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Central Planning and Unintended Consequences: Creating the Soviet Financial System, 1930–1939

Published online by Cambridge University Press:  26 July 2012

Paul R. Gregory  and
Aleksei Tikhonov
Paul R. Gregory
Affiliation:
Professor, Department of Economics, University of Houston, Houston, TX 77204-5882. E-mail: pgregory@uh.edu, tihono@aol.com.
Aleksei Tikhonov
Affiliation:
Graduate student, Department of Economics, University of Houston, Houston, TX 77204-5882. E-mail: pgregory@uh.edu, tihono@aol.com.
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Abstract

We use the Soviet state and party archives to study the creation of the Soviet financial system. Although its framers intended to centralize all emission and monitoring of money and credit, in practice the system was characterized by informal mechanisms involving multiple players, soft budget constraints, and massive moral hazards. Enterprises issued “illegal” commercial credits and surrogate monies, causing liquidity growth to far outpace real economic activity. When confronted with the choice of solvency versus plan fulfillment, firms always chose the latter: credit risks were passed on to solvent enterprises, the state bank, and the state budget.

Type
Articles
Information
The Journal of Economic History , Volume 60 , Issue 4 , December 2000 , pp. 1017 - 1040
Copyright
Copyright © The Economic History Association 2000

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