There is a lively debate underway in Russia over the proper direction of the country’s monetary policy, and in particular the interest rate policy of the Central Bank, currently headed by Elvira Nabiullina. Among the sharpest critics of Nabiullina’s approach is Sergey Glazyev, one of the country’s most prominent economists, who is on the U.S. government’s sanctions list and is today State Secretary of the Union State of Russia and Belarus. A full member of the Russian Academy of Sciences, Glazyev has repeatedly stated publicly his admiration for the economic writings of Lyndon LaRouche.
Because of its importance for understanding the policy debate going on in Russia on this matter, we provide excerpts from Glazyev’s July 27 Telegram posting, the full text of which can be found here.
“When discussing the impact of lowering the key interest rate on economic growth, the Central Bank Chair [Nabiullina] is held captive by her own speculative notions regarding a ‘near-equilibrium’ state of the Russian economy. It escapes her that a modern economy is never in a state of equilibrium, and that economic development is, in principle, a non-equilibrium process.
“Although the Russian economy’s production capacity is utilized at, at most, fifty percent, the official unemployment figure leads her to believe that the economy is in a state of equilibrium. Consequently, she holds the view that lowering the key rate would trigger an increase in the demand for money, and that the resulting expansion in money supply would not boost production—which she assumes is already operating at maximum capacity—but would instead drive up prices. She fails to recognize that, in addition to the labor force, the factors of production include fixed capital, natural resources, and scientific and technological progress. Indeed, the latter has long since become the primary driver of economic growth; stimulating it boosts labor productivity and helps overcome labor resource constraints. The Central Bank appears to be completely unaware of hidden unemployment and the potential for labor to shift between sectors…
“In reality, modern fiat money (which lacks commodity backing) serves primarily as an instrument for mobilizing resources… A lack of access to credit leaves significant production capacities idle, causing the Russian economy to remain in a state of stagflation for almost the entire post-Soviet period…
