That Time The Soviet Union (Grudgingly) Turned To Free Markets To Save Its Collapsing Economy

Imagine an economy where there is no money. All currencies, mediums of exchange, and other intermediaries of trade no longer exist. Instead of having money, everyone is issued ration cards that dictate what goods they can have and in what quantities. Everything from food you buy to the clothes you wear to medicine you need are determined by your ration card. Imagine also that in this economy, there is no exchange. Everything is owned collectively and administered by the state. The production of all raw materials, capital, and consumers goods is undertaken by the state. There are no businessmen, because the state takes care of all business.

This hypothetical economy is not purely imaginary. An economy identical to the one I just described has existed before in history. From 1918-1921, the Soviet Union had such an economy, often referred to by historians as “War Communism”. It was a complete and unmitigated disaster. This is its story:

The Soviet Union and War Communism: 1917-1921

In 1917, the Bolsheviks seized power in Moscow after the deposition of the democratic provisional government which had replaced the Tzar. However, the Bolsheviks’ hold on power was far from secure. There was little affection anywhere for the Tzar, but there was no agreement on what form of government should replace the monarchy. Bolshevism had been on the rise for years, but ideas of democracy and liberalism were gaining popularity as well. Shortly after the 1917 revolution, the Russian Civil War broke out between the Reds, the Bolsheviks, and the Whites, a coalition of anti-Bolsheviks that were generally democratic.

Through the course of the civil war, the Bolsheviks gained more power and control over increasingly large amounts of Russia. With this control, they began to implement their Marxist economic ideas into reality. On January 28, 1918, it was decreed that all factories should be directed by state-appointed managers. In effect, this amounted to a near-complete nationalization of industry. In one fell swoop, the vast majority of the production of Russia’s consumer goods was now under the purview and direction of the state.

On May 9, 1918, a grain monopoly was announced over grain production in the country. All grain harvested across the country was now the property of the state. This was extended even further when a general food levy was announced in January 1919. Any and all food was now the property of the state. In addition, local farm authorities were no longer allowed to set the levy based on harvest estimates. In essence, the state would take however much it wanted from the peasants without any concern if they had enough food to feed themselves and their families.

It was at this point that large-scale forced rationing was introduced. Money was made worthless overnight as ration cards were mandated to the entire population. No longer could you buy whatever you wished with the money you had. The goods allocated for you were predetermined on your ration card.

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