Is Russia Threatened with Hyperinflation

The liberalization of prices at the beginning of 1992 has been interpreted as the first real step toward a market economy. Indeed, without free prices determined by supply and demand, there can be no market; just as there can be no market without competition, private property, sound money, and strict state regulation of accounting practices and taxation. It is too late now to give advice on the sequencing of market reforms in Russia (privatization, demonopolization, and budget reform first, followed by price liberalization or vice versa). Clearly, the Russian government had neither the time nor any real opportunity to make a better choice. The central control structures were breaking up and being abolished. Many prices already had broken free since the summer of 1991. A sense of the inevitability of another jump in prices had deeply penetrated into the public consciousness, leading producers to delay deliveries of goods in anticipation of the price increases. There was clearly no hope of stemming the rising tide through administrative barriers: the result could be the opposite to the one desired (a further worsening of supplies to cities and an explosion of speculation and other abuses). Even the rationing of basic foodstuffs sold at fixed prices became a problem in view of the insufficient funds at the disposal of the authorities and the fact that the authorities themselves were too weak to force producers to deliver goods to centralized reserves at unprofitable prices. In a word, arguments over the best theoretical path to a true market have taken a back seat to the dangerous effects of a new jump in prices and to the need to counteract these effects.