Quote:
Money in the Soviet Union
In developed market economies, the fundamental types of money are cash (coin and currency) and the private checks of households and businesses. In the Soviet Union (as in most other STEs), there were few private checking accounts. Nevertheless, there was something like a checking account in the enterprise sector, and that was "bookkeeping money" on account with Gosbank.
Indeed, these bookkeeping accounts were the only type of money used between one enterprise and another. Whenever one enterprise shipped its output to another enterprise which used it as input, the Gosbank account of the "output-enterprise" would be credited, while that of the "input-enterprise" would be debited. In this way, goods made their way through the production process without occasioning any exchange of cash.
Besides this "bookkeeping money," there was cash, which was used for only two purposes. First, enterprises paid their workers with cash provided by Gosbank (the account of the enterprise would be debited). Second, households purchased goods with cash, which was then turned over to Gosbank (the account of the store would be credited).
The participation of Gosbank in virtually every financial transaction not only provided the financial clearing operations for these transactions to take place, but also enabled Gosbank to closely monitor adherence to the production plan. This monitoring function of Gosbank was known as control by the ruble.
Control by the Ruble
Let us take a simple example of consumer goods production in the Soviet Union: a milk farm produces milk and ships it to a cheese factory, which turns it into cheese and ships it to a State store. Finally, the State store sells the cheese to a household. How would Gosbank be involved in each of these transactions?
When farm delivered its milk output, it would obtain a document from the cheese factory verifying that the latter had received its milk input. The document was then turned over to Gosbank, which credited the farm's account according to the value of the milk delivered, and debited the cheese factory's account by the same value.
Likewise, after the cheese was produced and shipped to the State food store, the cheese factory obtained a document verifying its delivery of cheese. Again, the document was turned over to Gosbank, which this time credited the cheese factory's account and debited the store's account. Finally, when households purchased the cheese with cash, the State store deposited its cash receipts with Gosbank and was given a credit of equal value.
With this simple example, we can see how every transfer of physical output from one location to another, and every bit of value added in production, was mirrored by an associated financial transfer through Gosbank. If less than the planned amount was delivered on any given day, Gosbank would know. If delivery were late, Gosbank would know. If inputs or outputs were stolen and diverted to the black market, Gosbank would know. Of course, this did not mean that everything went according to plan. Shortages, time delays, and diversion to the black market were notorious problems of Soviet central planning. But control by the ruble did mean that glitches were discovered, investigated, and dealt with in some manner.
Control by the ruble was strengthened by severe restrictions on the use of money and credit in the Soviet Union. As for bookkeeping money, inter-enterprise credit was simply not allowed; one enterprise could not "lend" bookkeeping money to another by permitting late payment for goods received. Also, enterprise accounts with Gosbank were "blocked," that is, they could only be used to pay for the type and quantities of inputs that were specified in the plan. Otherwise, Gosbank would refuse to release them.
As for cash, enterprises were virtually forbidden to hold it for any purpose other than payment of wages. Even the cash receipts of State stores had to be deposited with Gosbank, and then withdrawn again to pay the wages of the store workers.
Finally, control by the ruble extended to imports and exports as well. All goods produced for export were "sold" to Vneshtorgbank, which credited the producer's account with bookkeeping rubles. Vneshtorgbank would then sell the goods abroad for foreign currency. In turn, the foreign currency was used to pay for imports into the Soviet Union, which were then sold to a Soviet enterprise whose bookkeeping rubles would be debited. In this way, the authorities could carefully monitor foreign currency exchange, and ensure that scarce "hard currency" (i.e., freely convertible currency like U.S. dollars or German marks) was used only for "desired purposes."
In general, control by the ruble was designed to prevent deviations from the central production plan. But since the plan itself was often inconsistent, providing an enterprise with too little of one input and too much of another, managers in order to meet their output requirements were forced to develop sources of supply that could bypass Gosbank's clearing operations, i.e., sources that required neither bookkeeping money nor cash. Hence, the immense amount of interfirm bartering that took place in the Soviet Union. An enterprise with excess coal might be lucky enough to trade it for some desperately needed steel. More likely, it would trade its excess coal for some rubber that it didn't need, and would then go about finding an enterprise that had excess steel but needed rubber. Or, worse still: it would trade coal for rubber, then trade rubber for steel knives, and finally melt down the knives to obtain raw steel.
Of course, barter requires human resources that could otherwise be used productively. In this way, control by the ruble was another cause of economic inefficiency in the Soviet Union, above and beyond that caused by inconsistencies in the plan itself.
Quote:
Originally Posted by p. 82-3
The distinction between hard-currency trade and other (bilateral or
'barter') trade was of great practical importance. It did not correspond
neatly with the trade-partner categories used in Soviet reporting, as in
Table 3.3 above.
Soviet hard-currency trade was trade with the developed West except
Finland and with some developing countries - chiefly the former. In its
other trade, with Finland, with CMEA partners, with other socialist countries
such as China, and with some major Third-World trade partners
(Egypt, India and many others), the Soviet Union had bilateral settlement
arrangements. That is, two-way flows of merchandise were planned to offset
one another; if one partner ended the year with a deficit vis-a-vis the
other, it would normally offset that in the following year by delivering more
than it received.
Bilateral balancing has all the disadvantages of barter between individuals.
It is unlikely that countries will trade efficiently on that basis. Prices will
typically be manipulated, or unwanted merchandise accepted, to strike an
accounting balance. But a centrally administered economy cannot operate
in any other way when trading with another centrally administered economy.
Neither of them has a currency that is freely convertible into goods even for
its own residents, let alone for non-residents. Therefore neither has a currency
that the other can hold as a claim on the other country's resources:
their currencies are not money in an international sense, because they are
far from fulfilling all the standard functions of money even domestically.
Therefore the Soviet Union could not finance a deficit with East Germany
from a surplus with Hungary: it had to try to balance bilaterally with each
separate 'barter-trade' partner. This practice was extended to developing
countries with which the USSR had close trading links. Such close links
often involved Soviet arms sales. These countries, too, often had inconvertible
currencies. Bilateral trading was extended to Finland because history
and geography gave the Finns very little choice in the matter. This is how
Finland came to be the only state in the developed West to import Soviet
nuclear reactors.
Hard-currency trade had to be planned separately from bilaterally balanced
trade. The Soviet planners aimed to manage their external financial
position so as either to balance their trade settled in hard currency overall
(e.g. using surpluses earned in Europe to offset deficits with the US) or to
keep any borrowing from the West at manageable levels that would not
allow Western politicians to exert leverage on Soviet policies. The chief
form that such borrowing took was the provision of official credit support
(see below).
What was happening was obscured by publishing neither overall balanceof-
payments nor reserves data. These were state secrets. Western efforts at
elucidating the Soviet external financial position in hard currency transactions
probably, however, got reasonably close to the truth. There was no inward
or outward direct or portfolio investment to worry about. Services transactions
(shipping, tourism, etc.) were small and amenable to estimation. Borrowing
in the form of Western official credit support for capital goods
exports to the Soviet Union (via the Export Credit Guarantee Department
in the UK, Eximbank in the US, Hermes in West Germany, etc.) could
be tracked. So, with rather more difficulty, could some borrowing on the
Euro-currency markets.
On money in the consumer economy.
Quote:
Originally Posted by p.89-90
It is clear that money incomes rose substantially more than the supplies
of goods and services available for consumption. The latter were nearly all
at fixed prices. The kolkhoz market prices were the only prices of any general
significance that were not controlled. Their steep increase over time
(6.3 per cent a year) indicates increased shortages of food in the state shops,
with their controlled prices. The even faster increase in the annual flow of
savings per head (17 .9 per cent a year) strongly suggests that at least some
of that saving was 'forced' or involuntary: frustrated spending.
This environment of repressed inflation, or shortage, is not readily comprehended
by Westerners or, for that matter, by young Russians with no
memory of communism. Most Soviet citizens had subsidised but severely
cramped accommodation - often, still, multi-household apartments. They
spent little on their housing. Food supplies were increasingly becoming
subsidised, as farm prices were pushed up and retail prices were held unchanged
(see below). Having money in your pocket but nothing to spend it
on was a common experience. People carried (in this period) string bags
with them wherever they went, just in case they happened across some item
in short supply.2 Hours each week were spent queuing. Roubles were, even
then, routinely referred to as 'Monopoly money'. Privileged access to scarce
goods was far more important than money income in determining who got
what. Simply living in Moscow was a source of material privilege; the city
was far better supplied than the provinces.
The notion that a foreigner might have the opposite problem - plenty of
goods in the shops but a shortage of money - was something few Soviet
citizens could grasp. It was rapidly becoming well known, at any rate in
Moscow, that shortages and queues were not the norm in the West. The
corollary, that rationing by price meant most people lived close to or even
above their incomes, was less comprehensible. Hence the apparently impudent
requests to visitors for expensive items from the Western cornucopia. In
the mid- l 980s it was not unusual to be asked, quite casually, if you could
bring someone a laptop computer on your next visit.
Consumer shortages never went away, so long as the Soviet Union lasted.
Nonetheless, their existence denoted neither general poverty nor a lack of
material improvement over time. Soviet citizens were consuming more, as
housing, food supplies and manufactured consumer goods all became more
abundant. The difficulty was that for much of the last 30 years of Soviet
history the growth of money incomes tended to outrun the growth of consumer
supplies, and retail prices were held mostly constant.
Quote:
Originally Posted by p. 118
The state retail price index for food showed no inflation in 1965-70, and
a tiny increase of 0.9 per cent over the following five years (Narkhoz 22-82,
pp. 480, 481 ). But while state retail prices for food (or at any rate for
standard items like one-kilo loaves of white bread) were indeed kept unchanged,
excess demand tended to grow as money incomes rose. Demand
for meat, green vegetables and fruit, in particular, tended to outrun state
supply at state-set prices. Distribution was geographically highly uneven,
with the best supply situation maintained in Moscow, and so on down the
pecking order until one got to stores in small towns and villages, with a few
miserable items in stock, plus bottles of vodka to alleviate the misery.
The inflationary pressure, however, was not fully repressed. In the urban
peasant (so-called collective-farm, or kolkhoz) markets, food was sold at prices
that were only fitfully and indirectly controlled. The difference between
peasant-market and state-shop prices for food reflected in part quality differences
and in part the repressed inflation so far as state food supplies were
concerned. Soviet official figures that indirectly revealed this are shown in
Table 4.6.
The implication of these numbers is intriguing: food supply per head of
population was improving rapidly, but food shortages in state trade were if
anything getting worse; or, to put it another way, repressed inflation in the
consumer market for food was intensifying. The policy of freezing state
retail prices while encouraging the farm sector to produce more (in part by
higher procurement prices) and allowing money incomes to rise comparatively
fast was producing a growing disequilibrium in consumer markets, at
any rate for food.
