Money Unmade: Barter and the Fate of Russian Capitalism.
David Woodruff's Money Unmade is a richly textured study of Russia's apparently stalemated transition to a modern market economy. It focuses on one of the central puzzles of Russian economic reform: the reversion of the industrialized economy to barter, and the fracturing of the monetary system that the first wave of reform, the so called "shock therapy" of 1992, sought to introduce. This left the Russian economy of mid-1999 mired in a deep depression, and the Russian state and polity fragmented. Professor Woodruff's analysis provides a fascinating explanation of how and why this occurred, and intriguing speculation on where it is leading.
This is a study of political economy, taking a sociological-institutional approach deriving from the writings of George Simmel (Philosophy of Money ), Karl Polanyi (The Great Transformation ), and George Knapp (The State Theory of Money ). Noting that an essential power of a sovereign state is that of the definition and creation of money, Woodruff studies the Russian transformation as an example of the "politics of monetary consolidation" in the aftermath of the collapse of the largely demonetized Soviet economy. The analysis places particular emphasis on the state-building function of monetary control as an assertion of national over local sovereignty. That control, he argues, is currently subject to contention among differing national visions or "projects" pursued by differing political actors. This conflict arose because monetized national integration leads to regional and local disintegration as the specific dependencies of local interaction, and hence the inherited structure of product ion, are disrupted by the creation of generalized (monetized) opportunities and dependencies. Thus the national project of consolidation through uniform monetization has faced an alternative "productivist" project of integrating disparate valuation spheres built around the maintenance of local "substantive" economies. It is the conflict of these visions, one far deeper than that over monetary policy and rent-seeking typically analyzed, which is laid out in rich detail in this study.
The story begins with the Soviet economic debates leading to the credit and monetary reforms of the early 1930s that created the classical Soviet monetary system. It provides both a fascinating exploration in intellectual history and a clear explanation of how and why that tightly partitioned monetary system, with its segmented "value-spheres" and production-driven basis for all money, prices, and credit came to be central to the economic system. It also explains the "productivist project" that drove Soviet economic, and in particular industrial, development and animates much of the opposition to "monetarist approaches" to economic transformation and national consolidation. Woodruff then shows how Gorbachev's reforms undermined the institutional pillars of Soviet political and economic unity, exaggerating the dysfunctions of Soviet central planning and the partitioned monetary system, unleashing monetary chaos and a flight into barter at the end of the 1980s. Those reforms also unleashed centrifugal forces a s the center and localities struggled to command the real resources needed to maintain economic activity in the absence of effective money. This disintegration of the state under growing demonetization and local/regional autarky animated Gaidar's reforms: "Money would reverse the spiral of fragmentation brought on by barter, ensuring the economic power and political centrality of the national state" (p. 81).
It initially worked, shifting enterprise and regional efforts from acquiring fungible commodities toward acquiring the money that Moscow controlled, and essentially eliminated the barter of the late Soviet period. But this came at a cost, for national monetary integration and the uniformity of economic valuation and prices that it imposed undercut specific political and economic dependencies at the local and regional levels, rendering production chains and social support networks inherited from the Soviet Union nonviable and even value-destroying. The ensuing local disintegration raised the demand for "value transfers" (subsidies) to keep the inherited "substantive" economy alive. This drove a monetary struggle over more than just the volume of emissions; it was, and is, Woodruff argues, a struggle over competing institutional projects to restore the economic and political power of the state.
Against the "hard-state liberalism" of the Gaidar reforms stood a "national productivist model" in which monetary policy must be driven by the current needs of production. By mid-1993, however, the state had succeeded in hardening enterprise budget constraints and dismantling the Soviet monetary institutions on which the survival of the productivist model rested, forcing inherited economic activities to drop out of the monetized economy. But rather than ceasing operation or radically restructuring, most industrial enterprises unable to make ends meet in the monetized economy renewed the specific dependencies required for survival through non-monetized exchange--barter and later quasimonetary instruments. This was not a flight from valueless money, but a flight from universal valuations denying the validity of the pre-existing enterprise--a "barter of the bankrupt" in Woodruff's felicitous phrase. This again fractured the national market, posed a new challenge to sovereignty, and provided the first stage of " triple movement" that reconstituted the "productivist alternative" to national monetary consolidation.
Woodruff masterfully presents and analyzes this process through a detailed discussion of how this system arose and works in three provinces--Samara, Krasnoyarsk, and Primor'e--and with respect to three "natural monopolies" (Gazprom; the electric power system, UES; and the railroads, MPS). The first movement is of firms exiting the monetary economy by bartering unsalable output for inputs, particularly energy, and tax obligations. The second movement is the acceptance and support of this behavior by local governments in order to preserve local economic activity by preventing energy shutoff, accepting bartered product as tax offsets, and lobbying the center for more money. In addition, quasi/surrogate moneys (vekseli) arose with the support of both local governments and the natural monopolies, providing liquidity in localized, politically controlled payments systems in which exchange took place at particularized, idiosyncratic, prices. The third movement is the federal reaction to this new fragmentation of the monetary and price systems, a reaction that is vacillating, reflecting ongoing political struggles among the different programs of national monetary consolidation.
Woodruff makes the argument that the core of the problem lies in federally enforced price controls, maintaining too high prices on the products and services of the "natural monopolies." If only these prices could be lowered, he argues, then industrial enterprises could return to the monetized market, and would not have to resort to idiosyncratic pricing, through barter or the use of quasi-monies, to cover cost. Thus the flight from monetized markets and its support by local governments and even some federal organs, is a rational survival response to irrational price regulation. And the acceptance of overvalued bartered goods by the "natural monopolies" is just one example of "hard-headed capitalist business practices, like charging different customers different prices according to their ability to pay" (p. 175). This has created "multiple realms in which value has been given a local meaning," (p. 176) imperfectly policed by organizing agents in order to avoid the consequences of commensurability of activitie s and outcomes, of cost and opportunities.
Finally, he explores the implications of this situation from the Russian "politics of sovereignty," focusing on what Woodruff sees as the three competing projects for monetary consolidation: "hard-state liberal," "productivist," and "home market." The first argues for enforced monetization through tax policy, legal sanction and bankruptcy, forcing nonviable operations to radically restructure or cease. The second argues for the provision of liquidity to support existing production activity and the acceptance/ratification of quasi-monies supporting production-driven exchange in closed networks. The third seems to involve reemphasizing price flexibility, even if at the expense of monetary and fiscal stability, in order to explicitly accept the price reductions in barter and vekseli exchange rates. This would eliminate the "fiction of high nominal values" and allow for economic calculation taking account of, but not uniformly imposing, opportunity costs across realms. The book concludes with speculation on the p rospects and path of potential monetary consolidation in Russia, drawing on analogies with the United States in the early nineteenth century, and Italy in the late nineteenth.
This is an extremely important book on the nature of the Russian transition. It brings out more clearly and coherently than any other work, how the intellectual and institutional heritage of the Soviet Union has molded the possibilities for transformation in post-Soviet Russia. It makes an intriguing argument about how that heritage sets up a conflict between the universal monetized valuations of properly functioning markets and the implicit valuations needed by Soviet-built capacities to survive market competition. Yet the argument about price control is somewhat too facile, given the need to maintain many specific relative price ratios in the continuing inflationary environment for it to be effective. It is rather the nonviability of those manufacturing operations and their need for subsidies that is central; barter exploded as transfers and other means of support were withdrawn, stimulating the "productivist" response of local authorities.
Woodruff treats this conflict between what he calls the "formal" and "substantive" economies as a largely political issue, subject to political resolution or compromise. He often writes as if the "monetary economy" is an artificial construct, used by national political forces primarily to enhance control over regional/local activities and agents. Hence the local "substantive economies" are just as valid, even though noncommensurate, as the national monetized economy, and are more socially desirable as they preserve existing real production and employment. But this argument ignores the inherent wastefulness ("inefficiency" in antiseptic economic jargon) of much of that activity, with that waste of economic resources and potential protected from any competitive challenge by local political powers and noncommensurability across realm. Woodruff does not want to believe "that the soviet economic system--with its partitioned monies, unsystematic prices, and imperative for reproduction of existing organizations at all costs--created a substantive economy that will never be able to function as a by-product of formal calculation of market opportunity" (p. 201). Yet that is precisely the structural problem that makes the Russian (indeed, post-Soviet) transition so much more difficult than that in east central Europe or East Asia. We are thus in David Woodruff's debt for so clearly bringing it to our attention in this stimulating analysis of Russia's post-Soviet transformation.
Richard E. Ericson is professor of economics in the Harriman Institute at Columbia University. He is the author of numerous articles on the Soviet economy and post-Soviet transition economies, including "The Classical Soviet-Type Economy: Nature of the System and Implications for Reform," Journal of Economic Perspective (1991) and "The Structural Barrier to Transition Hidden in Input-Output Tables of Centrally Planned Economies," Economic Systems (1999). At present, he is working on modeling issues of industrial restructuring in the Russian economy.
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|Publication:||Business History Review|
|Article Type:||Book Review|
|Date:||Mar 22, 2000|
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