Central Planning and Unintended Consequences

We use the Soviet state and party archives to study the creation of the Soviet financial system. Although its framers intended to centralize all emission and monitoring of money and credit, in practice the system was characterized by informal mechanisms involving multiple players, soft budget constraints, and massive moral hazards. Enterprises issued “illegal” commercial credits and surrogate monies, causing liquidity growth to far outpace real economic activity. When confronted with the choice of solvency versus plan fulfillment, firms always chose the latter: credit risks were passed on to solvent enterprises, the state bank, and the state budget

Business · Financial plan · Political science · Unintended consequences · European history and politics · Finance · Law · Post-Communist Economic and Political Transition · Urbanization and City Planning