A Visit to Russia

This file is a single-author political-economic travel essay. Hans F. Sennholz uses a brief 2002 visit to Russia as the occasion for an Austrian-economics diagnosis of post-Soviet transition: why the move from command socialism to democracy, property, and markets remained slow, painful, and morally confused.

A short visit to a few places in Russia, the largest country on earth, provides merely a brief, incomplete view of the lives and mores of the people.

The essay’s thesis is that Russia’s difficulties cannot be understood as mere administrative disorder. They arise from the institutional and psychological inheritance of czarism and communism. Market order, for Sennholz, is not created by decree; it requires property, prices, calculation, habits, and an “educational and ideological foundation.”

The political and economic ties that bound the Soviet Union for some seventy years cannot be cast off in a year or even a decade.

Sennholz frames the Soviet collapse through Ludwig von Mises’s socialist-calculation argument. Without private ownership and market prices, economic calculation fails; therefore the USSR was not simply mismanaged but structurally incoherent. Gorbachev’s perestroika, the failed 1991 coup, and the dissolution of the USSR reveal rather than cause socialism’s breakdown.

The Soviet system was a chaotic system that was destined not only to enslave and impoverish its people but also to degenerate and finally disintegrate.

The central body follows the Yeltsin reforms: price liberalization, privatization of enterprises, land, retail facilities, housing, and currency stabilization. Sennholz treats these as necessary but incomplete reforms, blocked by the Duma, communist habits, subsidy expectations, labor restrictions, bureaucratic obstruction, and inflationary finance.

First, goods prices had to be set free so that supply and demand would direct production and clear away all goods shortages.

A key conceptual move is his distinction between formal privatization and real capitalism. Vouchers, legal titles, and nominal ownership do not create productive markets if enterprises remain loss-making, labor cannot be reorganized, land cannot be freely used, and officials retain discretionary control. Retail succeeds more than agriculture or heavy industry because black-market skills already approximated customer service and supply coordination.

The Russian economy continued to hover between the old and the new, the command order, the market order, and the black-market order.

Putin’s rise is presented ambivalently. Sennholz notes the 13 percent flat tax and renewed political order, but attributes Putin’s early popularity largely to ruble devaluation, export gains, and rising oil prices. Even Russia’s black market appears as a distorted but genuine sphere of exchange under oppressive regulation.

It meant to reduce Russia’s massive black market which is a genuine market serving millions of consumers although every transaction violates a regulation.

The conclusion shifts from chronology to judgment. Sennholz credits Yeltsin with moving Russia across an immense civilizational divide, while acknowledging that transition allowed politically connected insiders to become oligarchs. Russia’s future depends on whether the state can distinguish productive entrepreneurs from political profiteers and whether it will protect, rather than punish, successful capital.

The distance from Communism to democratic freedom and a market order is greater by far than the distance from the poorest market economy to the most productive and prosperous country.

The essay remains relevant as a concise free-market interpretation of post-Soviet transition. Russia possesses education, labor, land, minerals, forests, oil, and gas; its poverty is therefore read as a problem of political economy rather than natural scarcity. Sennholz ends with the claim that institutions ultimately follow ideas: freedom must be learned before prosperity can be secured.

Economic life is what economic thought makes it – also in Russia.