:: ''Note:'' ''This article uses the American naming system for large numbers (i.e. 1 billion = 1,000 million; 1 trillion = 1,000 billion; 1 quadrillion = 1,000 trillion; 1 quintillion = 1,000 quadrillion, etc.).'' Chervonetz 1922

Hyperinflation in early Soviet Russia connotes a seven-year period of uncontrollable spiraling inflation in the early

Soviet Union The Soviet Union,. officially the Union of Soviet Socialist Republics. (USSR),. was a List of former transcontinental countries#Since 1700, transcontinental country that spanned much of Eurasia from 1922 to 1991. A flagship communist state, ...

, running from the earliest days of the

Bolshevik Revolution The October Revolution,. officially known as the Great October Socialist Revolution. in the Soviet Union, also known as the Bolshevik Revolution, was a revolution in Russia led by the Bolshevik Party of Vladimir Lenin that was a key moment ...

in November 1917 to the reestablishment of the

gold standard A gold standard is a monetary system in which the standard economic unit of account is based on a fixed quantity of gold. The gold standard was the basis for the international monetary system from the 1870s to the early 1920s, and from the l ...

with the introduction of the

chervonets Chervonets is the traditional Russian name for large foreign, and domestic gold coins. The name comes from the Russian term ''"червонное золото"'' ("chervonnoye zoloto"), meaning “red gold" (also known as rose gold) – the o ...

as part of the

New Economic Policy The New Economic Policy (NEP) () was an economic policy of the Soviet Union proposed by Vladimir Lenin in 1921 as a temporary expedient. Lenin characterized the NEP in 1922 as an economic system that would include "a free market and capitalism, ...

. The inflationary crisis effectively ended in March 1924 with the introduction of the so-called "gold ruble" as the country's standard currency. The early Soviet hyperinflationary period was marked by three successive redenominations of its currency, in which "new rubles" replaced old at the rates of 10,000-to-1 (January 1, 1922), 100-to-1 (January 1, 1923), and 50,000-to-1 (March 7, 1924), respectively.

History

Overview

After three years of participation in

World War I World War I (28 July 1914 11 November 1918), often abbreviated as WWI, was one of the deadliest global conflicts in history. Belligerents included much of Europe, the Russian Empire, the United States, and the Ottoman Empire, with fightin ...

, the economy of the

Russian empire The Russian Empire was an empire and the final period of the Russian monarchy from 1721 to 1917, ruling across large parts of Eurasia. It succeeded the Tsardom of Russia following the Treaty of Nystad, which ended the Great Northern War. ...

was in crisis. In March 1917 the so-called February Revolution overthrew the regime of Tsar Nikolai II, which was replaced it with a

provisional government A provisional government, also called an interim government, an emergency government, or a transitional government, is an emergency governmental authority set up to manage a political transition generally in the cases of a newly formed state or ...

headed by a succession of leaders ending with

Alexander Kerensky Alexander Fyodorovich Kerensky, ; original spelling: ( – 11 June 1970) was a Russian lawyer and revolutionary who led the Russian Provisional Government and the short-lived Russian Republic for three months from late July to early Nove ...

. The economy remained disrupted and Russia failed to disengage from the bloody European war, and on November 7, 1917 the Kerensky government fell in a second revolution, this time led by the

Bolshevik Party " Hymn of the Bolshevik Party" , headquarters = 4 Staraya Square, Moscow , general_secretary = Vladimir Lenin (first)Mikhail Gorbachev (last) , founded = , banned = , founder = Vladimir Lenin , newspaper ...

revolutionary socialist Revolutionary socialism is a political philosophy, doctrine, and tradition within socialism that stresses the idea that a social revolution is necessary to bring about structural changes in society. More specifically, it is the view that revoluti ...

Vladimir Ulyanov (Lenin).

Civil war A civil war or intrastate war is a war between organized groups within the same state (or country). The aim of one side may be to take control of the country or a region, to achieve independence for a region, or to change government policies ...

ensued and the economy of the new regime became even more chaotic. With mismanagement rampant and hunger sweeping the land, the value of the

ruble The ruble (American English) or rouble (Commonwealth English) (; rus, рубль, p=rublʲ) is the currency unit of Belarus and Russia. Historically, it was the currency of the Russian Empire and of the Soviet Union. , currencies named ''rub ...

, currency of the nation, essentially collapsed. During this interval, known as

War Communism War communism or military communism (russian: Военный коммунизм, ''Voyennyy kommunizm'') was the economic and political system that existed in Soviet Russia during the Russian Civil War from 1918 to 1921. According to Soviet histo ...

money Money is any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular country or socio-economic context. The primary functions which distinguish money are as ...

lost its function as a store of value and a means of exchange.Alec Nove, ''An Economic History of the USSR,'' pg. 55. A return was made by people in their daily lives to a primitive

barter In trade, barter (derived from ''baretor'') is a system of exchange in which participants in a transaction directly exchange goods or services for other goods or services without using a medium of exchange, such as money. Economists disti ...

economy. While use of the printing press to produce

paper money A banknote—also called a bill (North American English), paper money, or simply a note—is a type of negotiable promissory note, made by a bank or other licensed authority, payable to the bearer on demand. Banknotes were originally issued ...

was employed as virtually the sole means of state finance, manufacturing output simultaneously dropped precipitously, exacerbating the collapse of currency value. Unemployed and under-employed workers often took to the manufacture of small crafts items, often using stolen materials, to have something to trade for food during the economic crisis. Throughout 1919 and into 1920 the wages of

workers The workforce or labour force is a concept referring to the pool of human beings either in employment or in unemployment. It is generally used to describe those working for a single company or industry, but can also apply to a geographic reg ...

were paid largely

in kind The term in kind (or in-kind) generally refers to goods, services, and transactions not involving money or not measured in monetary terms. It is a part of many spheres, mainly economics, finance, but also politics, work career, food, health and othe ...

through the direct distribution of products. Scarce resources were distributed by

ration Rationing is the controlled distribution of scarce resources, goods, services, or an artificial restriction of demand. Rationing controls the size of the ration, which is one's allowed portion of the resources being distributed on a particular ...

and were generally free. Concurrently with this decline in the purchasing power and function of money, private trade was formally declared illegal and efforts made to

nationalize Nationalization (nationalisation in British English) is the process of transforming privately-owned assets into public assets by bringing them under the public ownership of a national government or state. Nationalization usually refers to pri ...

all industries.Alec Nove, ''An Economic History of the USSR,'' pg. 56. With the nation's currency in shambles, Soviet economic officials discussed implementation of a new monetary device to facilitate the exchange of products, such as "labor units," but the period of War Communism came to a close in 1921 before any such idea could be implemented. The end of War Communism and the establishment of the New Economic Policy was based upon the legalization of petty trade and a replacement of the hated policy of forced requisitioning of grain production with fixed taxation rates. This presumed a return to a money-based economy and the stabilization of the Soviet currency became one of the primary tasks of the government's economic functionaries.

The first eight months

The first eight months after the Bolshevik Revolution of November 1917 are believed by some scholars of Soviet Russia to have marked a discrete interval in the economic history of the Soviet regime. Economics were bound with politics in this period, it is argued, with primary emphasis placed upon obtaining and maintaining political power. The nationalization of specific industries and institutions — such as banks, communications, and transport — should be seen at least in part through this prism, many believe. Nationalization of industry was further seen as a necessary means to the Bolsheviks' self-proclaimed goal of establishment of a classless society.Dobb, ''Russian Economic Development Since the Revolution,'' pg. 26. British Marxist economist Maurice Dobb observed:

"If the existence of a ruling capitalist class was rooted in ownership and the differential advantage which that ownership gave over the ownerless...it followed that the continued existence of capital in private hands represented a continuance of the capitalist class and its influence..."

Consequently, the Bolsheviks sought to expropriate major industry as an integral part of its program of overthrowing one class and replacing it with another, with an emphasis placed upon the nationalization of the largest scale industries held by the leading members of the capitalist class. The process, however, was slow and piecemeal, with only 100 firms nationalized by the central government and somewhat more than 400 by local authorities by July 1918.Dobb, ''Russian Economic Development Since the Revolution,'' pg. 34.

War Communism (Summer 1918 to Spring 1921)

With the eruption of civil war on a large scale in the Summer of 1918, the already grim economic situation in Soviet Russia deteriorated further. Full effort was placed upon military production and factories across the country fell silent for lack of raw materials. According to one estimate, that of P. Popov of the Central Statistical Bureau of Soviet Russia, by 1920 the total production of Russian industry had fallen from a pre-war level of 6.059 billion gold rubles to the equivalent of just 836 million — a decline of more than 85%. Lancelot Lawton, ''An Economic History of Soviet Russia: Volume 1.'' London: Macmillan, 1932; pg. 151. Nationalization of industry proceeded at a frenetic rate, with an industrial survey of August 1920 indicating that some 37,000 firms had been expropriated by the state — including more than 5,000 which employed only one person.Nove, ''An Economic History of the USSR,'' pg. 60. The Supreme Council of National Economy (Vesenkha), chief economic control agency of Soviet Russia in this period, cited a far lower figure of 4,420 nationalized enterprises in November 1920, while a third source indicated a total of 4,547 firms under state ownership. That authoritative sources disagree so wildly is indicative of the ad hoc nature of the nationalization process. As the War Communism period progressed manufactured consumer goods came to be in such short supply that they were virtually unobtainable.Lawton, ''An Economic History of Soviet Russia: Volume 1,'' pg. 157. Peasants refused to sell their surplus products for money which could effectively buy nothing.Lawton, ''An Economic History of Soviet Russia: Volume 1,'' pg. 159. Facing starvation in the cities and the death of industry as peasant-workers returned to their villages, the Soviet state resorted to the use of force to obtain necessary grain to maintain its urban economy. This resort to forced requisitioning had the effect of further decimating agricultural production, already seriously weakened by the loss of millions of able-bodied peasant men to the front. Wherever requisitioning was applied, the area of land dedicated to cultivation contracted. In the words of one economic historian, "The only industry which thrived was that concerned with the production of paper money." The amount of currency in circulation from the beginning to the end of 1920, rose from about 225 billion rubles to 1.17 trillion. This represented a 25-fold increase over the amount of paper money in circulation in 1917. With the virtual collapse of money economy in favor of requisition, rationing, and barter, came a virtual abolition of

bank A bank is a financial institution that accepts deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital markets. Because ...

ing in Soviet Russia.Lawton, ''An Economic History of Soviet Russia: Volume 1,'' pg. 158. With productive industry almost completely state-owned, the People's Bank (successor to the pre-revolutionary State Bank) had no credit function; rather, it acted as a clearinghouse for transmission of assets to industry, with funds primarily obtained through currency emission. The People's Bank was abolished altogether in January 1920, with the issuance of currency transferred to the People's Commissariat of Finance (Narkomfin). The decree shutting down the People's Bank made provision for continued use of the offices of Narkomfin for private finance on a limited and seemingly temporary basis:

"The nationalization of industry has concentrated in the hands of the government all the most important branches of production and supply...thereby excluding any necessity for the further utilization of the People's Bank as an institution of state credit in the accepted sense of the term. The system of banking credit still remains in force for small private industrial enterprise and the needs of individual citizens who place their money in state savings institutions. Nevertheless, as these transactions are gradually losing their importance in the economic life of the country, the existence of separate banking institutions is no longer necessary. Such transactions are now of secondary importance, and may be successfully carried out by the central and local institutions of the Commissariat of Finance..."

It was neither Marxist theory that was causing disintegration of the money economy nor the replacement of currency transactions by moneyless credits between state-owned firms, but rather

hyperinflation In economics, hyperinflation is a very high and typically accelerating inflation. It quickly erodes the real value of the local currency, as the prices of all goods increase. This causes people to minimize their holdings in that currency as t ...

. The ruble had collapsed as a store of value and a medium of exchange, but nothing had been created to replace it.

Coming of the NEP period (Spring 1921)

Faced with economic collapse and widespread peasant revolt, in the spring of 1921 the Soviet government changed course towards a return to market-based relations between the state and the peasantry with the adoption of the New Economic Policy (NEP). No more would forced requisitioning be the order of the day, but rather the adoption of a regularized "tax-in-kind." Part and parcel of NEP would be a return to a functional currency and monetary payment of wages rather than compensation of workers through rations and free services, as was the case under War Communism.E.H. Carr, ''A History of Soviet Russia: Volume 4: The Interregnum, 1923-1924.'' London: Macmillan, 1954; pg. 68. House rents, previously free, were charged by the state and social services were placed on a self-funding basis akin to insurance. The People's Commissariat of Finance (Narkomfin) emerged as the leading bureaucratic agency seeking currency stabilization. With the value of the Soviet ruble plummeting precipitously from week to week, this chief financial and budgeting agency needed a mechanism for the calculation of wages of Soviet workers, which from the fall of 1921 were calculated in money rather than in-kind commodities. As a result, a new theoretical concept was created by Narkomfin called the "goods ruble" or "pre-war ruble" — based upon the purchasing power of the Tsarist ruble in 1913, before the distortion of the Russian economy caused by the nation's descent into

.Carr, ''The Interregnum,'' pg. 69. From November 1921 onward Narkomfin pegged the value of the Soviet ruble in terms of this theoretical unit each month, allowing wages to be automatically adjusted to compensate for the steadily depreciating currency. In March 1922 Narkomfin abandoned the so-called goods ruble for a new unit of measurement, the gold ruble — a new parallel official state currency redeemable in gold. The plummeting Soviet ruble would be henceforth equated to the gold ruble through on-the-fly estimation of the purchasing power of each. Adding to the complexity of the situation, the

State Planning Committee The State Planning Committee, commonly known as Gosplan ( rus, Госплан, , ɡosˈpɫan), was the agency responsible for economic planning, central economic planning in the Soviet Union. Established in 1921 and remaining in existence until ...

(Gosplan) continued to make use of a pre-war "goods ruble" of its own creation, using it as a payment calculation mechanism in many Soviet contracts. As the value of the Soviet ruble crashed, the process of price calculation and wage payment remained chaotic, as historian E. H. Carr later observed, with Soviet workers frequently bearing the brunt of the exchange problem:

"The resulting situation was extremely complex. To fix current wage rates from month to month in terms of the goods ruble price-index was a matter of expert computation. To fix the rate of exchange between the goods ruble and the Soviet ruble in which payment would actually be made to the worker involved another delicate and highly controversial calculation, in the course of which many devices were employed to force down real wages below the rates agreed on and ostensibly paid.... The absence of a wages policy combined with rivalry between departments to produce almost inextricable confusion."Carr, ''The Interregnum,'' pp. 69-70/

Exchange rate for £1 in contemporary Soviet rubles

:Sources: 1918-1920: M. Feitelberg, ''Das Papiergeldwesen in Räte-Russland.'' (Berlin: 1920), pg. 50. Cited in S.S. Katzenellenbaum, ''Russian Currency and Banking.'' London: P.S. King & Son, 1925; pg. 83. Note that during this interval the purchasing power of the pound also fell substantially so that this decline in ruble value is understated. 1922-1923: S.S. Katzenellenbaum, ''Russian Currency and Banking.'' London: P.S. King & Son, 1925; pg. 90. Price is average Moscow free market price for first month of each specified quarter.

Total rubles of paper money issued by year

{, class="wikitable" border="1" style="Background:#ffffff" , - ! Year ! Billions of rubles issued ! Percentage increase , - , align="center" , 1916 , align="center" , 3.5 , align="center" , — , - , align="center" , 1917 , align="center" , 16.4 , align="center" , 180.3% , - , align="center" , 1918 , align="center" , 33.5 , align="center" , 119.2% , - , align="center" , 1919 , align="center" , 164.2 , align="center" , 302.5% , - , align="center" , 1920 , align="center" , 943.6 , align="center" , 419.3% , - , align="center" , 1921 , align="center" , 16,375.3 , align="center" , 1402.0% , - , align="center" , 1922 , align="center" , 1,976,900 , align="center" , 11,268.2% , - , align="center" , 1923 , align="center" , 176,505,500 , align="center" , 8,849.6% , - :Source: S.S. Katzenellenbaum, ''Russian Currency and Banking.'' London: P.S. King & Son, 1925; pg. 59.

Footnotes

{{Financial crises Economic history of the Soviet Union Finance in Russia Economic history of Russia 1910s economic history 1920s economic history Inflation by country 1920s in the Soviet Union