of the Soviet economy includes several chapters that discuss the NEP. Useful account of the conditions that spawned the NEP and the mounting opposition to the policy after Lenin’s death. Cites many primary sources.
  • _______. The Soviet Economic System. London: George Allen & Unwin, 1977. An authoritative examination of the origins, nature, and process of the Soviet economic system, by one of the world’s leading experts on the Soviet economy.
  • Pipes, Richard. “NEP: The False Thermidor.” In Russia Under the Bolshevik Regime. New York: Alfred A. Knopf, 1997. A critic of the Soviet system, Pipes argues that NEP was a tactical retreat designed to save the Bolshevik government from the chaos of War Communism. Also provides an account of the famine of the early 1920’s and the effect of NEP on Soviet foreign policy of the period.
  • _______, ed. The Unknown Lenin: From the Secret Archive. New Haven, Conn.: Yale University Press, 1999. Provides interpretations of more than one hundred documents from secret Lenin papers never before published in English.
  • Treadgold, Donald W. Twentieth Century Russia. 6th ed. Boulder, Colo.: Westview Press, 1987. Presents essential historical background for understanding the Soviet economy and society.

Bolsheviks Suppress the Russian Orthodox Church

Russian Communists Inaugurate the Red Terror

Lenin Leads the Russian Revolution

Russian Civil War

Famine in Russia Claims Millions of Lives

Stalin Introduces Central Planning

Stalin Begins the Purge Trials