Russian Revolution Hyperinflation

Russian Revolution Hyperinflation

In the aftermath of the Bolshevik seizure of power (1917), Russia experienced a bout of hyperinflation comparable to the hyperinflation of the French Revolution, sending prices to levels more than 600 million times higher than their 1913 levels. The only limitation on the quantity of paper rubles printed was the supply of ink and paper.

The Imperial Russian Government resorted to inflationary finance to sustain itself through World War I. On the eve of World War I Russia boasted of the largest gold reserves in Europe, which backed 98 percent of the Russian bank notes in circulation. The Treasury held large gold reserves to back paper rubles. Tax revenue from taxes levied on the manufacture and sale of alcohol, one-fourth of the Treasury’s revenue, fell because of a newly enacted law against alcohol consumption. Tariff revenue also dropped significantly with the onset of war. Instead of direct taxes and internal war bond financing, the government turned almost exclusively to paper money and foreign loans to finance the war.

On 27 July 1914 the government suspended specie payments on paper rubles. The gold reserve requirement for the issuance of bank notes also came to an end. The government doubled the supply of paper money at the beginning of the war when it issued an additional 1.5 billion rubles. The issuance of paper money continued until the supply had increased fourfold by January 1917. The issuance of paper money increased 100 percent in France and 200 percent in Germany over the same time frame.

This wartime finance led to monstrous price increases, and set a precedent that the Bolsheviks would continue to accelerate the Revolution. Inflation forces remained dormant through the first half of 1915 because the war blocked exports, which increased domestic supplies. Toward the end of 1915 inflation began to accelerate rapidly, and by the end of 1916 prices were four times higher than their 1913 levels. From 1913 to October 1916 the price of wheat flour rose 269 percent, buckwheat by 320 percent, salt by 500 percent, meat by 230 percent, and shoes and clothes by 400 to 500 percent. The cost of living grew two or three times faster than wages, and food and fuel shortages were common in urban areas. Workers formed cooperatives to purchase food and other necessities at lower prices. The government helped maintain order by threatening to induct into the army anyone who caused trouble.

Worker discontent became the political base that drove the revolution. Long lines of people waited to buy bread, and by the time workers were off work the shops no longer had bread on the shelves. The anger of the workers mounted as food and fuel became scarce, and strikes erupted in Petrograd, the largest industrial center.

In 1917 the revolution began in earnest. Nicholas I abdicated in March 1917 followed by the Bolsheviks’ seizure of power in October 1917. Throughout 1917 prices rose more rapidly, topping 7.55 times their 1913 level by October 1917. The supply of rubles in circulation rose to 19.6 billion, compared to 2.4 billion in the first half of 1914. After the October coup, the tax system fell apart and the new government counted on the printing presses to finance government spending. In 1918 notes were printed in denominations up to 10,000 rubles. By October 1918, prices had grown to 102 times their 1913 level, and to 923 times in October 1919.

In May 1919 the government completely unleashed the supply of paper money. The only restriction upon printing of fresh paper money was the supply of ink and paper. The government used gold holdings to buy printing supplies abroad. Nearly 50 percent of the Treasury’s budget went for the cost of printing paper money. In 1919 the supply of paper money in circulation grew to 225 billion. In 1920 it reached 1.2 trillion and doubled again in the first half of 1921. In 1921 notes were issued with face values up to 100,000 rubles. By 1923 prices were 648,230,000 times their 1913 level.

In 1922 a new ruble was introduced that was equal to 10,000 of the old rubles. This currency reform did not halt inflation and in 1923 a newer ruble was introduced that equaled 1,000,000 of the 1922 rubles. Also, the government introduced a parallel currency called the chervonetz that was linked to gold. This currency remained in circulation until 1928.

Revolutions are often attended with episodes of hyperinflation. The French Revolution, the American Revolution, the Bolshevik Revolution, and the Communist Revolution of China were attended with episodes of hyperinflation.