Gold in the service of Soviet Union, part 2


We continue our considerations on the subject of historical economy for connoisseurs and not only. We’re discussing history of gold and its use in Bolshevik Russia and the USSR in the years 1918-1991.
Professor and American
In 1927, there was additional reorganization of the industry management – Soyuzzoloto was established. Its shareholders included gold mining trusts, State Bank and Narkomfin (the equivalent of the Ministry of Finance). The company was subordinated to both the Supreme Council of the National Economy and the Soviet Gosbank and was to concentrate assets of the main organized gold "miners" (mining trusts and departments).
New structure was not supposed to focus on solving supply problems, but instead was tasked to focus on production". Head of the organization was Aleksandr Serebrovskii, a professor at the Moscow Mining Academy, previously head of the Azneft oil trust. He began his activity by familiarizing himself with the technical experience of the United States, searching for experienced specialists, establishing contacts with existing educational institutions in order to train staff, and also creating a hitherto practically non-existent system of geological research. According to declassified CIA documents, 175 American mining engineers and technicians found work in the USSR in this way.
One of them, personally recruited by Serebrovski, was American, John D. Littlepage. In his book "In Search of Soviet Gold" published in 1938, he described that the Soviet salary was two to three times higher than what he received in Alaska. His activities in the USSR consisted of training specialists, solving problems, modernizing and recruiting interested compatriots. At the same time, he was aware of the existence of the forced labour, which he was ordered to ignore. And on which he just briefly mentioned just once, after returning to the USA, while writing a book, a series of articles in American newspapers and during interrogations conducted by the then US War Department.
I have often had to deal with former priests and Muslim holy men working for me. Some of them turned out to be excellent miners.
Littlepage was even awarded the Order of the Red Banner of Labor, but his career collapsed when purge claimed his patron, Serebrovsky, in 1937. As a close associate of the “enemy of the people who support Trotskyism,” he quickly began to be treated like a leper, which accelerated his decision to end his foreign adventure.
In March 1928, a special resolution was passed “On the financing of private gold mining enterprises,” which were granted interest-free loans for up to 10 years in the amount of 70% of the amount of the costs necessary to carry out the work. Special conditions and the centralization of industry in line with the course of modernization of the economy attracted American capital and industry willing to help Soviets to rebuild their mineral and industrial potential and to provide them with appropriate machinery. Among them were Chase National Bank (later Chase-Manhattan), International Harvester, Allied American, Occidental Petroleum, General Electric, Ford Motor, Dupont, Radio Corporation of America, Caterpillar Tractor, American Can, Standard Oil of New Jersey, and Alcoa.
Industry experts from the Soviet era and modern Russia recognize their contribution (in the form of specialist personnel, financing, and technology transfer) as essential to the reactivation of many remote mining districts, and development of new areas. And in the context of - perhaps surprising to some readers - cooperation between Washington and Moscow, it should be noted that these relations were warm both in the 19th century and most of the first half of the 20th century. This among many has been covered with regards to finance by Antony Sutton in his books "Wall Street and the USSR" and "Wall Street and the Bolshevik Revolution”.
Kolyma means death
Since 1921, organized expeditions searching for promising gold and platinum deposits have been taking place in Siberia. Discovery of gold in Kolyma and in the Arctic regions of northeastern Siberia, has officially been confirmed in 1928, and was to be considered as great success. This is how "great Siberian gold rush" started, but also this is when dark and tragic history of Kolyma as a place of exile and forced labour began.
With the start of the new "great Siberian gold rush", there was a massive effort by the authorities to confiscate all private gold. Obtaining precious metal in this way was once again possible, because during the years of NEP liberalization, society really gained the opportunity to catch breath. Semi-capitalist condition enabled most enterprising and hard-working individuals to get rich. "Good times" ended in 1928, with Stalin's consolidation of power and announcement of first 5-years plan. It aimed to liquidate private property and force intense industrialisation of Soviet Union. From that moment on, among other things, fight against NEP-men and the "kulaks" began, as they had been named “non-socialist pests” and “exploiters”. About half a million people were arrested by the NKVD on charges of possessing gold. Jewellers, watchmakers and dentists suffered particularly, but so did a large number of innocent people. We also should mention mass and forced resettlements of nations, which intensified since 1930s. They were experienced by among many - Poles, Finns, Kurds, Azeris, Iranians, Armenians and Koreans living in the lands of the USSR.
After 1931, government significantly intensified its program of extermination of non-Russian prisoners in forced labour and extermination camps. Dal’stroy (Far North Construction Association), served well to this purpose. Administrated jointly by Soyuzzoloto, NKVD, and Red Army, organization was also responsible for geological exploration throughout the northeastern region of Siberia.

Gulag Archipelago - network of forced labour camps supervised by the NKVD. Dal’stroj and its subordinate areas marked in the north-east. Source: https://dyatlovpass.com/gulag-camps-2Liczni
"Enemies of the working class" were sent to Siberia to forced labour camps. Extreme weather conditions in Kolyma, combined with physical labour of 16 hours a day, expected high productivity norms, brutal system of punishments, only basic tools such as a pickaxe and a spade, and inadequate caloric food rations made Kolyma gold mines a place with a low survival rate and mass grave for prisoners. Conditions are described in the multilingual memoirs of former prisoners from the entire "Gulag Archipelago" as well as in the written reports of Polish prisoners of war – subject of amnesty in 1941. Estimates vary depending on the source - hundreds of thousands to several million victims are given. Kolyma's dark notoriety as a place of exile quickly spread among the prisoners. This is where the popular statement of the time "Kolyma znachit smert" (Kolyma means death) came from.
Let us recall assumptions of the Soviet policy related to gold, from the early 1930s: state does not have funds for mechanization, in the next few years gold mining should develop wherever possible based on manual labour, and the goals of industrialization included in the five-year plans were to be served by "light" gold, mined without large-scale investment. Additionally, the development of the sector is not based on the foundations of the profit and loss account, but on ideological considerations and the belief in the absolute necessity of the metal for the functioning of Western economies. And in time, gold factor itself was to fit organically into the concept of autarky and the "closed economy".
Until the end of the 1920s, gold production in the USSR increased slowly, although determining the exact volume is a difficult task. Moreover, since 1933, the USSR has not published any information on sector trends. Information collected by pre-war German and American analysts only have data related to Glavzoloto, but not Dal'stroj, which was a separate unit under the management of the NKVD. A similar picture emerges from Soviet and Russian sources – a lot about politics, development, technology, little about slave labour and volumes.
So what picture do we have? Under the Glavzoloto, from the Urals to Pacific, following were mined:
• 14 tons in 1918,
• 1.8 tons in 1921,
• Several tons per year by 1927,
• In 1929, an increase in production with a volume around 25 tons.
Geographical division of gold bearing regions for Glavzoloto in the table below. Absolute dominance of the Asian part of the USSR is visible.

Glavzoloto and Dal’stroy – estimated gold production 1931 – 1950. Source; P.S. Grebenyuk, The Gold Factor and Soviet Gold Industry during the Stalin Epoch. Pre-war Glavzoloto figures are similar to these reported by US sources.
Podział geograficzny regionów dla Glavzolota w tabeli poniżej. Widać absolutną dominację azjatyckiej części ZSRR.

Estimated gold production in the USSR from 1927 to 1938 by region. Źródło: Soviet Gold Production, Reserves and Exports Through 1954
Stalin's "gold program"
First five-year economic plan (1928-1932) ceased NEP reforms, carried out the "co-operative-sation" of agriculture and struck with full brutality at private property. Soon the Ukrainian SSR was to be hit by the Great Famine, provoked by the communists, and in the second half of the decade a wave of terror remembered as the Great Purge sweeped through USSR. In 1929 the gold standard was restored in the world, which meant growing economic role of gold and long-term devaluation of currencies.
In 1927, forced industrialization began in the USSR. Stalin's calculations that income from the export of agricultural products, food and commodities will be able to finance country's industrial development turned out to be faulty on macro aspects - worldwide crisis that broke out in 1929. Agricultural prices dropped significantly. In 1931–1933 – the decisive stage of Soviet industrialization – real annual export earnings were much lower than expected before the crisis. The USSR sold grain for half or even a third of the pre-crisis world price, while millions of peasants were starving.
The foreign debt increased significantly. It was therefore necessary to sell to the West not only grain, timber and oil, but also more gold, which was an indispensable financing component anyway. According to the State Bank of the USSR, from October 1, 1927 to November 1, 1928, more than 120 tons of pure gold were exported abroad, which meant that all of the country's free gold and currency reserves were used up, as well as all of the gold mined during that fiscal year. According to the American Embassy in Latvia, which closely monitored Soviet gold exports, more than 260 tons of the metal were exported from the USSR via Riga from 1931 to the end of April 1934. At that time, sale of the priceless collections from The State Hermitage Museum began.
The confiscation of foreign currencies and gold was resumed - in 1930 alone, only 8 tons of the precious metal were delivered in this way. Communists opted for solution which was at height of perfidy aimed at citizens - state made Torgstin stores. They accepted silver, gold, gold-plated and silver-plated tableware, wedding rings, precious stones, foreign currencies, etc. and in exchange Torgstin money were being issued, which were recognized in the store chain throughout the country. And so, citizens could purchase basic food products or luxury goods unavailable anywhere else but in the Torgstin. Just at a three-fold premium compared to foreign prices. This way, during its short existence between 1931-1936, Torgstin delivered equivalent of 222 tons of gold.
Mining sector at that time remained a mix of the Glavozoloto state trust, still independent entities, and the force labour based Dal’stoy (penal colonies under the management of the NKVD). In addition, it was still characterized by the participation of foreign entities, transferring technology and cooperating with Soviet industry.
Completion of the first five-year plan allowed the authorities to make some adjustments to the gold mining policy – it became possible to partially replenish the equipment park and improve the structure, which was very important due to the diversity of natural conditions of gold mining areas and difficulties in fulfilling assumed production plans. Gold refineries were rebuilt and supply of dredgers and equipment “manufactured in USSR” to the domestic market began. Of course, this was not applicable to Dal’stroy, where principle of “fast and cheap” was still in force, and where human life was not considered. Relatively more attention has been placed to the qualitative characteristics of production, primarily to the cost of gold mining, which was established in the system of planned indicators. At the same time, needs of the sector were continued to be treated as one of priorities, providing it with privileges, budget inviolability, privileges and providing top-class products.
In a starving country, authorities considered it reasonable to maintain a network of special shops for miners with an improved assortment and prices in gold terms. And by a special decree of the Central Executive Committee and the Council of People's Commissars, status of prospectors was equalized with industrial workers and later with state heroes.

One of the former Dal’stroy gold mines near Magadan. Photo from 1970. Source: https://dyatlovpass.com/gulag-camps-2
In 1932, gold mining came under jurisdiction of the People’s Commissariat of Heavy Industry. By that time, under Glavzoloto system operated all territorial trusts, two machine-building plants (Krasnoyarsk and Irkutsk), Moscow Refinery, Giprozoloto, Ginzoloto and Niszolotolaboratorium institutes, as well as other specialized departments. The importance that Stalin personally attached to the gold mining sector can be attested by the broad prerogatives granted to Glavzoloto, which made it, even more state within the state. Moreover, most government directives in the field of gold mining had the highest priority and were titled "Stalin's tasks", while sector itself in the hierarchically militarized economy of the USSR was called the "currency workshop of the national economy".
In the 1930s, various types of trusts, so-called local artels and individual miners operating privately and on the basis of concessions provided more than half of the official gold production (56-62%). As they were non-state entities, authorities did not make any special investment outlays towards. In 1933, however, they were obliged to "expand mining activity everywhere and widely inform the population of gold mining regions about the benefits for miners and gold prospectors".
Stalin’s "gold program" was accompanied by slogan:
Ruthlessly part with those who are unable to fight in a Stalinist way for the implementation of the gold program.
However, there was still a discrepancy between the official party line and reality. From the realistic side, it looked like a kind of dictatorship of the so-called "vile" metal had been established in the economy in the name of the dictatorship of the proletariat. But from the ideological side...
The October Socialist Revolution put an end to the dominance of gold on one sixth of the globe... the golden calf, this engine of capitalism, was exposed, lost its power in the Soviet Union
Export of gold outside USSR provided limited financial resources and using it as collateral provided operational and image benefits to the state. And state kept buying gold domestically at fixed prices significantly (almost 40%) lower than on the world market, which was an additional source of financial income.
in 1936-1937, level of soviet gold extraction exceeded 130 tons, which is confirmed by American sources, which we referred to in part one. To the above, of course, we should add volumes from areas supervised by the NKVD. However, in the second five-year plan (1932-1937), planned volumes were not achieved – overall scale was at 17% and in the public sector 24%. It is obvious that real reason behind insufficient pace of production growth was in low technical level of production. At the time, focus was on easily accessible alluvial deposits, while ignoring ores for the most part. On one hand, this ensured relatively “cheap gold”, but the tonnage could change from year to year due to rapid depletion. In addition, there were development difficulties caused by the terror of industrialization and the entire policy of central planning. In Stalinist reality, this could however only mean one thing – “industrial sabotage”. Therefore, the Great Purge (1937-1938) also covered sector.
Punch with rifle stock on teeth - Kaganovich „reforms”
In 1937, by Stalin's appointment, it was Lazar Kaganovich who became the new head of the People's Commissariat of Heavy Industry. He was a man co-responsible for the Great Famine in Ukraine and the Great Purge, described as a servile lackey and a drunkard. The "outstanding" portfolio was to help him carry out sectoral “reforms”. Of course, "enemies of the people" were arrested and got rid of, including Alexander Serebrovsky, accused of supporting Trotsky with gold, and of blatantly granting privileges to miners. A large group of engineers, directors and managers were also subjected to Stalin's purge, based on the erroneous assumption that they would be easy to replace. The "subtleties" of the gold trade and its flows were widely ridiculed. Direction of reducing production costs was continued, but at the same time current sectoral arrangements with large number of individual miners and private entities was attacked as ideologically unfit. Result was the transformation of the sector into a fully state-owned and elimination of mining privileges. As a result of these actions, number of miners fell by 40%, and so the volume of gold extracted. Stalin eventually had to intervene, restoring previous status and commenting on the "gross distortions" of party decisions. "Tsar is kind, it’s boyars are bad".
The need to ensure stable levels of gold extraction resulted in a shift towards the development of not only easily accessible alluvial deposits, but also poorer ores, now economically viable for the gold industry. Although in this case, alluvial gold deposits would remain dominant source of gold in the USSR for practically entirety of its existence. On this basis, among others, in 1939 Main Directorate of Gold Mining was transferred to the People's Commissariat of Non-Ferrous Metallurgy. Within its framework, management of the industry was briefly divided territorially, and the Main Directorates of the Gold and Platinum Industries of the Urals, Kazakhstan, Western Siberia ("Glavzapadzoloto") and Eastern Siberia, and the Far East ("Glavvostokzoloto") began to operate.
In the 1930s, volume of Soviet gold mining remained at about 130 tons per year, for the next years it increased by an average of 20 tons, and in 1941 volume was at 174 tons. In the pre-war five-year plans, about 2.7k tons of gold were allocated for the needs of the industry, which undoubtedly played an important financing role here.
World War II and the Great Patriotic War
During World War II, a military regime was introduced in state-owned enterprises and establishment of mining cooperatives was supported. Gold which supplemented country's military budget, was of great importance. Unfortunately, Dal'stroy achieved record production and, according to estimates, at the time accounted for 50%+ of Russian gold mining.
Production was restored by the simplest means in mines including these, which in the pre-war period were considered unpromising, while the cheapest methods of extraction were cultivated. On the other hand, some mines were forced to suspend production due to the mobilization of workers.
Soviet government sought funds to supply industry with food. However, gold accumulated during the war was being used faster than it was accumulated. It is difficult to determine at what level reserves were at that time. In fact, the topic of gold reserves held by the USSR during its existence is full of gaps. It is known that under land lease, USSR paid for deliveries, primarily weapons, about 1.5k tons. Despite this, American data indicate 2.3 thousand tons accumulated by the USSR in 1945. In turn, Soviet archive data speak of 2,053 tons in 1953, although there are also some estimates that bring this number closer to 2,800 tons. In terms of volume, these include 500 tons that Soviet specialists "escaped" from Spain during local Civil War of 1936-1937, as well as tonnage from various contributions, requisitions and war reparations.
Draining of natural resources accelerated at the end of the 1930s and during the war, in which USSR entered as an aggressor, then turned into a victim, and finally became the "victorious ally”. Responsible for numerous crimes against prisoners of war, civilians and national minorities. It is known that at that time, further mining trusts were established (including Dzhugdhursky in Khabarovsk Krai) and many new mines were opened under the management of Glavzoloto, both underground and surface. Dal’stoy prisoners, after the extraction of near-surface deposits, also were forced to go underground. As a result, while in 1937 underground mines were responsible for an estimated 44% of gold extraction, in 1942 this level was already 60%.
Let us add a few more words about platinum - after all, in the first years after the revolution, main investment outlays in precious metals mining sector went to this metal. Moreover, bulk of its production took place in the Urals, thanks to the infrastructure built mostly during the tsarist rule. Which meant conditions, that were several classes better than these on Siberia.
In 1949, the USSR produced 120,000 ounces of platinum per year. Declassified CIA documents from the 1950s estimate, that production costs of Soviet platinum could have been closer to the costs of other industrial metals than, for example, gold.
And how does gold compare? Estimates show that in the years 1931-1950, 2,029.4 tons of gold were mined in the USSR, of which Glavzoloto/Glavspetsmet accounted for 1,116.2 tons (55%) and Dal'stroy for further 913.2 tons (45%).
To be continued...