The Russian Runaway Inflation

Abstract

Arising out of general inflation came a new phenomenon, runaway inflation. In a runaway inflation a high proportion of state expenditures are covered by the printing of new currency, and as the volume of notes in circulation increases, they lose value by the day or hour, the currency turns into worthless bits of paper, and trade is destroyed. Two famous examples are the Austrian inflation in 1922, when the krone fell from 11,000 to the dollar on May 31 to 22,000 to the dollar on June 13; and the German inflation of 1923 (see document 17). The first of the runaway inflations, however, was in Russia in the years following the Bolshevik Revolution, although this has been obscured by the political isolation of the Soviet régime. Inflation was well advanced by the time of the Revolution, but in 1918, as the Soviet government faced huge expenses arising from the Civil War and the costs of nationalized industry, vast quantities of currency were printed and the ruble began to fall precipitously. By January, 1920, it took more than 2,400 rubles to buy what a single ruble had bought in 1913; by January, 1921, it took almost 17,000; and by January, 1922, almost 290,000. The following description of the Russian inflation at the end of 1919 is from the preliminary report prepared for the International Financial Conference.