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gain. First, freedom to trade unleashed the no-trade equilibria typical of an economy characterized by controlled prices and barter exchanges. Repressed inflation, which results when prices are kept below their equilibrium levels across the board, blocks trade, even if price ratios happen to be correct (Benassy, 1982), since the oversupplied currency cannot serve as an effective medium of exchange. Barter trade, endemic prior to the reform, similarly could not substitute for stable currency and free prices. Both Russian households and firms had accumulated large inventories of merchandise in the prereform period, and were therefore able to reap broad gains from trade in these stocks immediately after reform began. The blanket liberalization of imports contributed further to the same end.

Another source of efficiency gains was the elimination of wasteful non-monetary equilibrating mechanisms. Price controls led to the expenditure of valuable resources other than money to ration limited supplies of goods. Most frequently this resource was time—spent in lines, in search of goods in short supply, or in attempts to make connections with those having access to goods. Price liberalization rendered these nonproductive expenditures unnecessary, and thus increased aggregate consumer welfare.

Although the distribution of these gains was frequently inequitable, it was sufficiently dispersed to provide the majority of the population with some offsetting relief to the many-fold increase in the consumer price index. According to household surveys, in the first few months after the blanket decontrol of prices, the population was satisfied by and large with the available level of consumption (Gorin, 1995). The reformers were also able to rely for a limited time on a "credit" of broad social support, based in part on widespread expectations of improving social and economic conditions, and in part on disarray among the potential opponents to reform (Balcerowicz, 1994). The fact that Russian reform initially met little resistance and that protests and signs of discontent were few and far between allowed monetary policy to be kept under tight control, thereby preventing the one-time dramatic price increase from triggering an ongoing inflation.

It should be stressed, however, that this initial success was accomplished within what was essentially a simple exchange economy, where institutional lacunae and deficiencies were less damaging than they would be in a full-scale trading economy with production and distribution based on market mechanisms. It was when the gains from trade in initially held endowments and inventories had been exhausted, and it was time to produce new commodities, earn returns on the contributed factors of production, secure ownership over these factors, and arrange for their reallocation to meet market demand that Russian reform ran into trouble. "Exchange in modem economies consisting of many variable attributes extending over long periods of time necessitates institutional reliability, which has only gradually emerged in Western economies" (North, 1990:34). This desideratum was—and largely remains—absent



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