Revival: Money, Banking & Credit in the soviet union & eastern europe (1979)

Adam Zwass

• Publisher: Taylor & Francis
• Year: 2017
• Print ISBN: 9781138037908
• eBook ISBN: 9781351710916
• Edition: 1
• Topic: Politics & International Relations
• Subtopic: Politics
• Index: Politics & International Relations

This title was first published in 1979. Essential information for understanding a credit system that is different from that of the 'Capitalist' countires and which has envolved into an integral and essential part of 'soviet- type economies'. Dr Zwass has done a workman-like job in providing another valuable contribution to our knowledge of economies of eastern europe- George Garvy.

Chapter 1
Money in a Planned Economy

1. Inapplicability of Traditional Monetary Theories

The theory of money is tied to the times and reflects the period whose events have shaped it. Money has always been an instrument of accounting, of commerce between individuals and enterprises, the commodity of commodities, the tertium comparationis – and, as such, the universal equivalent in the world of commodities. How money is created and in what quantities, its influence on economic processes, and its pervasiveness have varied considerably from one period to another and from place to place.

Today's nonmaterial money rests on a vast network of banks extending throughout the world, which employs many different clearing and payment procedures (used more and more in the consumer market also) as well as Euromoney, the transferable ruble of the International Bank for Economic Cooperation, and the Special Drawing Rights of the International Monetary Fund; this nonmaterial money bears scarcely any resemblance to the primitive payments activities of yesterday, which relied on money based on the noble metals. A monetary system is as tied to its times as are the theories adduced to explain it.¹

The monetary system of the planned economies represents a special case; none of the traditional monetary theories is adequate to explain it, since it functions in an economic system that proclaimed its intention to abolish money but proved unable to do so, although it did restrict considerably its use and functions.

The first period of Soviet development, War Communism, which approached a moneyless economy²; and the second period, the New Economic Policy,³ with its state-controlled market and monetary relations bearing market features, lasted but a short time. Out of them grew neither an egalitarian natural economy nor a special socialist market, but a centrally administered economy as remote from moneyless distribution as from a market-based money economy.

In the different steering models for a centrally administered economy money is assigned a varying range of functions. Because of features inherent in a planned economy, however, money does not have the integrating function it normally shows. The state sector, with its homogeneous property relations, is coordinated directly with planned targets and steered centrally. Money is not the sole instrument of control; it is one of several whose range and functions are determined by the state as the collective owner of the banks and means of production. The system itself limits the degree to which money may exercise and expand its functions. Money does not give to an economic entity an anonymous, universal purchasing power with which it can acquire any commodity it wishes from any supplier it chooses for its production and investment activities. Possession of money is not the sole "admission ticket to the reservoir of commodities," as Schumpeter put it. In every planned economy, even one that is largely decentralized, the state retains the power to decide on the direction of economic development and on the uses to which the nation's economic assets are to be put. At the private level, an individual may determine how he is going to use his consumer money, but his decision is not as free as it is in a market economy, since the state controls supply. Furthermore, means of production cannot be bought with private money, except in a very few special situations.

But there are limits to how far the functions of money may be restricted. A modern industrial and consumer society –which is where the Eastern countries are headed – needs money that works. Even an extremely centralized planned economy is unable to dispense with money as a unit of accounting or a means of clearing and payments. Since the social order in Eastern Europe is moving in the direction of stratified rather than egalitarian distribution of incomes, the functions of money are increasing, rather than decreasing, in importance. For example, as an incentive to efficiency and a yardstick for costs and profits, money stimulates labor productivity, and hence serves to promote efficiency.

Money will never have the impact it does in a market economy, but it functions in a less disorganizing way. Money mechanisms are not used to boost a stagnating economy or cool an overheated one.

2. The Current Monetary Theory in the Planned Economies

Ia the Eastern bloc, monetary theory is a much debated topic, in which all sorts of extremes are represented. Some want to extend the Marxist theory of money to the money of a planned economy,⁴ while others dispute the need for money in the state sector and are willing to grant it a place only where it mediates the heterogeneous property relations of the nonstate sector.⁵ These extreme views, however, lack any true counterpart in the practical reality of the planned economies.

Money in Marx's time was the money of the classical mid-nineteenth century market economy; it still circulated in the form of the noble metals or was based on them. The Marxist theory of money therefore cannot explain how money functions either in today's market economy or in the planned economies, which have little to do with the vision of future society as Marx conceived it. Indeed, he did not foresee any real place for monetary relations in future society, apart from the rather unrealistic "labor money."⁶

In the planned economies, money is neither abstract labor money nor market money. But neither is it essentially different from the money of capitalism, as Brus claims.⁷ All the traditional functions of money are found in a planned economy as well, although they have relatively little ability to influence economic events.

3. Why a Planned Economy Needs Money

3.1. The Isolation of Economic Entities

The money of a planned economy is not an imitation of market money. Its functions are not merely to mediate between separately owned economic entities or between the state sector and the population. Its raison d'être lies in the state sector itself.

A steering model took shape in the 1930s in the Soviet Union whose basic features have been retained in Eastern Europe to this day. This model admits of neither market relations nor distribution in natura. Even in the highly centralized planned economies, enterprises have not grown together into one large state cartel, as Lenin had envisioned in 1917.⁸ Every enterprise must justify its performance, even when it has no decision-making powers over its own development. Even in the state sector, where all belongs to the state and enterprises are not separately owned, they do not maintain extensive ties with one another. Further, although means of production are rigorously allocated from above, shipments are cleared and paid. Supplier and recipient are bound by contractual terms. Money assets do not give an enterprise the right to buy what it wants; in many cases an official allocation is required. On the other hand, no enterprise can be compelled to accept certain goods. Goods are not only distributed for use, they are also apportioned as value. Labor is also sold as a commodity and paid according to performance; a differentiated pay scale is, of course, best expressed in money terms.

3.2. The Isolation of the State Enterprise from the State

Since the national economy has not taken the form of one large cartel as Lenin envisioned, and capital goods, means of production, and consumer goods are not distributed in natura, the national product must be reapportioned in money form through the state budget. Thus, an enterprise must transfer to the state at least some of its earnings, which are then reallocated to other enterprises by means of the budget.

The ultimate price of a commodity is its cost price plus the surplus value created in its production. This is indispensable for economic growth, and of course the state administration, the health and school systems, and national defense must be paid for as well. The difference between a market economy and a planned economy lies not in the level of performance demanded of the workers, nor in the relation between wages and the value produced, but in the fact that surplus value ends up in state hands rather than private hands.

The redistributive function is much more developed in a planned economy, which assumes total control over economic life and determines the direction of development as well as the allocation of financial resources. Time has brought many changes, however, in the way these functions are exercised and in the relation between the state and the enterprise. While under the earlier, highly centralized steering model, the entire sum of surplus value flowed into the state budget in the form of profits and taxes and was then reapportioned, today an enterprise is permitted to retain a part of its earnings for self-financing. An enterprise can operate independently in pursuit of its own interests to a greater degree than before. But the state still decides on key investments and how they are to be financed. Nevertheless, monetary and fiscal policy has become broader and more variegated.

3.3 Emergence of the Foundations for a Credit System

Quite rightly, credit is regarded as a category of the heterogeneous property relations. In a planned economy, both the enterprise as borrower and the bank as lender are largely or wholly state owned. Credit therefore has a totally different economic import and is used in totally different ways than in a market economy.

A planned economy is still a money economy, however, albeit in a more restricted sense. Goods are paid for in money; taxes and earn...

Table of contents

• Cover
• Half Title
• Title
• Copyright
• Contents
• Preface
• Chapter 1. Money in a Planned Economy
• Chapter 2. The Price System in the Planned Economies
• Chapter 3. Are the Planned Economies Shielded from Inflation?
• Chapter 4. The Banking System in a Planned Economy
• Chapter 5. The Credit Policies of the Planned Economies
• Chapter 6. Money, Credit, and Prices in Foreign Trade
• Chapter 7. Summary: Perspectives for Incorporating CMEA Currencies into International Trade
• About the Author