The destruction or collapse of a social system is bound to be cataclysmic, and the collapse of the communist system which has played itself out at across twenty-eight countries is no exception. The political, social and economic relations which governed these societies are all being simultaneously changed in a fundamental way. In such a context the presence of macroeconomic instability is hardly surprising. Yet, it is the job of economists to try to identify the specific causes of economic phenomena, even when they are caught up in the whirlwind of history. This book, by a participant in the events, examines the causes of very high inflation and large fall in statistically measured output in the post-Communist countries of Central and Eastern Europe and the former Soviet Union. It focuses on the fundamental nature of the shift from supply constrained economies (in which there is no unemployment) to ones which are constrained by demand; on the reconstruction of monetary and credit systems; and on the central role of macroeconomic stabilization and generalised liberalisation in creating the basis for private sector growth. Many of the chapters have grown out of policy debates in which the author participated.

Many of the chapters of this book were written in response to the practical problems thrown up by the transformation of the post-Communist countries into market economies (the earliest, Chapter 2, in 1988). Some, for example Chapters 2, 3, 8, 9, and 10, were written with specific policy makers and specific problems in mind. In the case of Chapter 2, the intended audience was the leadership of the democratic opposition in Poland, who had no power in 1988, but did already have significant influence over Polish public opinion. Other chapters were reviews of the transition experience regarding particular issues, as they presented themselves at the time (Chapters 4, 7, 11, and 12). None of these chapters have been corrected as far as their contents are concerned, although minor changes intended to improve style and clarity have been introduced in some cases. This abstention from revision was intended to give the reader the flavour of the debates at the time. Chapter 14 has been extensively restructured to make the argument clearer without, however, changing either the analysis or the data that was used in the original draft. The remaining chapters were written for this book. I have also added an introductory overview of the problem of macroeconomic instability during the transformation (Chapter 1), as well as introductions to each of the three Parts of the book. The intention of these is to allow me to qualify, and indeed retract, some of the analysis in the chapters which either the unfolding of the story, access to better data, or work by colleagues have shown to be mistaken.

This book could not have been written without the encouragement and tolerance of my wife Wanda, or without the intellectual inspiration and stimulation which I received from many colleagues and friends. I would like to mention in particular: Mark Allen, Anders Åslund, Andrew Berg, Leszek Balcerowicz, Peter Boone, Marek Dabrowski, Yegor Gaidar . . .