The Coercive Machinery Is Represented by the GPU (Later KGB) in Russia, But by Credit Expansion of the Banking System in the West

For this it is necessary that some kind of coercion be exerted which releases the production of capital goods from the link with the community’s voluntary decisions to save, and forces the proportional shrinkage of the production of consumption goods above the level to which the community is prepared to submit voluntarily through its savings. This coercion may take place with the brutal overtness of Russia today under the rule of the Five-Year Plan which represents to the trade-cycle theorist a gigantic attempt with the aid of government authority to free the tempo and extent of investment from the limitations imposed by the rate of savings—consumption being ruthlessly held down by means of State force. This throws further light on the probability mentioned already that in Russia also the steepness of the investment curve will find its counterpart in the sharp descent of the curve of reaction, only with the difference that the reaction in Russia will assume other forms than in the capitalistic countries. It is in any case useful to realize that what is being carried out in Russia differs from the type of boom characterized by over-capitalization in the capitalist countries in method and extent only, and not in kind, and bears a likeness to it even so far that all warnings of inevitable reaction are thrown to the winds. In the capitalist economy the place of authoritarian force is taken by credit expansion.

As will be seen in the next section, the expansion of credit also involves “forced saving,” though of a totally different kind. The difference may perhaps be expressed by saying that in our economic system it is monetary “forced saving” which sets the wheels of over-investment in motion, while in Soviet Russia it is authoritarian “forced saving.” Whereas in Russia the coercive machinery is represented by the G.P.U. with its rifles and dungeons, in capitalism it is represented by the banking system with its cheques and overdrafts. This capitalistic machinery of credit expansion serves two purposes: in the first place, it provides the entrepreneur waiting to invest with the necessary additional credit and, in the second place, by raising profit expectations, it increases the desire to invest, of which the driving force is here, in contrast to the socialist State, governed by individual decisions based on profit expectations. This is, in fact, the way in which the process of cyclical movement regularly takes place in the capitalist world.

—Wilhelm Röpke, Crises and Cycles, ad. and rev. Vera C. Smith (London: William Hodge and Company, 1936), 107.