32 SOCIAL SCIENTIST more, state expenditure was well within the revenues obtained by the state (at current expenditure).9 Investment in National Economy It cannot be denied that inflation did set in in the USSR in the second phase of NEP, largely because of private retail traders,10 a development which caused alarm to the Soviet authorities. The Fourth Union Congress of Soviets in April 1927 decided to bring about a systematic reduction in prices of industrial goods.n In May and June of 1927, Narkomtorg (People's Commissariat of Trade) organized a "mass investigation5* in which "tens of thousands" of people participated, in quest of bringing down retail prices. By rationalizing distribution and cutting costs of production, between January 1 and October 1, 1926, "retail price of industrial goods fell by over 7% in state and cooperative trade, and free market prices by over 6%."12 This, however, did not mean that consumption goods became more easily available. Their scarcity was due TO the chronic shortage of goods, the reasons for which lie in the basic structure of NEP, which we shall discuss later. TABLE II NET EXPENDITURE OF STATE BUDGET (In Millions of Roubles at Current Prices) 1925-26 • 1926-27 1927-28 1928-29 Amount Percent Amount Percent Amount Percent Amount Percent of total of total of total of total National economy 681 26.0 1199 32.5 1675 38.3 2246 41.7 Social and cultural measures 276 10.5 356 9.6 426 9.7 482 8 9 Defence 638 24.3 634 17.2 775 17.7 880 16.3 Administration 262 10.0 369 10.0 335 7.7 327 6.1 Transferred to local budgets 666 25.4 909 24.6 966 22.1 1264 23.5 Other expenditure 100 3.0 226 6.1 199 4.5 186 3.5 Total 2623 100.0 3693 100.0 4376 100.0 5385 100.0 From Table II13 a few facts stand out. The expenditure on "unproductive" items like administration, defence and social and cultural measures has tended to fall and in some cases, like administration, quite sharply. On the other hand, state investment in the national economy increased from 26.0 percent in 1925-26 to 41.7 percent in 1928-29. Yet Bettleheim calls the investments in the national economy unproductive. Monetary Policy According to Dobb, the increase in money flow bears little resemblance to "inflation" as arising from "incautious money