To be fair, balancing the budget was important during the fixed exchange rate era, because spending more than what you tax in return can quickly lead to exchange rate depreciation.

After the Bretton Woods in 1944, many countries quickly learned the lesson that pegging their currencies to the USD (and the USD in turn to gold) very much limited their fiscal spending space. They often had to endure the “stop-go” growth cycles, where after a period of deficit spending, the governments had to impose austerity to increase unemployment to stabilize the exchange rate, then as their popularity fall, they would restart spending in more stimulus in order to win elections.

It isn’t a surprise that Bretton Woods eventually collapsed in the early 1970s. After that, the world entered the floating exchange rate era. At that point, the IMF and OECD began to push heavily the concept of NAIRU (non-accelerating inflation rate of unemployment), which, in simple terms, redefined full employment from “ensuring the full employment of the available labor force” to “achieving a level of unemployment such that inflation doesn’t go up”.

In other words, you must achieve this “natural rate of unemployment” to keep inflationary pressure down. That’s how they define “full employment” now. This made many countries very afraid of running expansionary fiscal policy to reduce and eliminate unemployment. They have believed in the neoclassical ideology that if you don’t have unemployment, you will get an inflationary spiral and it’s very bad for the economy.

As a result, many developing countries (as well as developed countries like Germany, Australia etc.) turned to export-led growth strategy to accumulate foreign reserves as assets to balance out their fiscal spending (note this is not their only response, different countries also introduced varying measures of austerity etc.). Almost all of the trade surplus countries, including BRICS, believe in this logic. Once this is understood, it will not be a surprise to see that China, a socialist country, has high level of youth unemployment right now.

The US itself also believe in this, of course. According to Michael Hudson, they were indeed panicking when Nixon ended the Bretton Woods, but the timely publication of Super Imperialism really explained how they could keep getting away with it using persistent trade deficit as an imperialist strategy to get free lunch all over the world.

As a clarification point, because many people get confused by this, note that the US running persistent trade deficit has little to do with its ability, or any country’s ability, to run up deficit spending domestically.

People will tell you it’s because the USD is the global reserve currency, but this is mistaking the consequence for the cause. The USD is the global reserve currency because it is the only country willing to deficit spend to import from the other exporter countries who have fully bought into the export-led growth strategy, so naturally those countries will accumulate USD simply as a result of running a trade surplus (export more than import) and they have no choice but to purchase US treasuries since there is nowhere else for their USD to go.

This, of course, does not interfere with any government with a monetary sovereignty (currency issuer authority) wanting to run up its deficit spending domestically to ensure full employment and prioritize domestic investment. But many countries already believe in the neoclassical theory so they won’t do this.

If I have time soon, I will perhaps write up how Stalin’s economy differed from these liberal economics and how the USSR under Stalin was pretty much unconstrained in its own domestic spending to drive investment and rapid expansion of the economy without having to suppress wages or rely on foreign capital investment, yet also experienced virtually no inflation as well as maintained full employment throughout. It is a direct repudiation of the neoclassical theory.

Can you read Russian?

Asymmetric Economy (Асимметричная экономика) (2012) by Kurman Akhmetov (pseudonym of the Kazakh economist Bakhytzhan Auelbekov) described extensively the economic model of Stalin’s USSR, particularly on the dual circuit monetary system.

Valentin Katasonov’s Stalin’s Economy (Экономика Сталина) (2014) and Alexander Galushka’s Crystal Growth (Кристалл роста) (2020) also variously extended the research on the subject.

Note that prior academic research on Stalin was very much limited or even distorted as the full rehabilitation did not occur until 2008 under Putin.

However, perhaps the most comprehensive description and a primary source on the monetary system during Stalin’s time is A. D. Gusakov’s Money Circulation and Credit of the USSR (Денежное обращение и кредит СССР) published by Gozfinizdat (State Financial Publishing House) in 1951.

It’s been a side project/hobby for me to slowly go through the books with machine translation to re-examine the genius of Stalin’s economic model with an MMT lens.