 So now it's my pleasure to present Robert Wenzel, who will present the Henry Haslett Memorial Lecture sponsored by James A. Rodney. Bob Wenzel is one of my favorite economics bloggers. He has worked on Wall Street for over 30 years as a research analyst for various hedge funds. He currently has his own advisory company through which he advises corporations and high net individuals on trends in the economy. Wenzel also writes a daily blog, economicpolicyjournal.com, which I highly recommend, which he founded in 2008. From a libertarian and Austrian school economic perspective at EPJ, he comments on trends in the economy and liberty. He is well known for his forecast in real time of the Great Recession and his accurate early 2005 warning about the developing housing bubble. He has been quoted in the New York Times, The Wall Street Journal, Forbes, and many other media outlets. Bob has received a claim across the political spectrum, from Treasury Secretary Robert Rubin to Ron Paul. Wenzel has featured such guests as Jesse Ventura, Oliver Stone, and Jim Rogers on his weekly internet radio broadcast, The Robert Wenzel Show. He also writes the EPJ Daily Alert, which provides daily commentary via email for investors and businessmen with regard to the trends in the economic and financial world. So I present to you Robert Wenzel. I want to thank Dr. Joseph Solano and the others involved with organizing the Austrian Economics Research Conference for inviting me. And I would also like to thank Mr. James Rodney, who is the sponsor of this lecture. I believe Henry Haslitt is one of the most underrated economists of all time. His book, The Failure of the New Economics, is a page by page refutation of the general theory. It completely destroys Keynesian economics. Read this book and you will understand everything that is wrong with Keynesian theory. You will be able to debate Krugman on radio, TV, anywhere after you read the book. In a private review of the book, Mario Rothbard wrote, I went through this book with great and particular care, with the general theory at my elbow, looking for flaws but could find none. Haslitt's classic book, Economics in One Lesson, was first published more than 50 years ago in 1961. Yet it still ranks as a top bestseller. It ranks as number 13 in the category Popular Economics. It ranks as number 19 on Amazon under Economics and number 28 under Accounting and Finance. That's 50 years after it was originally published. It is today still in the top 1,300 bestsellers at Amazon overall. I'm counting all books here, fiction, non-fiction, diet books, personal health books, et cetera. Let me put this in perspective. In the year 2010, there were 328,259 books that were published in the United States. Google estimates that as of August 2010, there were 129,864,880 books published. That means Economics in One Lesson after 50 years is in the top 100,000th of 1% of all books published. Haslitt was simply brilling it at exploding economic myth and doing it in a way that can easily be understood by any thinking person that picks up and reads his books. He was a giant. Here today, I'm not going to try and go anywhere near the turf Haslitt covered, but in the spirit of Haslitt's exploding of myths, I'm going to focus my attention on the Soviet Union and its collapse and the myths surrounding the collapse. I want to talk today about a period in Eastern European history that was very gray, brutal, and evil, a period of bad economics, much misery, and a massive human slaughter. I will cover the entire life of the Soviet Union, but it will not be a story about the rise and fall of the Soviet Union, but rather the seven decades plus decline of the Soviet era. From start to finish, there was no good time. It was all bad. Median in the United States and Great Britain hold the belief that the collapse of the Soviet Union was the result of some great battle between a capitalist government, the United States, and a communist government, the Soviet Union. The way the story goes is that President Ronald Reagan, the supposed great communist fighter, raised defense spending in the United States in that the communist system collapsed because of the U.S. defense buildup. The story is pure myth. From the United States perspective, David Stockman has a new book coming out called The Great Deformation, The Corruption of Capitalism in America. It will be out next week. I was able to get an advanced copy and he gives a very good perspective on what's going on from the U.S. period at that time when Reagan was president. He writes, and I quote, The idea that Reagan, that the Reagan defense buildup somehow spent, sent the Soviet Union into collapse is a legend of remarkable untruth. The pre-existing nuclear balance of terror never really changed during the 1980s, and the United States spent no serious money to threaten the evil empire. The Soviet leadership did end up feeling beleaguered and imperiled, but it was due to the epical economic failure of an ossified state socialism, not the new U.S. armada of conventional ships, tanks, and planes. Indeed, the original notion that the Soviet Union was bent on developing global superiority and the nuclear war-winning capability was never plausible. Even at the time, there was no evidence to support it, and it was embraced by no more than a tiny vocal minority of the national security community. At the heart of the Reagan defense buildup, there was a great double shuffle. The war drums were surrounding a strategic nuclear threat that virtually imperiled American civilization. Yet the money was actually being allocated to tanks, amphibious landing craft, close air support helicopters, and a vast conventional amada of ships and planes. These weapons were of little use in the existing nuclear standoff, but were well suited to imperialistic missions of invasion and occupation. Ironically, therefore, the Reagan defense buildup was justified by an evil empire that was rapidly fading, but was eventually used to launch elective wars against an axis of evil which didn't even exist. End of quote. So Stockman, it should be pointed out, was manager of the office of management in budget for a large period of the Reagan administration. So he knew the numbers, he knew what was going on there, he saw where the money was spent. It's a myth, even from the defense buildup point of view that the United States somehow built up its strategic defense initiative to battle the Soviets. Those who have promoted the view that it was Reagan who somehow massively crushed the Soviet Union include the attorney general under Reagan, Ed Meese, who argued that the sheer expense of SDI collapsed the Soviet system. In a paper titled, this is Meese's paper, Ronald Reagan's presidency caused the collapse of the Soviet Union hero. Quote, former British Prime Minister Margaret Thatcher knew Gorbachev and Reagan well. She said, Gorbachev was a man we could do business with, but she didn't credit him with the collapse of communism. That honor was due to Ronald Reagan whose foreign policy accomplishments she summed up at a 1991 heritage fund dinner in Washington. He won the Cold War without firing a shot. But here again what we have is this framing by Meese and by Thatcher that it was a battle of governments that somehow the US government defeated the Soviet Union, which I will show here is a complete myth. Most recently the myth was given new life when Senator Rand Paul told us in a foreign policy speech just weeks ago at the Heritage Foundation that I quote, the Cold War ended because the engine of capitalism defeated the engine of socialism. So Rand is giving us the impression a government battle was going on. His words can be interpreted in many ways, it's the way he generally writes, but certainly one implication you could get from that is that it was this battle between governments. On the flip side, we now have reports from the CIA with regard to Soviet defense spending. According to the CIA, the Soviet Union's defense spending did not rise or fall in response to any American military expenditures. Revised estimates by the CIA indicate that Soviet expenditures on defense remained more or less constant throughout the 1980s. Neither the military buildup on the Jimmy Carter and Reagan nor SDI had any real impact on gross spending levels in the Soviet Union. So what was really going on in the Soviet Union? Ralph Ratio writes that it was an ideological battle that took place in the Soviet Union versus the United States, even if you sort of want to put it a battle, it really wasn't. It was the United States living under free market conditions and the Soviet Union living under essentially plan. Reiko writes, like the United States, the Soviet Union is a nation founded on a distinct ideology. The Soviet Union was founded on a very different ideology from the United States, Marxism as understood and interpreted by Lenin. Marxism with its roots in Hegelian philosophy was a quite conscious revolt against the individual right doctrine of the previous century. The leaders of the Bolshevik Party, which changed its name to the Communist Party in 1918, were virtually all revolutionary intellectuals. In accordance with the strategy set forth by Lenin in his 1902 work, What Is To Be Done? There were avid students of the works of Marx and Engels published in their lifetimes and shortly thereafter and known to the theater, the iterations of the Second International. The Bolshevik leaders view themselves as the executors of the Marxist program, as those whom history had called upon to realize the apocalyptic transition to communist society foretold by the founders of their faith. Close quote. There's a lesson here. It's about ideas, ideas whether they're good or bad. When you have bad ideas, bad things can happen and that's what started with the Soviet Union. I will show in my talk that the Soviet perspective here caused the collapse and it had nothing to do with Reagan's military but buildup. It had little to do with any battle between capitalism and socialism at the government level. It had everything to do with terrible conditions within the Soviet Union as a result of their adoption of a Marxist-Leninist, essentially planned economy. The collapse of the Soviet Union should have come as no surprise to anyone who understood basic economics, especially Austrian economics. The great economist Ludwig von Mises wrote in 1920 in his book Economic Calculation and the Socialist Commonwealth that precisely because there are no free market prices in the socialist economy, that rational economic activity is impossible in a socialist Commonwealth. You just can't calculate under socialism. He said, it's plan of future social order proves to be inwardly contradictory and therefore impractical. Not only would socialism fail to make economic life more rational, it would abolish social cooperation outright. Close quote. The economist Peter Betke and Christopher Coyne in a 2004 paper wrote that, quote, Murray Rothbard in writing in the 1950s and 60s anticipated all the major subsequent developments in the economic analysis regarding the problems of the Soviet economy. Betke and Coyne put Rothbard's view this way. Socialism is not impractical, it is impossible. The idea is intellectually bankrupt from the get-go. But if we had all these warnings and theories about a collapse of the Soviet Union, how was it that the final collapse did not take place until more than 70 years after the creation of the Soviet Union? The answer comes in four parts. The existence of what Ludwig von Mises called the reserve fund outside assistance to the Soviet Union, black markets and the mass murder of tens of millions. Please allow me to start with the reserve fund. Mises wrote in Human Action that there exists a reserve fund from which government leeches from the productive sector. He wrote specifically, the idea underlying all interventionist policies is that the higher income and wealth of the more affluent part of the population is a fund which can be freely used for the improvement of the conditions of the less prosperous. The essence of the interventionist policy is to take from one group to give to another. It is confiscation and distribution. Every measure is ultimately justified by declaring that it is fair to curb the rich for the benefit of the poor. With the present height of income in inheritance tax rates, this reserve fund out of which the interventionist seek to cover all public expenditures is rapidly shrinking. Close quote. An essential point, Mises goes on, an essential point in the social philosophy of interventionism is the existence of an inexhaustible fund which can be squeezed forever. The whole system of interventionism collapses when the fountain is drained off the Santa Claus principle liquidates itself. Mises talks specifically about the exhaustion of the reserve fund in terms of taxation. I would like to expand the notion of the exhaustion of the reserve fund just a bit more. In any free market economy, there is a reserve fund that can exist in quite generous supply in terms of the capital that has already been built and constructed. To understand this as a thought experiment, let us think of a very small country that has only one very tall building as what we would consider a reserve fund, no other capital. On a day of a socialist takeover, the building functions quite well and probably on day two, but at some point a window is going to be broken, a toilet is going to clog, and eventually the elevators may break down. Again, this doesn't happen on day one of a socialist takeover, it occurs over time. It is the inability to correctly plan and save for such wear that results in the ultimate deterioration of such a building. The same kind of capital situation happened in the Soviet Union. Whatever capital they had, it just didn't disappear overnight once the communists took over. It took time to wear down and depreciate. There was one problem with the Soviet Union, the reserve fund was dwindling, but again, it did not dwindle overnight. Another factor keeping the Soviet Union running was the rich oil and mineral resources, which can be thought of as another part of the reserve fund. The country was and still is very rich in oil and minerals. You can have a very poorly run country if you can still scoop up the minerals and pump oil from the ground. This is what the Soviets did. They sold these products to the West. Now, admittedly, it takes some capital to discover and find the oil and minerals, but that's done in the capitalist period. You don't really see a lot of exploration in communist countries as far as discovering new oils. It's always during the periods when there's free markets open to some degree. Over time, these natural resource areas became less productive and little capital was invested to keep up the production. And finally, there were deaths of tens of millions, fewer mouths to feed, fewer people to house, and fewer to clothe. This is how the Soviet Union survived so long. Let me now begin my story. The Soviet Union developed out of the ashes of the collapse of the Russian Empire. Tsar Nicholas II entered World War I in 1914, but as early as the middle of 1915, the impact of the war was demoralizing the people. The Tsar printed money to finance the war and instituted price controls. So anybody again who understands basic economics knows what happened there. There were shortages of food and fuel, shelves were emptying, and this was coupled with increasing casualties from the war itself. This led to predictable civil unrest. In March 1917, a strike was organized on a factory in the capital of St. Petersburg. Within a week, nearly all the workers in the city were idle and street fighting broke out. The strikers held mass meetings in defiance of the regime and the army openly sided with the workers. With his authority destroyed, Nicholas abdicated on March 2nd, 1917. A few days later, a provisional government was formed. The Socialists in St. Petersburg had formed their own Soviet Council of Workers and Socialist Deputies and formed an uneasy alliance with the provisional government. The leader of the Bolshevik faction of the Russian-Soviet Democratic Labor Party was Vladimir Lenin. He took a senior role in orchestrating a Second Revolution in October, which led to the overthrow of the Russian provisional government and the establishment of the Russian Socialist Federated Soviet Republic, which later became the USSR. Lenin almost immediately called the truce in the fighting with Germany and signed a peace treaty within a couple of months. His focus was mostly domestic. Lenin had held the Marxist vision that the land belonged to the people. He told them to grab it. He issued a number of decrees, but most important was the decree on land. It decreed an abolition of private property and the redistribution of landed estates amongst the peasants' breed. Specifically, the decree said, Private ownership of land shall be abolished forever. Land shall not be sold, purchased, leased, mortgaged, or otherwise alienated. All land, whether state, crown, monastery, church, factory, entailed, private, public, peasant, etc., shall be confiscated without compensation and become the property of the whole people and pass into the use of all those who cultivated it. Persons who suffered by this property revolution shall be deemed to be entitled to public support only for the period necessary for adaptation to the new conditions of life. All livestock and farm implements of the confiscated estates shall pass into the exclusive use of the state or commune depending on their size and importance and no compensation shall be paid for this. The right to use the land shall be accorded to all citizens of the Russian state desiring to cultivate it by their own labor, with the help of their families or in partnership, but only as long as they are able to cultivate it. The employment of hired labor is not permitted. By June 1918, the committees of the poor took 50 million hect acres from the Kulaks. The Kulaks were the wealthy, most successful farmers. This was approximately one-third of all land in cultivation. As part of Lenin's program, which he didn't mention in his decree, was that the government would take all agricultural surpluses with no compensation. By surpluses, he meant almost all the crop but barely enough remaining for those on the land to survive. Naturally, this did not go over too well, so Lenin resorted to tougher means. He gave orders. For example, in the Penza province, he gave an order to his subordinates. An example must be demonstrated. This is what they do instead of using free markets and incentives to work. They come up with stuff like this, all the communist guys. An example must be demonstrated. One, hang and make sure that the hanging takes place in full view of the people. No fewer than 100 known Kulaks rich men bloodsuckers. Two, publish the names. Threes, seize all the grain from them. Four, designate hostages in accordance with yesterday's telegram. Do it in such a fashion that for hundreds of kilometers around, the people might see, tremble, and shout. They are strangling and will strangle to death the bloodsucking Kulaks. Speculators were declared enemies of the people as early as November 1917. Three months later, Lenin issued the decree. Speculators are to be shot at the scene of the crime. Okay, so speculators would have been some kind of middle-men or wholesale who's buying some of the crop and selling it into the retail. Very brutal stuff. In 1919, in the Volga region, it was reported to Stalin that, and this is a direct quote, the peasants have gone mad. They are attacking machine guns with pitchforks, stakes, and hunting rifles alone and en masse despite the mounds of corpses. It was just brutal. These people were dying. They were not allowed any food. They were driven into regions and communes where many died. Lenin in a speech to 10th Party Congress in March 1921 said, the peasant must do a bit of starving so as to relieve the factories and towns from complete starvation. On the level of the state, in general, this is an entirely understandable thing, but we are not counting on the exhausted, destitute peasant understanding it and we know you can't manage without compulsion. So what was happening is what Mises and Rothbard talked about. It was a collapse of the complex system. It couldn't survive without price signals, without the rationing of pricing. The power, the Lenin and his people in power were just taking away the food and the crops and the people were dying and not surviving in production drop way down. At the same time, all this was going on. There was a brutal civil war that was taking place since although Lenin declared that his Bolsheviks had taken control, many others did not see it that way. In the civil war, it was Lenin's Bolsheviks' right army against the white army. The civil war brought enormous suffering in its wake. Millions died from bullets, famine, epidemic, far more than even in the First World War. By 1929, 1921, industrial production was at about a fifth of the level it was at, at 1913. So that's how much it dropped. I mean that exhaustion and reserve fund was happening fairly quickly. When you go from an 80% drop in the level of production, money had almost disappeared. It was becoming a primitive barter economy. Food production declined as well and the trading and transport systems necessary to deliver grain to the cities also broke down. Between 1917 and late 1920, the number of factory workers in Russia declined from around 3.5 million to barely over a million. It was collapsing right from the start. And the populations in the city plunged because there was no food for all these people. The party members survived and lived well but the average person couldn't. So they were trying to go back to the farmland so at least they could survive that way. In 1921, strikes broke out, not surprisingly, in Moscow and Petrograd. Workers called for free trading grain, the abolition of privileges and extra rations enjoyed by the party officials. Again, the party officials were the ones that lived off the communist system. Their political demands reflected the influence of the semi-legal socialist revolutionaries who were calling for freedom of speech, press and assembly and the restoration of free elections to factory committees, trade unions and Soviets. The party declared martial law in Petrograd but meanwhile the unrest spread to the nearby naval base of Kronstadt whose sailors had a revolutionary tradition dating back to 1905. Now they too were calling for new and secret elections and for Soviets without Bolsheviks. This uprising was crushed by Trotsky. As I said, the terrible conditions in cities caused many to leave the cities for the country land. Hungry drove factory workers out and this was a problem for Lenin because the Bolshevik base of support came from urban workers. The exes caused him to change laws a little bit. At the end of the Civil War, Bolsheviks controlled the cities but 80% of the people were now living in the farmlands. This economic climate forced Lenin to retract on his policy of war communism which is what he called the grabbing of the land and the grabbing of production from the land. He introduced what he called his new economic policy. Lenin called it state capitalism. The state continued to control banks, foreign trade and large industries but the national economic policy allowed a system of mixed economy which allowed private individuals to own small enterprises and abolish forced grain requisitions and required instead that farmers give the government a specified amount of raw agricultural product as a tax and kind. This increased the president's incentive to produce because now instead of just grabbing everything, they tax some. So after the drought and famine of the 1921-22 period before the NEP was brought in, production jumped not surprisingly by 40% the following season. But if the proletariat had with it, the upper echelons in Russian society also disappeared and in the void stepped the cadres of the expanding party. From 115,000 members in January 1918, the party grew to 775,000 in March 1921, a six-fold increase in three years. The party was becoming an organization of the upwardly mobile and Joseph Stalin was the party's general secretary who would control it. Upon the death of Lenin, things went from bad to worse. Stalin after a bit of power struggle took over. Stalin ended the national economic plan and returned to full-fledged collectivization whereby he thought that the Soviet Union, this guy knew nothing about economics, he thought the Soviet Union would be able to overtake capitalist countries. Stalin's mother, by the way, wanted Stalin to be a priest. He actually went to preschool for a while. During the early periods of Stalin's reign, not surprisingly, a grain crisis occurred again. Now, what Stalin thinks was a problem. He thinks it was the cool ox that caused the problem. He eliminated a lot of the incentives when he ended the national economic plan and he blames the cool ox which are the ones that are the most efficient producers, the largest producers. And so what he did is he imposed collectivization to replace even the semi-private farms of the cool ox. And most of the collection process involves just the stripping of the land from the cool ox and sending them into either communeons or labor camps. Stalin's strategy was quite interesting. If a peasant handed over his surplus grain, the state would get what it wanted. Anyone who do not were then labeled cool ox and therefore were enemies of the state and suitably punished along with their grain beings confiscated. He ordered the destruction of cool ox as a class. Now, these are the best producers and he orders the destruction of them as a class. No one was quite sure though what was the cool ox because there were no definitions as to how profitable so. And no one wanted to ask Stalin because Stalin was really crazy. So the cool ox were divided into three groups and I haven't been able to find any detail on exactly how the three groups were designated but they divided the cool ox into three groups. These were the groups. Those to be killed immediately. Those to be sent to prison and those to be deported to Siberia or Russian Asia. The third category alone consisted about 150,000 households, one million people. Stalin believed that such a brutal policy would persuade others in agricultural regions to accept the rule of Moscow and that resistance would end. Stalin wrote to his aides he must break the back of the peasantry. Under Stalin's early rule in the Ukraine alone between four and five million died. One million died in Kazakhstan, another million in the Volga, two million in other regions. And it didn't stop there. At different times he launched assaults on different nationalities. The attacks took place in waves some more extreme than others. Initial attacks of the Soviet Union took place against Germans, Poles, Koreans. These were Germans, Poles, Koreans that lived in the Soviet Union. But it wasn't only distant groups that Stalin harassed. Norman Neymar in the book Stalin's Genocide wrote of how Stalin treated his subordinates. Like a cat playing with mice, I quote, like a cat playing with mice Stalin dangled the lethal prospects of deportation, life in the gulag, torture and execution in front of a firing squad, watching their reactions to baiting, taunting, and sadistic humor. He sometimes set up supervised their arrest, gave them hopeful reprieves and then had them taken away to be tortured and shot. He even had the wives, children, and siblings of his closest Confederates in prison or deported while watching to see if they flinched or broke under the pressure. Khrushchev, who succeeded Stalin, his daughter-in-law was actually sent to the gulag. Tens of millions died under Stalin as watched before after enduring World War II. Through bad economic policy which resulted in starvation or through outright killings. In his memoirs, Nikita Khrushchev, who was president of the Ukraine while Stalin was in power, tells this story which provides an example of the bad economic policy in combination with the madman. Quote, this is from Khrushchev's memoir. We were supposed to supply the states first and ourselves second. We had been assigned an output plan of something like 400 million food, which is about 7.2 million pounds for the year 1946. This quota was established arbitrarily although it was dressed up in the press with scientific data. It had been calculated on the basis of how much the state thought it could beat out of us. The quota system was merely a system of extortion. I saw that year we were threatened with catastrophe. Of a famine did ensue. Khrushchev then became aware of cannibalism occurring in Ukraine. In his memoir, Khrushchev details some of the cases of cannibalism that he was personally aware of. I won't go into those details here but if anybody's into cannibalism I recommend Khrushchev's memoir. Khrushchev on one trip to the Kremlin told these stories about cannibalism to Stalin in an attempt to gain more food supplies for the people of the Ukraine. Stalin's reply was you're being a soft belly. They're deceiving you. They are counting on being able to appear to your sentimentality when they report these things like that. They're trying to force you to give them all your reserves. So that was the answer Khrushchev got from Stalin. No addition to reserves. Ralph Rayco provides some of the numbers for the Lenin and Stalin regimes. In the Leninist period that is up to 1924 and included the war against peasantry that was part of the war communism and the famine conditions culminating in the famine of 1929-1921 that resulted from the attempt to Rayco says the Marxist dream. I think he's got his tongue in his cheek there. The best estimate of the human cost of those episodes is around six million people. The toll among the peasantry was even greater under Stalin's collectivization in the famine of 1933 a deliberate one this time aimed at terrorizing and crushing the peasants especially in the Ukraine. We shall never know the full truth of this dynamic crime but it seems likely that perhaps 10 or 12 million persons lost their lives as a result of these communist policies as many or more than the total of all the dead in the armies in the First World War. The labor camps for class enemies had already been established on the Lenin and as early as August 1918 they were vastly enlarged under his successor. The camps grew and grew who was sent there anyone with lingering Zara sentiments and recurrent members of the middle classes liberals anarchists priests laity of the orthodox church baptists other religious dissidents wreckers suspects of every description then Kulaks peasants by the hundreds of thousands the sum total of debts due to Soviet policy in the Stalin period alone debts from the collectivization in the terror famine the execution in the gulag is probably on the order of 20 million people. During Stalin's rule Hitler originally there was a pack between Stalin and Hitler Hitler turned on Stalin during World War II and rapidly conquered important areas of the Soviet Union including most of the Ukraine Soviet soldiers were no mass for the well armed Germans but eventually the tide turned so how was it that this collapsing society was able to overcome the sophisticated military of the Germans what turned the tide for the poorly equipped Soviet soldiers was the United States supplies tons of supplies were sent to the Soviet Union from the United States under U.S. Len Lease Act the Len Lease Act was the program under which the United States supplied the United Kingdom the Soviet Union China Free France and other allied nations with materiel between 1941 and 45 specifically the Soviets received from the United States and also small amounts from Canada and the UK 10,000 tanks 10,000 artillery pieces 14,500 airplanes as the archives are being opened from the Soviet period we're getting much more exact numbers on what came out hundreds of thousands 100,000 tons of rubber 500,000 tons of nonferrous metals nearly 500,000 trucks 2.3 million tons of food provisions hundreds of ships 3 billion worth of machinery including whole factories the United States actually built an airport in North Dakota to secretly send material to the Soviet Union military cloths sufficient to clothe 3 million Red Army soldiers the soldiers were also shipped non-military items cigarette cases records women's compacts fishing tackle playground equipment cosmetics food and even 13,328 sets of false teeth the US helped to not stop after the war Lenly's data show that in 1945 alone about 5.1 million tons of food stuffs left the US for the Soviet Union but here's where it really gets interesting now this is after the war some of the most notable assistance came in early 1994 it developed there then when the Treasury Department began planning a currency to be used in post-war occupied Germany the British agreed that the occupation currency should be printed in the United States but the Soviets demanded the right to print their own notes using a duplicate of the American plates this would of course allow them to print as much German money as they wish backing the Soviets Treasury Department colleagues was Harry Dexter White who it turns out what was a Soviet spy was also instrumental in formation of the IMF in the World Bank this was a really bad guy according to one of his aides he argued that the United States had not been doing enough for the Soviet Union all along and that if the Soviets profited as a result of the transaction of giving them the plates we should be happy to give them this token of our appreciation for their efforts the director of the Bureau of Engraving Alvin Hall was staunchly opposed to giving the Soviets the plates with good reason and this elicited a fierce rebuke from White the Soviets he insisted must be trusted to the same degree and to the same extent as the allies Treasury Secretary Morgenthau had placed White in charge of such matters and White ensured that the Soviets got the plates the predictable result was that they printed a lot of currency the allies put into circulation a total of about 10.5 billion marks much of this was cash that would wound up I'm sorry the allies put into circulation about 10.5 billion allied marks between September 1944 and September 1945 the Soviets likely issued more than 78 billion allied marks much of this was cash that wound up being redeemed by the US government at the fixed exchange rate that was set by White this resulted in Soviets effectively rating the US Treasury for three to 500 million in those dollars which is roughly four or six billion in today's dollars getting back to the military equipment during the war without these supplies the Soviets really had no chance the the US gave about 30 30 percent of the actual physical equipment but my guess was that was probably also much better equipment so but how much is there another perspective we can get on how much the US actually sent they sent so much that the Soviets stockpiled some of the equipment in Weparin during the Korean War US forces after capturing North Korean strongholds would come across American military equipment China and Russia had stockpiled some of the equipment the US gave them during World War II and now the Chinese and Russians was supplying this equipment to the North Koreans upon upon the death of Stalin a remarkable thing occurred Nikita Khrushchev became president among the first things he did was deliver a speech to the 20th party congress on the communist party of the Soviet Union on February 25th 1956 Khrushchev's speech was sharply critical of Stalin particularly with respect to brutal purges of the Soviet military and communist party cadres which had particularly marked the last years of the 1930s Khrushchev charged Stalin with having fostered a leadership personality cult despite ostensibly maintaining support for the ideals of communism now Khrushchev never really went into any details because he was one of Stalin's guys so it's he probably sent a lot of people to the deaths himself so there were no real major investigations but when he came in he just said look things were really bad the Khrushchev report was known as the secret speech because it was delivered at an unpublicized closed session of communist party delegates with guests and members of the press excluded the issue of mass repressions was recognized before the speech to some degree but the speech itself was prepared based on the results of a special party commission this commission presented evidence that during 1937-38 the peak of the period known as the great purge over one and a half million individuals were arrested so this doesn't involve any of the Kulaks that would kill what was going on in the farms these were people in the cities that were arrested for anti-Soviet activities of whom some 680,000 were executed now this is the most amazing thing from the commission report repression of the majority of the old Bolsheviks and delegates of the 17th party congress most of which were workers and they joined the communist party before 1920 of the 1,966 delegates now this is delegates to the 17th party congress of the 1,966 delegates 1,108 were declared counter-revolutionaries 848 were executed in 98 of the remaining 139 members and candidates to the central committee were declared enemies of the people so Stalin was just brutal he killed all over the place Mikhail Gorbachev was one of those who heard the speech it had an immediate impact on him one of those jail because of Stalin for nine years was one of Gorbachev's grandfathers the grandfather had always blamed local officials and was a supporter of Stalin it was only because of the secret speech that Gorbachev realized what really occurred the light bulb went on in Gorbachev's head the people were completely in the blind the propaganda was so strong they had no idea what a vicious leader Stalin was there is a lesson for all of us here we must inform on what our leaders are truly up to the more often the chains of propaganda broken the better Khrushchev was no savior to the Soviet Union though he did not stop he did stop most of the killing but he was a Marxist Leninist and kept the economy under tight control whatever thought that Khrushchev created in society was shut down by the next Soviet leader while vacationing Khrushchev was called by Leonoy Brezhnev to return to Moscow for a special meeting of the Presidium to be held on October 13th 1964 he resigned on October 14th Brezhnev took power from Khrushchev who was really pushed out by the hardliners because of the poor economy now I want to talk a minute about the Soviet hardliners I think they are most often thought of as a very pro-central planning and militaristic and that is the case but the reason they are such is because they are the parasites that are able to successfully live off essentially planned military structure and they live well so that's why they want to keep it in power it's very similar to the Khrony structure we see here in the United States these people they live well and there's just no reason for them to want to see any change in the system now even in the poorest countries you see this there are elites that live well especially with small countries where there are major natural resources it was the same with the Soviet Union Brezhnev tightened things up again under his watch upon his death in quick succession followed Yuri Andropov and Kostin Chernikov because of their limited period in office they did not have much impact both were in power for less than a year Mikhail Gorbachev was able to gain enough support to become general secretary following the death of Cheryankov almost immediately he did something really interesting right after the funeral of Cheryankov he called together the leaders of the Soviet satellite countries such as Poland, East Germany the then Czechoslovakia he told the leaders they were on their own and that Soviet troops would no longer respond to riots and rebellions in their countries it was the meeting that set in motion the collapse of the Berlin Wall that's more than two years before Ronald Reagan stood at the Brandenburg Gate near the Berlin Wall on June 12 1987 and shouted in a speech Mr. Gorbachev teared down this wall Gorbachev set that in motion before that indeed as as the Berlin Wall came crashing down Gorbachev tells us in his autobiography not once did we contemplate the possibility of going back on the fundamental principles of the new political thinking freedom of choice and non-interference in other countries domestic affairs that meaning following the Cheryankov funeral is what started the collapse of the wall not Reagan in addition to informing satellite countries that they could not count on military support during domestic uprisings Gorbachev almost immediately embarked on two important programs perestroika and glass nose perestroika was a restructuring in glass nose was also allowing openness among the people the error of perestroika and glass nose was important because it opened up the sylvia society but Gorbachev was no economist his economic policies led to continuing problems he writes in his biography that in 1987 and I quote there was a shortage of not only food stuffs and industrial goods but also metals fuel and building materials latent suppressed inflation began to make itself known through the black market economic ties were entangled in a dense network of unofficial relations extortions gifts briberies exaggeration of results embezzlement state property began to be used for personal gain on a massive scale production of equipment was breaking down everywhere there were mountains of this is this is Gorbachev saying this there were mountains of uninstalled equipment including imported goods cars and especially agricultural machines were being carelessly assembled and shipped with parts missing there was pilferage enroute and on arrival they practically had to be assembled from bottom up dozens of abandoned railway trucks loaded with goods stood in the sidings and it lines ends subject to spoilage and pilferage this was not much different from when when Gorbachev initially took over the economist Russian economist Abel Abigan writes about 1985 we produced 788 million pairs of leather footwear and the United States produced only 300 million if this is put on a capital basis this would be 2.8 pairs per person in our country and 1.3 pairs for the Americans there are heaps of relatively inexpensive shoes in the stores to meet every taste we can also be said to have had heaps of shoes the shelves are loaded but to put it in crude terms there is nothing to buy these shoes have been left on the shelf because they are not very comfortable they are not stylish and they are not good looking when some imports come to fill a quota you can get you can't get near the counter now this is an amazing thing it is a terrible thing this is in 1985 every year in Moscow alone more than 2,000 color television sets catch fire houses go up in flames along with them how anybody could see the communist country is a major threat that's going to take over anything I mean it's amazing think about that in Moscow alone that isn't the number that weren't functioning that is the number that caught fire clearly as Mises and Rothbard warn calculation does not take place at any high level in this essentially planned economy from burned out television sets to cars that need to be reassembled to trailers unpack the economy was a mess and yet Gorbachev failed to free the markets he just didn't understand basic economics and on more than one occasion he indicated that a mixed economy was like a sailboat where communism was the ship in free markets with a wind that filled the sails I would argue that the free markets or the sail in the boat and the central planning is a hole in the boat Gorbachev never understood what Lubivar Mises wrote there is no such thing as a mixed economy a system that would stand midway between capitalism and socialism Mises and Rothbard had it nailed and this is a great empirical example of what went on another problem in the Soviet Union had to do with alcoholism with the constant regulation and surveillance of the essentially planned economy people were self medicating themselves to deal with the situation Gorbachev set out to deal with this with an anti alcohol campaign the crackdown on alcohol so just pushed the market underground but it did cause a problem for the Soviet Union in their above ground data collection so much alcohol was purchased in the Soviet Union that when alcohol was forced underground it depressed total retail sales national income and real income per capita by serious numbers alcohol accounted for half of all food purchases and 20% of retail sales so then they had to end up munking with the data because they start this new plan and the GDP is diving retail sales are diving it's crazy now on the military side things were just as bizarre the problems of central planning were not absent from the military according to the former deputy chief of the general staff of the armed forces makhmud akhmetovich garyov in some cases I quote in some cases the navy was forced to take delivery of ships with no guns or navigation equipment the reason was simple if the ships were rejected the workers wouldn't be paid at first ustinov he's referring to Dmitry Ustinov was minister of defense at first ustinov would say that ships would not be accepted until finished he was then told that the workers weren't happy because they were not getting paid to which ustinov replied the polar bureau demands the workers get paid so these these ships that that didn't function were accepted by the navy according to Vitaliy Sheiklov who was a spy master in the GRU which was a predecessor to the KGB and he was also a Russian deputy minister of defense the notion that Gorbachev's perestroika was started as a result of Reagan's Star Wars program was concocted in the west it is completely absurd in reality nobody cared and nobody considered a particular response to the Star Wars program Kokostin, a sixth secretary of the Russian Security Council argued that SDI was a bluff and that Star Wars was unfeasible I was in contact with our senior military officers and the political leadership they didn't care about SDI everything was driven by departmental and careerist concerns no one took national security seriously nobody everyone thought that in case of real trouble we can use our nuclear weapons there were people who were lobbying and there were scoundrels trying to secure money for themselves for such weapons as particle beam weapons laser equipped with nuclear boosters etc these projects were wasted time Gorbachev had no concern now his was interesting this comes from a New York Times reporter and New York Times was generally sympathetic if not apologetic for the Soviet Union this was Leslie Gelb who was stationed in the Soviet Union and how he was made aware of the true capability of the Soviet military in a remarkable comment he reported what Soviet general staff Nikolai Orgokov told him in 1983 I began that afternoon by attacking Moscow for amassing forces that far exceeded defensive needs Orgokov waved me off with a tolerant smile then he proceeded to make the most astonishing argument I have ever heard made from a Soviet official we will never be able to catch up with you in modern arms until we have an economic revolution and the question is whether we can have an economic revolution without a political revolution Gelb concluded Orgokov was really saying the Cold War was already essentially over if not won by the West getting back to Golbachev and how he started the Soviet Union on its way to somewhat free markets one sector fresh air was an area known as co-ops as a result of law on state enterprises and laws on co-ops which really set up the ability for some companies in some areas under the guise of co-ops to become free market in 1987 cafes were the most visible type of co-op while others had sprung up in clothing and furniture it was supposed to be more wide open but for example in the farm sector it was the director of farms that required what was the one that would dole out the land and what happened was he would go in and give the least fertile land to these people who were setting up these co-ops and then if somehow they produced food on in any ways he would go in and declare they were violating one law of the other in 1988 the regulations were revised and restricted co-op activity to book coverless publishing medical care and in just a few other areas most troubling local authorities who generally opposed the co-ops had been granted additional authority to regulate prices for the co-ops so it just collapsed but still at this time collective farms were 80 percent of the Soviet Union state farms represented 17 percent of land and only three percent was private uh disruptions to the in the economy intensified in 1988 Gorbachev admitted the problem he wrote in his autobiography too much money was printed which destabilized the consumer market various consumer goods began to vanish from shelves sugar tobacco goods soap washing powder I was seriously worried about the price situation while on holiday in august I pointed out the developing situation to an illicit number of economists that he sent a memo to and they responded with the memo and then they started speaking out to the press against price reforms so again these were economists that felt it was too too much a shock to the system to free free prices if he had the right kind of advisors it's the it's the economists that are really important in these situations I mean Gorbachev recognizes later on he goes this was a tragic miscalculation as a result of the situation in the country rapidly worsened and conditions became less and less favorable for successful reform Gorbachev is very correct here prices were still set by central planners and Gorbachev missed the opportunity to free them in addition to the problem of the central bank printing money and yet so-called economists warned Gorbachev against acting too quickly this was a great problem then later in 1990 a group issued a 400 page report title transition to the market it called for competitive market economy mass privatization prices determined by the market integration with the world economic system a large transfer of power from from the union government to republics and many other reforms Boris Yeltsin is starting to come into the picture now out of Russia and he liked it but Nikolai Rizakov who is chairman of the council of ministers openly repudiated it and that whole idea collapsed that they chose again a middle road so there was no strong principled economist to stand there and tell Gorbachev or way back there was no one to tell Khrushchev look you do this it's going to mess things up it's going to keep the economy a mess and you're going to lose power there's just no one there to tell these guys that the main reason for rejecting the April program was rising prices and unemployment of 22 25% now his Margaret Thatcher again causing problems she causes the problem by saying that Reagan was the one that sort of defeated the circus of a communist country and now she visits the USSR and meets with Abakian who's one of the top economists there and she tells Abakian that she was glad to see that it was understood in the Soviet Union that initial deterioration following institutional transformation now she's really talking about the United Kingdom and really a business cycle or something like that that had nothing to do with the Soviet Union the Soviet Union was under all kinds of restrictions you lift these things are going to get better right away but she she confused the situation even more nevertheless after her visit and in pressure from Rizakov within a week the program was rejected Gorbachev declared that he would not allow reforms to bring about a lower standard of living which would have not been the case at all instead administrative private revisions were implemented which the the prime minister of the Soviet Union delivered in a speech and then what happened is everybody ran out right after the speech and the shelves empty because he just announced we're going to raise the prices so just just crazy the middle-world road method was chosen and the most bizarre middle-world method now some of the things that went on with this middle-world they they allowed wholesale prices to be freed up to to a large degree but prices to the consumer remain fixed how do you do that how do you raise allow free market wholesale prices and and not that so anyways I want to move on I mean it it just continues on for for quite a while with with different programs Yeltsin comes in free stuff up quite a bit more because he is he went to a supermarket in the west and saw all the goods so when there was an economist there that told him to free prices up and he did so so we had a lot more free market orientation under him the problem with him was that the oligarchs really got control they they knew how to game the system and so you basically had a situation where they gained gained large pieces of of resources and different corporations that were owned by the the Soviet Union in the past then what happened was when he was attempting to get re-elected he was way way down in the polls and he had no money to run any campaign so he called the oligarchs in and told him look if if you help me out here get me money get me re-elected you can have more so the oligarchs took took even more control at that point and then he was eventually pushed out and Putin came in now Putin will never really become a communist in the old sense that that's all dead that that ideological thinking is dead there was a joke he told and this is this is a bad joke but Putin told it not me and when you really need to explain a joke to the degree that I have to own this one and you know it's bad and from what I understand he told it to the to the Russian parliament and most of them didn't get it because you had to be at least in the Khrushchev era or something like that to to get it but there was there was still in a hardliner in the audience and he said you know it was better under the the the old communist system and Putin said what is green long and smells like sausage okay and and the answer is the Moscow train line okay now so let me explain that what what it means is during the old old Khrushchev period or or probably even even into the Gorbachev era there was no food outside the main no no meat outside the main cities so if people wanted meat they would we would have to go into the Moscow to get the meat and wait in the long lines for the meat and then they would take the meat back on the trains and the trains must have been green I guess and the trains would smell like sausage so Putin remembered that he also had experiences when when he was in St. Petersburg assistance to the mayor where he dealt with a lot of international corporations for the first thing he did when he gained control is he called in the oligarchs and basically it was a situation where he allowed the oligarchs to continue with the businesses and told him to stay out of politics most did a few left overseas and one one tried to take him on politically Khodorkovsky who is now in Siberia so that that didn't work too well what Putin does seem to does seem to be is a crony he's got a boyhood friend that he's now put in charge of the Olympics and there's a number I have somewhere that's absolutely astounding I think it's something like seven billion dollars yeah seven point the 2014 winter Olympics are going to begin in Sochi, Russia in Putin's boyhood friend has been awarded 227 billion rubles of contract so far at 7.4 billion dollars and supposedly that's only 15 percent of what they totally plan to spend for the Olympics so Putin has his hands in the oil reserve area and he also has his hands in other crony stuff but the one place where we may see more central planning that inflation is a serious problem again none of these guys again there are no economists out there to tell them the problems with the central planning it's starting to heat up it's almost close to 10 percent if that continues who knows what he will do will be put in price controls and what will happen is you'll start to see the same shortages and stuff like that so the key really is that there was no great battle between the Soviet Union and the United States it was the United States there was a free market and there was a different ideology in the Soviet Union that crushed it would have collapsed on its own it was it was helped because it had a fairly substantial reserve fund and by the U.S. providing all kinds of military supplies during the World War II but what they didn't have and still don't have is economists who understand free markets who are principal enough to speak to leaders because especially Gorbachev I can't believe that if he wasn't made aware of how to run the economy he wouldn't do that how to free up markets and how they would achieve an improvement for the standard living because if you look at what he did with Perestroika with Gorbachev with Glasnost and especially what he did with the military and keeping them out of the satellite countries so the key is you need the economists this is really right here in the Mises Institute is ground zero for free market for principal people for people who who are learning how to present clearly economic principles so we can educate the public and whenever one of us gets close enough to advise leaders so this is this is an important place you want to be as clear as Haslitt and you want to have the principal and an understanding of Rothbard and Mises thank you