The introduction of a market economy and direct democracy – broadening “workers’ democracy” – also proved to be a contradiction that could not be bridged. Significant segments of the laboring masses became tired of the sacrifices they were called upon to make and were demanding a “loosening of the bolts,” but very few were in possession of the skills required for direct democracy. Lenin later expressed the necessity of the NEP, neatly and self-critically summarizing it at the 11th Party Congress in the spring of 1922: “We must organise things in such a way as to make possible the customary operation of capitalist economy and capitalist exchange, because this is essential for the people”. 15 One of the main trends of the current historical literature 16 emphasizes the capitalist market characteristic of the NEP, but also that – with its well-known measures permitting rural wage labor from 1922 onward – the Soviet state integrated social conflicts into the as yet not fully formed “web” of Soviet society, which later threatened instability and inner combustion, and finally had a major role in the later defeat of the NEP.

The concept of state capitalism is used in two senses here: on the one hand as a sector of a mixed market economy. On the other it is a term from formation theory denoting the economic method and arrangement for the transitional period and seen as a phase of it. It is a type of “state capitalism,” in quotes, that cannot be found in “any textbooks,” “nor in the writings of Marx and Engels”.

“Soviet state capitalism” – the way Lenin thought of it, and the party congress declared it – was intended to establish the political and cultural preconditions of socialism. This was a matter of serious contention between Lenin and the Mensheviks, Western social democrats, liberals, and others, who doubted the “reasonability of the Bolshevik experiment” while remaining insensitive to its uniqueness. Lenin saw himself as the representative of a historical alternative, in circumstances in which no other reality had materialized on the left. He repeatedly said the originality of the Russian Revolution was that the prerequisites of socialism came into existence not before it – but after.

Though the NEP had been “made to last,” theoretical socialism was never struck off Lenin’s agenda, even under the everyday circumstances of market restoration. As he explained it: “Formerly the stumbling block for very many socialists” was how to first subordinate the “concession to the peasant as a trader, or to the principle of private trade,” “for the sake of common interests” only to come around once again in the process to the cooperative as a solution. Though he knew that thinkers and politicians who had been nursed by the market and state looked down upon cooperatives, even “from the standpoint of transition to the new system by means that are the simplest, easiest and most acceptable to the peasant.” He knew that incorporating the whole population in voluntary cooperatives of production and consumption would take an epoch to realize – precisely on account of the absence of the cultural-civilizatorial preconditions – and yet he insisted on posing this problem. 17 The precise relationship between cooperatives and socialism that Lenin had in mind becomes clear in the light of his whole approach, the complete coherency of his thoughts. The cooperatives, as he wrote, are the products of capitalism; they are “collective capitalist institutions” in which the future of socialism can be glimpsed. Producers have the opportunity to shape the cooperatives in their own image in the course of a revolutionary reform of state power, similarly to how in the NEP, “when we combine private capitalist enterprises … with enterprises of the consistently socialist type … the question arises about a third type of enterprise, the cooperatives, which were not formally regarded as an independent type differing fundamentally from the others.” He spoke about the possibility of coexisting state socialist and cooperative socialist enterprises, though a differentiation between the two forms of cooperative, state and self-governed, would come due. 18 By the mid-1920s, nearly 10 million people had been pooled into state-organized and state-subsidized consumer cooperatives. Lenin marked out explicitly that a shift must be made from the interpretation of socialism previously reached (war communist, state powered, and politicized) to the position of “cooperative socialism”:

Now we are entitled to say that for us the mere growth of cooperation … is identical with the growth of socialism, and at the same time we have to admit that there has been a radical modification in our whole outlook on socialism. The radical modification is this; formerly we placed, and had to place, the main emphasis on the political struggle, on revolution, on winning political power, etc. Now the emphasis is changing and shifting to peaceful, organizational, “cultural” work. I should say that emphasis is shifting to educational work, were it not for our international relations, were it not for the fact that we have to fight for our position on a world scale. 19

Of course he treated the outlook for real socialism very cautiously on account of the “ridiculously inadequate elements of knowledge, education and training.”

The most comprehensive modern theory of socialism has been published by Istv'an M'esz'aros, who ties his work on capital to the theoretical fundamentals of Marx and Lenin, and links his concept of socialism, not to the concepts of market production, but both looks for and defines these concepts beyond the market and the state – “beyond capital,” in short. The first generation of Soviet ideologues, including Lenin, defined the difference between the state capitalisms under the reign of capital and the dictatorship of the proletariat in that they wielded power in the name of a different class. They consolidated different modes of distribution and ownership, with a preference for different cultural values, marking out different political goals for society. Lenin limited the direct socialist exchange of goods (following war communism) to the state-socialist sector, its fate hanging by the market competition that connected to the capitalist sectors of the NEP and the “state-regulated buying and selling, to the money system”. 20 Contrary to Lenin, Bukharin often defined this “state economy” as socialism, in both the ABC he wrote with Preobrazhensky, and in his Economics of the Transition Period (Ekonomika perekhodnogo perioda). This definition of socialism as state socialism transitioned directly – leaving Lenin out – to the ideological medium of the Stalinist period.

Lenin outlines four potential courses of development during the “state capitalist” phase of the transitional period, which also explains why such a wide variety of movements, both inside and outside of Russia, refer to his ideas. Three of these possibilities remained aligned with the conceptions of socialism (the fourth being the Ustryalov scenario of reversion to capitalism). In the course of time, the three basic trends could be observed not only in political thought and factional struggles, but also in historiography: