University, Waltham, MA. Meehan, Brenda. (1993). Holy Women of Russia. San Francisco: Harper Collins. Nichols, Robert L. (1985). “The Orthodox Elders (Startsy) of Imperial Russia.” Modern Greek Studies Yearbook 1:1-30. Ostrowski, Donald. (1986). “Church Polemics and Monastic Land Acquisition in Sixteenth-Century
Muscovy.” Slavonic and East European Review 64:355-379. Spock, Jennifer B. (1999). “The Solovki Monastery, 1460-1645: Piety and Patronage in the Early Modern Russian North.” Ph.D. diss., Yale University, New Haven, CT. Wynot, Jennifer. (2000). “Keeping the Faith: Russian Orthodox Monasticism in the Soviet Union, 1917- 1939.” Ph.D. diss., Emory University, Atlanta, GA.
Monetary overhang consists of the liquidity that quantity-constrained consumers may accumulate in excess of the money they would accumulate if commodities were freely available in the market.
Prices in the Soviet-type consumer goods market were in principle supposed to be set so that supply and demand would balance both in the aggregate and for each consumer good. Deficits caused by below-equilibrium prices were not a goal. But in practice many prices-particularly those for basic essentials like food, housing and many services-were set low either as a consumption subsidy or for ideological reasons. Also, because price stability was a goal, prices were not adjusted often enough to respond to changes in producer cost and consumer preferences. While there was excess supply for some goods, typically many goods were in short supply and were not freely available in the market. Consumers faced quantity constraints; they possibly accumulated money in excess of the amount they would have wished to have. This excess money or forced savings is called monetary overhang.
The economics of monetary overhang remain contested. While the existence of short supply for individual goods is generally accepted, whether there was undersupply in the aggregate remains somewhat debatable. The existence of the gray economy and kolkhoz (open collective farm) markets, where prices were freely determined by supply and demand, might be expected to have balanced aggregate demand and supply. But perhaps such consumer goods markets were too limited in size to have the necessary effect. Also, consumers who accumulate monetary overhang might be expected to diminish their labor efforts. Thus, forced savings would lower economic growth. But perhaps that was not institutionally possible.
Empirical research into monetary overhang is hampered both by theoretical problems and by deficient statistics. It is estimated that the share of forced savings in total Russian monetary savings increased from 9 percent in 1965 to 42 percent in 1989. This was largely caused by retail price subsidies, which swelled to 20 percent of state budget expenditure in the late 1980s. Undersupply caused queuing, black markets, bribery, and quality deterioration. Few consumer goods were freely available by 1991.
Monetary overhang can also be seen as repressed inflation: In the absence of price controls, prices would rise to equilibrium levels. In principle, monetary overhang could be abolished before price liberalization by increasing consumer goods supplies, by bringing new commodities and assets to markets (for instance, through privatization), or by a confiscatory monetary reform. In practice, monetary overhang was abolished in transition economies through price liberalization, which turned repressed inflation into open inflation and destroyed the value of savings, both voluntary and forced. This was the case in Russia. The partial price liberalization of January 1992 brought about an annual inflation of 2,400 percent. Many consumers suffered badly, but price liberalization was popular overall, as the consequences of repressed inflation were well known. See also: BLACK MARKET; ECONOMIC GROWTH, SOVIET; REPRESSED INFLATION; WAGES
BIBLIOGRAPHY
Easterly, William, and Cunha, Paulo Viera da. (1994). “Financing the Storm.” Economics of Transition 2:443- 466. Kim, Byung-Yeon. (1999). “The Income, Savings, and Monetary Overhang of Soviet Households.” Journal of Comparative Economics 4:644-668. Kornai, J?nos. (1980). Economics of Shortage. Amsterdam: North-Holland.
The early Marxists expected that money would die away under socialism, made unnecessary by the
Soviet kopeks and rubles. © DALLAS AND JOHN HEATON/CORBIS abolition of markets, the use of central planning based on nonmonetary units, the replacement of scarcity by abundance, and the worldwide acceptance of socialism. Since none of this came to pass, a monetary system remained, but it was a very peculiar monetary system. In contrast to a market economy, where money-based exchange is fundamental and money plays an active role, under central management money adapts itself to planned production flows and is basically passive.
In a market economy, money has three functions: It is a means of exchange, a measure of value, and a store of value. A whole set of institutions supports these functions. In the Soviet economy, the ruble fulfilled these functions only in a limited way. The set of monetary institutions was similarly restricted.
Money circulation was strictly divided into two spheres. In the state sector, enterprises could legally use only noncash money, in practice transfers through a state-owned banking system. Only transfers sanctioned by a corresponding plan assignment could be legally made, and it was generally impossible to use the banking system for nonsanctioned transactions. The banking system was thus an important control mechanism. Households, on the other hand, lived in a cash economy facing mostly fixed-price markets for labor and consumer goods. There were also legal, more or less free-priced markets such as the kolkhoz markets for foodstuffs as well as illegal, often cash-based markets. To control the economy, Soviet planners put great emphasis on maintaining this duality. By and large, they succeeded. Under perestroika, enterprises found ways to convert noncash to cash money. This contributed to the collapse of the Soviet system.
The ruble was not a means of exchange in the state sector. It was not freely convertible to goods, except for goods allocated in the plan for each enMONETARY SYSTEM, SOVIET terprise. For households, money was the basic means of exchange, but only goods produced according to plan were legally available (with the relatively small exception of the kolkhoz markets). Because of the frequent shortages, households did not rely on money as the only means of exchange but also used such allocation mechanisms as barter, queuing, and bribery.
As a store of value, money was useless to enterprises, but it was important for households because few other assets were available. In addition to gold and precious stones, one could invest in state bonds, but these were used to mop up excess liquidity. People had little confidence about keeping their wealth in rubles because of the recurring periods of very high inflation-during the civil war, in the early 1930s, during World War II, and af- terwards-and also because of the frequent confis-catory money reforms. As foreign currencies were almost unavailable, and possessing them was a serious crime, households used any other store of value, and lacking them, cut down their efforts to earn money. The limited convertibility of the ruble into commodities, together with periods of very high inflation and monetary reform, made money a defective measure of value.
The Soviet Union had a monobank system consisting of a single state bank (Gosbank) that combined the functions of a central bank, a commercial bank, and a savings bank. Gosbank was not autonomous; it was a financial-control agency under the Council of Ministers. Acting as a central bank, it created narrow money (cash in circulation outside the state sector) by authorizing companies to pay wages according to accepted wage plans. Acting as a commercial bank, it issued short-term credit to companies, in accordance with the plan, for working capital. More important, it kept close track of transfers between enterprises to make sure that only transactions sanctioned by an accepted plan took place. Originally, there was a formally separate savings bank, but it was incorporated into Gosbank in 1963. It used the savings of the population to finance budget deficits. A couple of other banks existed for a short time, but like the savings bank were not independent.
The banking system and the budget system were the two pillars of the monetary system. The budget system had three layers-central, regional, and municipal-but, like the Soviet state, it too was unitary. Tax revenue mostly consisted of commodity-specific taxes separating retail and wholesale prices, company-specific profit taxation, usually confiscating any “excessive” revenue companies might have, and foreign trade taxes, used to separate domestic and foreign prices. As state revenue was thus based on fees specifically tailored for commodities, companies, and foreign markets, the system should perhaps not be called taxation at all. Wages were, in principle, set by the state, but there was little use for income taxation.
State revenue was used to pay state-sector wages and for investment, subsidies, and other public expenditure, including the military. To hide the extent of military expenditure and cover up the deficiencies of social
