Appendix A: price deflators

Soviet prices were determined partly by the pressure of administrative

determination of prices for officially rationed goods, partly by supply
and demand in unregulated markets. In wartime the different markets
displayed sharply divergent trends. Official prices of industrial and
consumer goods and transport services rose (in some cases quite sub-
stantially), but the increases were strictly controlled. Weapon prices fell.
In unofficial markets for consumer goods, upon which fell the entire
burden of frustrated household demand for goods and services in short
supply at official prices, the price level became hugely inflated.
Although wartime trends in official prices were closely regulated,
and did not reflect market supply and demand, they were not arbitrary.
Soviet price controllers continued to follow the cost-plus methodology
established in peacetime, and went on trying to get official prices right,
at least in terms of their own methodology.
Of the documents which express this striving, none is more evocative
than correspondence of 1944 between Narkomugol (the commissariat
of the coal industry), Gosplan, and NKVD. The deputy head of finance
of Narkomugol explained that early in 1943 the NKVD had contracted
to supply the coal industry with forced labourers, each at 35 per centof
the going wage rate. But in March the government had effectively
doubled the official wage rate for miners; this had triggered a corre-
sponding increase in payments for subcontracted NKVD labourers,
further raising the average cost of mined coal. But since the cost to
society of maintaining and administering forced labourers was unaf-
fected by miners' wages, and had not increased, it followed that NKVD
was reaping a financial surplus at the expense of the coal industry and
coal users. Kosiachenko (then deputy head of Gosplan) accordingly
requested Beria (for NKVD) to review the agreement, and set 20 per
centas a ceiling for a revised figure.1
173

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174 Appendices

Other examples discussed elsewhere in this book illustrate the point

further. In appendix E, it will be shown how the authorities continually
monitored the falling unit cost of munitions and pushed down weapon
prices in proportion. In chapter 6 it was shown how the authorities
responded to the problem of how to charge for weapons imported
under the United States Lend-Lease programme; at the official
exchange rate imported weapons were too cheap in comparison with
the price level for domestically produced weapons, so the authorities
levied a tariff on them to bring their prices up to the domestic level
before transferring them to the army.
Price deflators are used for several purposes in this book. The most
important uses are to deflate nominal wartime outlays to constant
prewar prices, and (in conjunction with other information) to estimate
trends in unit costs. Index numbers of prices are invariably calculated in
the Paasche form, using weights of the current year, for analytical con-
sistency with Laspeyres index numbers of output calculated using
weights of a fixed base year (usually 1937 or 1940). This maintains the
identity which holds that an index of nominal values is equivalent to a
volume index of the Laspeyres type, calculated using prices of a fixed
base year, multiplied by a price index of the Paasche type.2
Table A.I shows the most important deflators used. Part (A) of the
table deals with nonagricultural goods and services. Comparisons of
1940 over 1937 are mostly taken from the work of Bergson and his asso-
ciates. After 1940, for nonmilitary, nonagricultural goods and services
our main information pertains to 1944, with other years estimated by
interpolation. The trend of munitions prices in years after 1940 is calcu-
lated from official sources, detail being given in tables A.2 and A.3;
according to these calculations, by 1942 weapons prices were one third
below the prewar level, and slipped by a further small margin during
the remaining war years. Such figures match the statement of
Voznesenskii, according to whom defence industry product prices in
1942 were 72 per cent of 1940.3 Further information on this subject will
be found in appendices B and E.
Consumer goods and services are the subject of part (B) of table A.I.
Price trends in the official and kolkhoz market sectors of retail trade are
calculated from estimates of values and volumes taken from Chapman
for 1940 over 1937 (table A.4), and official documents for subsequent
years (table A.5). Estimates of trends in the consumer services sector are
based on Chapman, with interpolation between 1940 and 1944.
Our heavy reliance on interpolation for index numbers in the 1941-3
period may of course be questioned. But it is noteworthy that, in series

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 Appendices 175

Table A.I. Prevailing prices of goods and services, 1940-5 (per cent of 1937)

1940 1941 1942 1943 1944 1945

(A) Nonagricultural products and services
1 Munitions 120% 101% 80% 73% 71% 69%
2 Munitions inputs 126% 130% 135% 139% 144%
3 Civilian machinery 106% 107% 108% 109% 110%
4 Basic industrial goods 121% 123% 124% 126% 128%
5 Construction, 113% 108% 106% 108% 114%
5.1 construction materials 108% 112% 116% 120% 124%
6 Railway freight 156% 165% 175% 185% 196%
(B) Consumer goods and services
7 Retail trade 134% 212% 289% 480% 472% 358%
7.1 official markets 125% 144% 163% 188% 222% 245%
7.2 kolkhoz markets 200% 661% 1121% 2033% 1646% 932%
8 Consumer services 142% 149% 155% 163% 170%
(C) Average labour costs
9.1 Annual earnings 130% 138% 145% 154% 162% 171%
9.2 Hourly earnings 116% 106% 102% 103% 110% 132%

Sources: Row 1: for 1940, see Bergson (1961), 367; subsequent years are
interpolated on table A.2, row 3. Rows 2-4, 6: for 1940 and 1944, see Bergson
(1961), 367-8; intervening years are interpolated geometrically. Row 5: row
5.1, combined with the public-sector hourly earnings index (row 9.2), with
labour costs weighted at 70 per cent. Row 5.1: for 1940 and 1944, Bergson
(1961), 350, with geometric interpolation of intervening years. Rows 7, 7.1,
7.2: for 1940, as table A.4, rows 4-6; 1942-5 are interpolated on table A.5, rows
7-9, and 1941 on 1942 and 1940. Row 8: for 1940 and 1944, Chapman (1963),
81,350, with geometric interpolation of intervening years. Rows 9.1, 9.2: for
1937 and 1940, annual earnings are taken from Bergson (1961), 422, and hours
from Moorsteen, Powell (1966), 647. For subsequent years, see table G.7, rows
1,2.
where the gap may be filled from official sources, the trend of prices in
the official sector appears to have been strictly monotonic (rows 1, 7.1).
Part (C) of table A.I deals with trends in wage earnings. Here our
information is extremely restricted. Figures are for manual workers in
public-sector industry. Annual or monthly wage earnings are known for
1937,1940, and 1944; this gives us the corresponding entries in row 9.1,
which show substantial wage inflation in each benchmark year by com-
parison with the preceding one. Manual workers' annual hours also
increased over each period, but the biggest increase was between 1940
and 1944. So the index of hourly earnings shows an increase in 1940
over 1937, followed by a slight fall over the period ending in 1944.

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176 Appendices

Table A.2. Price indices for munitions, 1941-5, from NKO budget data
(per cent of 1940)

1941 1942 1943 1944 1945

1 Army, air force 85% 65% 60% 59% 56%

2 Navy 85% 78% 72% 68% 65%
3 Total 85% 66% 61% 59% 57%

Sources: Row 1: table A.3, row 4. Row 2 (naval munitions): 1941 is as row 1;
figures for the change of prices in each year after 1941 over the preceding year
are chained together from Terpilovskii (1967), 354. Row 3 (total): the two
subindices are weighted by current shares of the NKO (Army and air force)
and NKVMF (navy) in overall munitions outlays, from table K.3, rows 1,10,
yielding a Paasche index of price change for munitions of all kinds.

Table A.3. A Paasche index of ground and air munitions prices, 1940-5,
from NKO budget data (million rubles and per cent)

1940 1941 1942 1943 1944 1945

(A) Million rubles

1 EXPt 14530 24221 33156 38649 42531 30335
2 SAVt - 4440 9691 3495 1066 1204
3 EXPt + SAVt - 28661 42847 42144 43597 31540
(B) Per cent of 1940
4 Pt 100% 85% 65% 60% 59% 56%

Source: Row 1: table K.3, row 1. Row 2: Terpilovskii (1967), 63, 80,84,86,87.
Row 3: the sum of rows 1,2 gives munitions outlays in each year, as if in prices
of the preceding year, i.e.:

EXPt+SAVt =

Row 4: the previous year (with 1940 = 100%), multiplied by row 1,

divided by row 3, i.e.:

P =
EXPt+SAVt>

The main problem concerns the intervening years which must be

filled, once again, by geometric interpolation. But which series should
be interpolated - annual earnings, or hourly earnings? If hourly earn-
ings (which might be thought reasonable under most normal circum-

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 Appendices 177

Table A.4. Retail trade turnover and prices, 1937,1940, and 1944, from
Chapman

1937 1940 1944

(A) Retail turnover (billion rubles and current prices)

1 Total trade 92.9 141.2 113.8
2 Official trade 76.9 115.0 77.S
3 Kolkhoz trade 16.0 26.2 36.0
(B) Price level (% of 1937)
4 Total trade 100% 134% 203%
5 Official trade 100% 125% 143%
6 Kolkhoz trade 100% 200% 2200%

Sources: Rows 1-3,5,6: Chapman (1963), 104-5. Row 4: the average of rows
5, 6, weighted by shares in retail turnover at current prices.

Table A.5. Retail trade turnover and prices, 1940 and 1942-5

1940 1942 1943 1944 1945

(A) Retail turnover (billion rubles and current prices]1

1 Total trade 203.5 160.2 262.9 324.2 294.8
2 Official trade 175.5 77.8 84.0 119.3 160.1
3 Kolkhoz trade 28.0 82.4 178.9 204.9 134.7
(B) Retail turnover (billion rubles and 1940 prices)
4 Total trade 203.5 74.5 73.6 92.2 110.5
5 Official trade 175.5 59.8 56.0 67.3 81.6
6 Kolkhoz trade 28.0 14.7 17.6 24.9 28.9
(C) Price level (% of 1940)
7 Total trade 100% 215% 357% 352% 267%
8 Official trade 100% 130% 150% 177% 196%
9 Kolkhoz trade 100% 561% 1016% 823% 466%

Sources: Rows 1-6: GARF, f. 4372, op. 4, d. 1585,1. 213. Rows 7-9: rows 1-3
divided by rows 4-6.

stances), then annual earnings should show a marked peak in 1943,

when wartime hours were at a maximum. If annual earnings should be
interpolated, then the hourly series should dip in the intervening years
as hours soared. In table A.I I have exercised judgement in favour of the
latter. The dip in hourly earnings suggested in row 9.2 in 1942-3,

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178 Appendices

should, I think, be interpreted not as a simple cut in the hourly earnings

implicit in piece rate norms, but as a trend to unpaid overtime, sug-
gested by memoirs and other historical writing. Correspondingly, I
assume that the upward drift of annual earnings in the years between
1940 and 1945 was gradual; in the early years of the war there was of
course extra upward pressure on wages from the demand-for-labour
side, but there were also extra reasons to hold wages down for reasons
of macroeconomic balance.

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