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No money, No problems? Currency and Communism in the early USSR

When the Bolsheviks overthrew the Provisional Russian government in the November revolution of 1917, they launched one of the largest and greatest social experiment of history. Every pre-existing institution of the corrupt old capitalist order would be revolutionized in order to build a new utopian society along Marxist-Leninist lines. Top of the Communist agenda was the issue of money.

For Marxists, money embodied man’s alienation from his own labor, and was consequently at the root of the inherent inequality produced by parasitical capitalism. Following Marxist theory, Lenin and his comrades sought quite simply to abolish money and replace it with a system of direct commodity distribution. However, simply decreeing money out of existence was not an option: the revolutionary government needed to continue to pay the bureaucrats, factory works, and most importantly the secret police (the Cheka). These groups were after all the pillars of the newly established regime, and their paychecks ensured their loyalty at a time when the survival of the revolution was far from certain[1]. Instead, the Bolsheviks decided to destroy people’s faith in the concept of money by printing so much of it as to make it worthless, mere “colored paper”. In so doing, the Bolsheviks were making a virtue out of necessity given that the tax system had completely collapsed by 1918, printing money was also the only way that the government could pay its officials.

The subsequent hyper-inflation was comparable to what Germany would experience in 1923. By early 1919, prices had already risen 15 times compared to 1917. Then, in May 1919, after the abolition of money became official party policy, the “People’s bank” was authorized to print as much money as it felt the national economy needed. The result was that Russian currency became all but worthless: in less than four years, prices increased by over 50 million times. To put that in perspective, in 1921, one 50 000 ruble note had the purchasing power of a single 1917 kopeck[2]. The moneyed economy was so successfully decimated that in practice bread and salt replaced money as the standard repository of value. Even those working for the state ceased to be paid in money but were paid in kind in the form of meagre rations.

The attempt to abolish money, through grotesque levels of inflation, was, predictably enough, catastrophic. Industrial production collapsed by 75% from late 1917 to 1920, while the number of workers in industry, the “proletariat”, notionally the Communists’ base of support, fell by half. In the country, peasants, who still made up the vast majority of the population, were forced to sell their produce at ridiculously low prices (Prodrazvyorstka), at gun point. Equally commonly, their produce was simply confiscated by the Red Army. Unsurprisingly, agricultural production fell by half (compared to the prewar average), leading to the famine of 1921–1922, the first (of several) famines caused by catastrophic Communist mismanagement. An estimated 5 million people died, and the famine was only alleviated thanks to massive international (read: American) humanitarian support.

“War communism”, with its attempt to abolish money, had thus clearly failed. The communists had to grudgingly re-institute a moneyed economy, as part of the program of liberalization known as the “New Economic Policy” (NEP) of 1921. Workers would once again be paid in money, while agricultural produce would no longer simply be requisitioned, but would again be “taxed”. After some failed attempts to create a double currency system that would insulate the Soviet Union from foreign banks, by 1924, the only Soviet currency that remained was the relatively stable Chernovets, equivalent to 10 stabilized Soviet rubles. This currency was tied to the gold standard, and could be internationally traded, crucially allowing the USSR to engage in the limited, but instrumental foreign trade that would allow it to industrialize in the interwar period. Thus, after years of financial turmoil with grave consequences for countless millions, the Bolsheviks were forced to return ironically enough to the old Tsarist monetary system[3].

The Chervonets, though most commonly disseminated as paper currency, was most famously issued as a beautifully engraved single denomination gold coin in 1923. On the obverse is the coat of arms of the “RSFSR” (Russian Socialist Federative Soviet Republic), showing a wreath of ears of grain with a hammer and sickle against the background of the sun's rays. The inscription reads: Proletarians of all countries, Unite! The reverse prominently features peasant-sower against the background of a plow, the rising sun, and factories. The iconography was both propagandistic and programmatic: the coin captures a sense of an idealized new dawn for a world of material abundance and dignity for the New Soviet Man. Another version of the “sower” type was tried out in copper in 1925, with the obverse this time showing the coat of arms the USSR, stressing the universality of communism and the global ambitions of the Soviet Union. Both types of coins were however discontinued after 1925, and only paper Chervontsi remained in wide circulation. Remarkably however, the iconography of the “sower” coins however was so potent that the gold Chervontsi were re-issued in significantly larger numbers for the 1980 Moscow Olympics, for foreign and domestic use.

Although the Chervonets itself ceased to be used after 1947, the lesson of its first implementation was learned: never again did the Soviet Union try eliminating money, nor has any other Communist country succeeded in doing so. As Milton Friedman was fond of saying, there’s no such thing as a free lunch.

Anatoly Grablevsky, 3rd year Classicist at Queens’ College.

[1] The Bolsheviks were still fighting the Russian Civil war (1917-1922) against the “White Armies” and Western interventionist forces. [2] A kopeck is the equivalent of a penny. [3] Chervontzi gold coins began to be minted in the 15th century and continued to be the main denomination coin of the Russian Empire until the revolution. In the early Soviet Union, the re-instituted Chervonetz even had the same amount of gold as the old Tsarist coin!

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