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New Economical Policy (NEPNEP)

The need to normalize relations between city and countryside made the Party-Government leaders abolish requisitioning of the farm produce, change it by tax in kind, the rate of which was considerably less than plan of requisitioning. In 1923-1924 tax in kind was allowed to be paid by products and money (at will of peasants). It 1924-1925 transition to cash taxation of countryside. Legalization of market relations in countryside was bringing reconstruction of the whole economical structure.

Small plants and factories, acquired by the State after the Civil War, became private property. Strict centralization was characteristic for trust systems. The Council of National Economy (CNE), board of directors, revision commission was the organs of managing and revision of trust. The Higher Council of National Economy(HCNE) conducted planned trust management. Trust board of directors was obliged to perform functions of efficient management. Revision commission, controlling trust activity, gave report to the HCNE. Enterprises were practically deprived of any kind of economical independence. The didn't have the rights of juridical person (i.e. couldn't act independently on the market), balance and accounting. Relations of trusts and enterprises, constituting them, preserved military-communistic base throughout all the period of NEPNEP.

When transiting to NEPNEP, metallurgy, fuel and energy complex and partially transportation at first remained on the government finance. However, wage leveling, characteristic for the times of the Civil War, was changed with the new tariff policy, which took into consideration workers' qualification, quality and quantity of produced goods. The system of rationed supply step by step was interchanged with money wage. General compulsory labour and labour mobilizations were abolished.

All-Russian market was being restored. Large fairs were being also restored: the fairs of Nizhny Novgorod, Baku, Irbit, Kiev and others. Commodity exchanges were opened. Some freedom of private capital in industry and trade was allowed. Concessions and cooperation were developing: consumers', agricultural, producers'. As for conditions of economical activity (prices, credits, taxes, supply and so on), cooperation received more favourable conditions than private capital. At the end of 1923 - the beginning of 1924 consumers' cooperation was transmitted to voluntary membership.

In 1921-1924 the bank system was established: the State Bank, the net of cooperative banks, the Bank of Commerce and Industry, the Bank of Foreign Trade, the net of local municipal banks and others. Emission of money as the main resource of the state budget income was interchanged with the system of direct and indirect taxes.

NEPNEP reforms were being braked by the unstable currency. Since 1921 the work on adjusting monetary system to the conditions of market economy. In 1922-1923 two denominations were conducted. At the end of 1922 hard currency - chervonets - was put in circulation, used for short-term crediting in industry and trade. Financial reform was finished in 1924: copper and silver coins and treasury note were issued instead of soviet banknotes. It was managed to liquidate budget deficit during the reform.

Establishing of hard currency made the connections between industry and agriculture in the sphere of turnover stronger. However, financial reform couldn't remove structural contradictions between large centralized industry and extremely scattered (as a result of agricultural revolution) farming. The decrees of the XVI Conference of the Party (April 1925) and the XIV Congress of the RCP(b) (December 1925) pushed aside the string of obstacles on the way of increasing of agricultural production: hiring of manpower in countryside was made easier, land lease was allowed. However, the growth of large industrial trade rural economy was restrained by the government tax policy in countryside.

Thus, NEPNEP model included the following structural elements:
1) minimal connections with world economics, consisting in foreign trade on the base of state monopoly (in 1920s the concession capital brought less than 1% of industrial production);
2) strict government managing almost all the industry(trust self-financing);
3) non-equivalent exchange with countryside (free requisitioning a part of production as the agricultural tax, then with the help of 'price scissors' for agricultural and industrial goods in favour of industry);
4) braking the growth of large individual farming.

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