Commerce and the merchantry

The Russian economy in the period 1613–89 was quite sophisticated. The leaders of the hypertrophic Muscovite state were basically monetarists à la Milton Friedman who understood well that the quantity and quality of the money in circulation determined the price level. The currency was based on silver, primarily reminted thalers imported from other countries in Europe because Muscovy in that period mined no precious metals, which did not exist on its territory. By manipulating the quantity and quality of silver in the currency, the government could make the price level rise, fall or remain constant.

Throughout these decades of the ‘short Russian seventeenth century’, the price level of commodities varied wildly for brief periods, but always returned sooner or later to the median for the period. Events such as famines and wars also had an impact on the price level, but they were not nearly as dramatic as the monetary impacts. Thus prices tended to rise for the Smolensk war (1632–4) and the Thirteen Years War (1654–67), but the major inflationary swing in prices in 1662–3 was caused not by the war, but by the government’s devaluing the currency. This commenced at the end of the 1650s, when the government decided to try to pay for the war by replacing the silver currency with copper coinage. Probably because faith in the government was strong, the ‘bogus currency’ was accepted at ‘face value’ for four years. A crisis occurred only when the government began to refuse to accept the copper coinage for tax payments and when word began to circulate that government leaders were minting copper coins for their own profit.