At the eighth congress in 1919, Lenin had already summed up the problem with this simple example: “In a communist society the middle peasants will be on our side only when we alleviate and improve their economic conditions. If tomorrow we could supply one hundred thousand first-class tractors, provide them with fuel, provide them with drivers – you know very well that this at present is sheer fantasy – the middle peasant would say, ‘I am for communism’. But, to do that, we must first defeat the international bourgeoisie, we must compel them to give us those tractors or so develop our productive forces as to be able to provide them ourselves. That is the only correct way to pose this question”. (Lenin, Report On Work in the Countryside, March 1919). (Read in full here)

The tenth party congress in March 1921 resolved that ‘war communism’ must be abandoned and instead adopted what was called the “New Economic Policy” (NEP) – a series of concessions to the capitalists and richer ‘kulak’ peasants who dominated agricultural production. It provided them with profit incentives to step up production for the market, as a means of feeding the towns and reviving industry.

The NEP undoubtedly succeeded in restoring a measure of life to the economy and had removed the threat of famine. By 1922 industrial output had risen to 25 percent of the 1913 level, though mainly in the branches of light industry supplying the peasants’ demand.

On the other hand, NEP marked a retreat in the workers’ fundamental drive to collectivisation and central planning of the economy. It greatly strengthened the so-called “NEP-men” – a breed of middlemen who took advantage of the continuing shortages to speculate and line their own pockets.

The kulaks and NEP-men shared a position of privilege with the state bureaucracy. These layers were becoming more confident and determined to consolidate their position. Their pressure on the workers’ leaders was increasing. The counter-revolution may have been defeated by force of arms, but now the workers and poor peasants faced just as dangerous an enemy, but one hidden in their midst – a strengthened capitalist class.

Lenin frankly summed up the dangers in a speech in October 1921: “The issue in the present war is who will win: the capitalist, whom we are allowing to come in by the door, and even by several doors … or proletarian state power? … On the one hand, if capitalism gains by it, industrial production will grow, and [this] would mean the restoration of a proletarian class engaged in [socially useful] production in big factories, and not in profiteering, not in making cigarette-lighters for sale, and in other [such] ‘work’ … which is inevitable when our industry is in a state of ruin. The whole question is who will take the lead … Who will come out on top? Either the capitalists succeed in organising first – in which case they will drive out the Communists and that will be the end of it. Or the proletarian state power, with the support of the peasantry, will prove capable of keeping a proper rein on the capitalists”. (Read the full text)

At the eleventh party congress in 1922, reflecting on how the NEP was proceeding, Lenin warned that: “The [state] machine refused to obey the hand that guided it. It was like a car that was going not in the way the driver desired but in a direction someone else desired: as if it were being driven by some lawless, mysterious hand… perhaps of a profiteer, or of a private capitalist, or of both.” (Read the full text)

In his book ‘From Lenin to Stalin’ Victor Serge, who joined Trotsky’s ‘Left Opposition’ in 1923, describes the distortions that were coming into existence: “Classes* were reborn under our very eyes: at the bottom of the scale, the unemployed receiving 24 rubles a month; at the top, the engineer receiving 800; and in between the two, the party functionary with 222, but obtaining a good many things free of charge… There was squalid, heart-breaking poverty… while wealth was arrogant and self-satisfied… The young people drank, old people drank, drunkenness became a plague. And the worst of it was that we could no longer recognise the old party of the revolution.” (Read the book in MIA)

*Trotsky explained that the bureaucracy did not form a class in the Marxist sense (i.e., a social grouping with a necessary function in the productive system). The source of its power and income was the state property, not private capital. It was a parasitic caste, not a capitalist class.