Party in the USSR

[Montmorency]

Here's some on the intra-government use of "money":

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.

Next, from The Rise and Fall of the Soviet Economy:

One rough-and-ready estimate of the reality of work-day earnings in the
late Stalin period can be made as follows. Nove (1992, p. 307, citing a
Khrushchev 'revelation' from 1958), quotes a figure of average collective
farm cash earnings per kolkhoz household of 623 roubles in 1952 (these are
'old' roubles; the rouble was re-denominated in 1961, when the new rouble
was made equal to 10 old roubles). If we apply to that rouble figure the
purchasing power conversion rate used by Bornstein for household consumption
in 1955 (Bornstein 1959, derived from Tables 1 and 3), this is
equivalent to $78 (in US 1955 prices). That amount is per annum per
household. It covers only income in cash, not in kind, and the latter still
predominated. But the monetary value of the total income from the collective
would still have been very small - and smaller in the late 1940s than in
1952. Nove (op. cit., p. 308) estimates that in 1948-50 it took on average 60
trudodni to earn 1 kg of butter.

On the use of Soviet monetary currency for international markets.

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.

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.

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.

The state-economy environment, however, created massive distortions in
the development of cooperatives engaged in business services. The enterprise
law allowed state enterprises to have cooperatives attached to (pri)
them. The cooperative law, accordingly, provided for cooperatives to be
formed pri state enterprises. This close linking of a state enterprise and a
cooperative provided great opportunities for evading controls on the former.
Two channels for weakening state control deserve special attention.
The first had to do with monetary control. The traditional Soviet system
operated with two rigidly separated monetary circuits. Cash was used to
pay wages but enterprises were not allowed to make other routine payments
in cash. The traditional monobank system was not a banking system
so much as a giant, in-house accounting establishment. Payment for planned
deliveries from one state enterprise to another was made by offsetting alterations
to the accounts of the two enterprises with the State Bank. They
were not allowed to settle up in any other way. Cash dispensed as wages
(which were always paid in cash) either went into the Savings Bank or
directly or indirectly to state retail outlets that banked the cash: either way
the cash came back into the monobank system. The separation of cash

The bottom line can only be guesstimated. Altogether, the new, legal
private sector - though its private-enterprise character was not officially
acknowledged at the time - probably amounted to around 4-5 per cent of
the economy in 1990. This was smaller than the established private sector
of household allotments and the black economy. Grossman (1989, note 4)
estimated that in the late 1970s about 40 per cent of urban household
expenditure, including self-supply of food products, was spent in the informal
or second economy. Extending that to the whole population and converting
it into an estimate of shadow-economy value added is impossible,
but it strongly suggests that the shadow economy plus subsistence food
production had recently been a significantly larger part of the total economy
than 4-5 per cent. It probably still was.

If cash money were the primary means of exchange and consumption for everyday Soviet life, then we would expect living standards to have been much lower than they actually were. You see, most of an individual Soviet citizen's "net worth" (in a manner of speaking) came from position, connections, the black market, informal exchange, and most importantly direct transfers in kind from the central government, not from their salaries and what they could buy with them.

What you may be remembering is the shift in the '80s in which foreign (i.e. Western) hard-currency became increasingly important to the Soviet economy at all levels.

[Ice]

That was an interesting read, thanks.

[Gilrandir]

If cash money were the primary means of exchange and consumption for everyday Soviet life, then we would expect living standards to have been much lower than they actually were. You see, most of an individual Soviet citizen's "net worth" (in a manner of speaking) came from position, connections, the black market, informal exchange, and most importantly direct transfers in kind from the central government, not from their salaries and what they could buy with them.

What you may be remembering is the shift in the '80s in which foreign (i.e. Western) hard-currency became increasingly important to the Soviet economy at all levels.

Still I don't see how it invalidates what I said.

My parents (as well as many others) had a check account (which in tangible form was represented by the "savings book"). Yet it was considered as something to be kept "for a rainy day", so normally people didn't use the money from it unless some big purchase was imminent (a car, TV set, a furniture set and the like). But even in such a case people tried not to draw money from this account, but bought the goods on hire purchase paying off the price in installments deducted from the monthly salary. The savings books could be involved if someone got married or received an apartment (free of charge) which had to be fully equipped and/or repaired.

But in any case there were no check payments, people just they went to the bank AND GOT THE CASH to be paid for services or goods.

The majority of people kept all the money on the savings account intact that is why when the USSR collapsed they (and my parents too) lost all their saved money.

So this part is all about the money which WAS there.

As for abscence (or limited character) of money circulation between enterprises - it is natural, because all of them were STATE-OWNED. Do you write yourself a check to take money from one pocket and place it to another? The same approach was applied in relations between the central government and its enterprises.

As for trudodni, it is true. Yet it was true till the 1950s-1960s. Later this idea was dropped, so you may say that the money superceded the kind.

International trade doesn't really come in here, as we were talking of the money role WITHIN the USSR (and that was the experience I referred to and the one I can rely on). The only thing that I can add here is the existence of specialized shops (called "berezka" - A Birch tree) where one could buy goods (usually big ticket items - furniture, VCRs, TV-sets of foreign make, carpets, chrystal vases) for special coupons which were available only for those who went abroad. One could get those coupons at the black market, of course (1 coupon cost 3 roubles), but it was illegal (as well as posessing foreign currency) so you could get a prison sentence for it. That is why foreign currency was never an issue for average Soviet citizens.

On subsidized goods: the fact that they were never occured to people. We genuinely believed (and my parents still do) that gasoline cost cheaper than bottled water, that the rent could amount to 3 percent of your family income and that a loaf of bread was 14 kopecks. Yet people still PAID MONEY (however little it may seem) to get those goods and services.

As for connections, black market and informal exchange (which symptomatically were not mentioned in the sources so I assume deemed fabulously important by you):
Let me take my family's example.

My mother worked as a merchandise manager (tovaroved) at a footwear depot where shoes were brought to be distrubuted later to retail outlets around the region. It is natural that the staff of the depot had an access to shoes before they went elsewhere (the best ones - that were limited in number and of higher quality, usually of foreign make - never left the premises of the depot). So she could get better shoes than average Soviet citizens - but SHE PAID FOR THEM THEIR PRICE.
Since there was general shortage of some foodstuffs (especially of higher quality) similar privileges accrued to other employees who worked at grocery stores, electronics depots, railway station booking offices and so on. We had some "neccessary acquaintances" (as they were called), so we could get better meat, butter or sour cream from Uncle Zhenya or Aunt Tonya (the terms of kinship here have nothing to do with family relations - they were and are used by children (like me back then) to refer to familiar adults who are not related). And in return they could have better shoes from my mother. But in either case we (and they alike) PAID FOR THE GOODS IN CASH. There was NO exchange in kind (say, shoes for sausage). Of course such situation gave rise to corruption when those with privileged access paid for the goods their official price and sold them for a greater price later. It was not the case of my mother, though, whose fault was in being "pathologically honest", as some people said to her.

The bottomline: in the life of an average Soviet citizen money was an impotant factor which gauged his position in life to a great extent. But usually there was a ceiling that they couldn't surmount. Higher than the ceiling were the elites, for who money really didn't matter that much.

[Montmorency]

As for connections, black market and informal exchange (which symptomatically were not mentioned in the sources so I assume deemed fabulously important by you):

Check again, but that isn't even the crux of my argument since the black market and blatnost component is already acknowledged - you gave examples yourself.

You seem to still be confused about my point, which isn't that money did not play a role in the exchange of basic goods for individual citizens, but that its usage and function was very limited compared to Western economies outside of the exchange of hard cash for immediate transactions, and that even there living standards and actual consumption were predicated much less on the exchange of cash but on direct transfers from the government to the citizen in the form of goods, services, accomodations, and so on.

As an aside, I didn't quote much about the economies of collective farm communities and suchlike (post-Stalin), but an interesting inversion from what we usually expect when comparing urban and rural folk is that even though this demographic was substantially poorer than urban Soviets, going by commercial exchange and holdings in terms of banked savings and private (hard cash) stockpiling, we see that the average collective-farm household had substantially more money than the average urban household.

But the urban households were 'richer', and enjoyed better standards due to their location in the networks of infrastructure (and of course political value). On the other hand, often when we think more generally of rural vs. urban we observe that rural people have very little money but can have a considerable amount of commodity production and stock enabling fair subsistence (the main downsides being in terms of high technology, education, and emergency/health services), while urban dwellers have more money and better access to goods and services but may live by lower standards due to long-term risks in health and community safety (as potential examples).

For a relevant bit, recall a few months ago when you were comparing the virtues of American and Ukrainian lifestyles by noting that Ukrainian people had a stronger connection with the agricultural and ecological substrate enabling their own (often urban) lives, while Americans seemed to only know 'farm -> food at the store'.

[Strike For The South]

Can Russians not do anything right? This much ink spilled over how not to get your checking account stolen. Life is rough when you're trying to buy knock off blue jeans and moldy potatoes.

[Gilrandir]

You seem to still be confused about my point, which isn't that money did not play a role in the exchange of basic goods for individual citizens, but that its usage and function was very limited compared to Western economies outside of the exchange of hard cash for immediate transactions, and that even there living standards and actual consumption were predicated much less on the exchange of cash but on direct transfers from the government to the citizen in the form of goods, services, accomodations, and so on.

I'm afraid my confusion may be explained by your previous posts on the topic, namely:

It surprises many individuals to learn that the Soviet domestic economy operated mostly in kind rather than coin, in exchange of favors and services.

and:

The internal Soviet economy below the level of Gosplan and inter-republic balancing was extremely underdeveloped in terms of the role of monetary currency.

In those you said nothing of comparison to Western economies (although I'm not sure Western economies had such an intense money flow BACK THEN as they do NOW - but I wouldn't claim the opposite either) and direct transfers (instead you said of EXCHANGE OF FAVORS). The bolded parts were the ones I objected to. With the corrections (or explanations) you have just made it now sounds sensible.