Letter to Solzhenitsyn
Jude Wanniski
January 6, 1997


Mr. Alexander Solzhenitsyn
c/o The New York Times
229 W. 43rd St.
New York, N.Y. 10036

Dear Dr. Solzhenitsyn:

How ironic that The New York Times would give you so much space on its editorial page, January 4, to lament: "What Kind of Democracy is This?" In the last seven years, the Times has been a source as well as an advocate for every destructive idea of political economy that Moscow has embraced in its search for a path to democratic capitalism. The idiotic concept of "shock therapy" was practically born on the Times editorial page, which elevated Harvard's Jeffrey Sachs to the chief authority on how to transform a command economy to a market economy which can be summarized as: Blow up the command economy and let nature take its course.

Truthfully, Dr. Solzhenitsyn, neither the Gorbachev government nor the Yeltsin government has had good advice from any political faction in the United States on how to make the conversion to democratic capitalism. The Times actually may have thought it was helping by encouraging Moscow to listen to Jeffrey Sachs, who it celebrated for his "successful" counsel to Poland just before the people of Poland voted for a return to communism, his "shock therapy" being the best alternative. There were Republican/conservatives who knew better, but they were not interested in giving good advice to Moscow. Many of my Republican Cold War allies were more interested in bringing about a dissolution of the Soviet federation, and knew this could be facilitated byeconomic collapse. That is, The Wall Street Journal supported "shock therapy" knowing full well it would not work.

Independently, I was invited in 1989 by the Gorbachev regime to come to Moscow to advise on the conversion process. I had earlier recommended to the Gorbachev government that it invite U.S. Federal Reserve Board Governor Wayne Angell to Moscow for a second opinion on how it might convert without "shock therapy." Angelfand I traveled to Moscow together in September 1989, at the invitation of the Gosbank. Our advice was to fix the dollar to the ruble at the rate of four to the dollar, which was then the black market rate, and to raise the funds it would need for conversion from its own people, through bond finance at that 4:1 rate. We actually advised that this be done first, as a way of preventing a fracturing of the federal structure of the USSR.

In every case, our advice was rejected by the counter-advice of the Western governments to Gorbachev and Yeltsin. The center of that poisonous advice was the insistence that the ruble be devalued against the price of oil, by permitting oil to "float" to a free market level. My warning to Yegor Gaidar, in his office in Moscow soon after he became head of the Yeltsin government, was that this policy would wipe out the existing capital in the hands of ordinary Russians. I also warned him that he would almost certainly lose political power by his embrace of such a destructive policy.

The Chinese government in Beijing has understood that "You do not burn down your old house until you build a new one." Its success has been built on stabilizing the yuan exchange rate with the dollar and gold. I'm at least encouraged to see the Yeltsin government has been trying to keep the ruble/dollar rate steady. A market economy cannot evolve without a reliable unit of account. It is as simple as that.

The New York Times, by the way still hasn't any idea about what is going on in Moscow. They give you space to present your views, but when they produce editorials on what you should do to improve your political economy, they should be ignored. To tell you the truth, you would get better counsel from Karl Marx. He at least was appreciative of classical economics and would have stood at my side, warning Gaidar against a devaluation of the ruble.


Jude Wanniski