Peasants in central Russia between the late seventeenth and late nineteenth centuries engaged in other economic activities. Most kept some livestock for meat and dairy produce, as well as draught power to pull their ploughs and to produce manure for fertiliser. The livestock kept by Russian peasants tended to be small and thin. In comparison with Russian cattle, one observer noted, English cows 'looked like elephants'.[313] But, animal husbandry declined in importance relative to arable farming in the central regions as more land was ploughed up to grow grain to feed the rising population. Peasants continued to hunt and gather in the forests and grow vegetables and other crops in their household plots. Non-agricultural activities, such as forestry, handicraft production, trade, and migrant labour, became more important as sources of income for peasant households. From the middle of the eighteenth century, a degree ofregional specialisation developed between the non- black-earth forested regions, where peasants devoted increasing resources to non-agricultural activities, and the fertile black-earth regions, where agriculture predominated. This, in turn, led to an expansion in interregional trade. Production for sale became a more important, if still secondary, motive for peasants' economic ventures in the vicinity of urban centres or transport arteries such as rivers. The growth in the market created more opportunities for peasants to make a living, or to supplement farming, by trade and wage labour.[314]
Despite the development of opportunities for market-orientated production for peasants in some areas, most Russian peasants seem generally to have been disinclined to maximise their production and incomes, or to adopt new methods of tilling the land. Many were averse to the drudgery of the extra labour entailed, because of the limited opportunities in many areas to sell surplus produce at the market, and the likelihood that most of any increases in production would be taken away from them in increased obligations by the state and landowners. For many peasants, producing enough food to subsist by relying on tried-and-trusted methods was more important than experimenting with new crops or agricultural techniques, which may have been more productive but may also have been more risky. Reducing risk was also one of the reasons why peasants engaged in different types of farming, and in both agricultural and non-agricultural activities. If one part of a household's activities failed, it could be compensated for by others.
It is usually argued that peasant agriculture in Russia was not very productive due to the low level oftechnology employed by peasants and the environmental conditions in which they farmed. Various sources, including figures reported by many provincial governors in the late eighteenth and first half of the nineteenth centuries, suggest that peasants in the central regions harvested around three or three-and-a-half times as much grain as they sowed.[315] There is evidence, however, for example data collected by the Free Economic Society and the records of some noble estates, that some peasants attained higher average yields, around five and six times the seed, especially in the fertile black-earth regions ofthe forest-steppe in south-central Russia.[316] Average yields conceal the main trend, which was considerable year-to-year fluctuations caused largely by the vagaries of the climate. There were periodic bad harvests in parts of central Russia between the late seventeenth and late nineteenth centuries.
The needs of the peasant economy, in particular agriculture, influenced the practices and customs peasants adopted in their households and village communities to manage their labour and land. Peasant households continued to farm their land individually, even after their villages began to hold their arable land in common, and household heads sought to ensure that they had a sufficient numbers of labourers under their roofs to support their members. As in the earlier period, household heads insisted on near-universal and early marriage to ensure high birth rates. From the late seventeenth century, moreover, many heads adopted a new practice regarding household divisions. Rather than allowing their sons to leave and set up their own households after they married, heads actively prevented their sons from breaking away. Instead, many adult sons, together with their wives and children, continued to live under the same roof as their parents until their fathers died. Married brothers and their families sometimes continued to live together afterwards. The prevalence of household divisions after the deaths of their heads in much of central Russia from the late seventeenth to the late nineteenth centuries meant that many village communities contained substantial proportions of households with large numbers of peasants and complex structures. Large and complex peasant households typically contained seven to ten or larger numbers of people, more than one married couple, and two or three generations. In contrast, the earlier practice of household divisions before the death of their heads had led to small, simple households. There were regional variations. Household divisions after the heads' death, resulting in large, complex households, were less widespread in forested regions where agriculture was less important.
There were several reasons for the development and spread of large, complex households. Between 1645 and 1678, the state switched from a tax assessed on land to a flat-rate household tax. By living in smaller numbers of larger households, therefore, peasants could reduce the amount of taxes they paid. The household tax was replaced by the poll tax in 1719-24, but large, complex households persisted for other reasons. They were an effective way of organising labour for agriculture and to meet the growing demands on peasants for obligations. Larger households were better able to meet the massive demands for labour at peak times in the agricultural calendar, in particular haymaking and harvesting. Large and complex households served as welfare institutions as their multi-generational structure meant they usually contained enough able- bodied adults to support the children, elderly and infirm, who were not able to work or look after themselves. Maintaining large and complex households was also a risk-averse strategy. Larger households with a number of adults and more than one married pair were better able than smaller households to cope with the premature deaths of adults or the conscription of a young man into the army.[317]
Living in large and complex households may have been more viable than smaller, nuclear families, but it imposed constraints and burdens on their members. The younger generation of adults, male and female, lived under the authority of the older generation and bore the brunt of the burden of work in the household and on its land. The younger generation of women were subject both to their husbands and to their mothers-in-law, and sometimes had to fend off the advances of their fathers-in-law. Generation and gender were axes of tension and conflict inside large households, and led sometimes to demands from their younger members for household divisions.[318] It was not unusual for adult males to reach middle age before they became heads of their own households.
According to custom, there was a gendered division of labour inside households. The men were responsible for work in the arable fields, and usually did all the ploughing, harrowing and sowing. Men also looked after the horses. Women's customary roles, for which they had sole responsibility under the direction of the wife of the household head, were looking after the household, the children, the kitchen garden and small livestock. Women were required to enter the 'male domain' ofthe fields, however, to help out with the backbreak- ing tasks of haymaking and harvesting. Female peasants played a far larger role in field work, taking over this customary male role, if their menfolk were away for long periods as migrant labourers. Some villages in Kostroma province, in the Central Non-Black Earth region, became known as 'women's kingdoms' for this reason.[319]
Many village communes in central Russia, especially the Central Black Earth region, adopted a new form of land tenure over the seventeenth and early eighteenth centuries. In many villages, peasants began to hold their arable land in communal, rather than household, tenure and adopted one of the most famous practices of rural Russia: periodic redistribution of strips of arable land between households to take account of changes in their size. Households that increased in size, for example following the marriage of a son, were allocated more land at the expense of those that had got smaller, as a result, for example, of division or death. It is sometimes asserted that this practice reflected some communal ethos in the soul of the Russian people. Scholars who have delved more deeply into its origins have found practical motives. Village communes shared out the total burden of obligations demanded from them by landowners and the state, for which they were jointly responsible, between their member households. As these obligations increased over the seventeenth and early eighteenth centuries, it made practical sense for communes to try to ensure that households could support themselves without needing the assistance of their neighbours and, crucially, meet their shares ofthe communal obligations. One way to do this was to share out the land between households, as well as the obligations, and to make sure households' land allotments were roughly in conformance with their ability to work the land. When the sizes of households changed, moreover, it was necessary to adjust their land allotments accordingly. Communes also adopted the new system of land tenure in response to the growing pressure of population increase on the land. Rising obligations and population density are not the full explanation for the origins of communal and repartitional land tenure. The key to understanding the new system seems to be taxation. The introduction ofthe flat-rate tax on households in 1645-78 and, more importantly, the poll tax in i7i9-24 were further reasons for communes to share out land fairly evenly to try to ensure that all households had the means to meet their shares of the communal obligations. Since the poll tax was periodically reassessed on the basis of new head counts of the numbers of tax-payers, moreover, it was expedient for communes to redistribute land to take account of changes in the numbers of peasants, i.e. tax-payers, inside households. The connection between the household and poll taxes and the origins of communal and repartitional land tenure is further suggested by the fact that this system of land tenure did not develop in Ukraine, Belorussia and the Baltic region, which had their own systems of serfdom and substantial populations, but where, crucially, the poll tax was introduced only in the late eighteenth century, in some cases long after they had been annexed to the Russian Empire. In all these western parts of the empire, individual household land tenure persisted. If households had more land than they could cultivate, they hired labourers from households that were short of land. Thus, in the west of the empire, as in most of the rest of Europe, labour, rather than land, moved around between households.[320]
Communal and repartitional land tenure have distracted the attention of historians from the other important functions ofvillage communes. Although the land was farmed by individual households, communes oversaw the operation of the three-field system, which required all households to observe the common crop rotation and not, for example, sow grain in their strips in the fallow field. In addition, communes organised assistance for households that were experiencing short-term difficulties, but were likely to recover and once again be able to make their contribution to the village's obligations. For example, a small household that had lost its only adult male to illness, but contained teenage boys, was a good bet for the future. Households that were persistently weak, for example due to alcohol abuse by their members, were not deemed worth supporting. In addition, communes mediated in disputes between households and maintained law and order in the villages. Communal elders, who were heads of their own households, backed each other up in maintaining their authority over the younger generation. Communes thus sought to support the system of large, complex households by trying to prevent younger peasants from breaking away. Household heads and elders of village communes found some coincidence of interests, moreover, with noble and state authorities. They all had a mutual interest in maintaining authority in the villages and ensuring that communes were able to meet their obligations, in which the largest part of the burden was borne by the young adults. The older generation used a variety of means to maintain their authority, ranging from public shaming and corporal punishment to exile from the village or selection of recalcitrant peasants as conscripts for the long term of military service from which few returned. The degrees of exploitation and social control, including maintenance of the complex household system, seem to have been at their greatest on magnate estates in the Central Black Earth region, where serfs performed onerous labour obligations, such as the Gagarin estate of Petrovskoe in Tambov province, in the late eighteenth and first half of the nineteenth centuries. [321]
Exploitation and oppression provoked some peasants to protest against the landowners and state authorities. In the central regions of Russia in the period between the late seventeenth and late nineteenth centuries, peasants mostly eschewed large-scale violent protests in favour of more limited forms of action. Open protests usually took the form of non-violent confrontations, often accompanied by the submission of petitions or complaints or the initiation of law suits. Peasants complained about and sought redress for specific grievances such as excessive exploitation, cruel treatment and rejections of requests for assistance in times of dearth. In addition, and as a matter of routine, peasants resorted to low-level 'weapons of the weak' of the type used by oppressed and exploited peoples in many societies. They worked badly on their landowners' land when performing their labour services, stole estate property, accidentally broke new machinery that threatened to make more work, paid less than the full amount of their cash dues late, feigned incomprehension of orders, hid in the woods for a few days to escape punishment, and a whole manner of similar tactics. In using limited forms of protest, however, peasants did not and could not hope to overturn the whole social system. Indeed, for most peasants, it is likely that such a notion existed only in the magical world of folklore and in the afterlife promised by the Christian religion. In the real world, peasants used their various tactics of protest to try to blunt the edges of their exploitation and carve out some living space for themselves. The trick was not to push the authorities too far and provoke a strong or violent response in which the peasants knew they were likely to be subjected to harsh repression.[322] Rather than engage in protest, many peasants, including the younger generation of men and women, seem grudgingly to have accepted their lot, worked hard to support their households and village communities, and to meet those obligations they were not able to evade or reduce. The daily grind of fieldwork from the early spring to the early autumn was punctuated by church and village festivals at which drink flowed freely and peasants could let off steam and, perhaps, imagine a better world.[323]
The living standards of most peasants in central Russia between the late seventeenth and late nineteenth centuries can certainly not be described as prosperous, but it would be a mistake to assume that the majority lived in grinding poverty. It seems safe to conclude that in most years and in many villages, the practices and customs peasants developed in the wider contexts of exploitation and the environmental conditions were adequate to support the growing numbers of peasants. There were variations in living standards. Some peasants were subjected to greater degrees of exploitation by their landowners than others. There were variations over time. Peasants ate best in the autumn, after the crops had been gathered in and livestock had been slaughtered. The weeks prior to the next harvest, on the other hand, could be very difficult. Peasants were dependent also on fluctuations in agricultural production caused by the climate. Individual households' levels of prosperity were in part a function of their size and the ratio of able-bodied adults to all their members. Larger households and those with high proportions of members who could work hard seem to have been better off than smaller households and those with larger numbers of young or elderly peasants. Differences in living standards of this type would even out over the life-cycle of households as children grew up and married and older peasants died off. A few peasants were able to do well from trade, especially in parts of the Central Non-Black Earth region. In such areas, longer-term differences in living standards between the elites and poor of villages emerged. Factional politics inside villages also played a role; households of communal elders generally looked after their own interests at the expense of their neighbours.29
As a result of migration, ever larger numbers of peasants lived in the outlying regions ofthe north or south-east of European Russia and in Siberia. Peasants in these regions persisted long into the eighteenth and nineteenth centuries with the customs and practices that had been common in central Russia prior to the late seventeenth century. Thus, peasants in outlying regions continued to use more extensive systems of cultivation. Slash-and-burn agriculture remained widespread in the forested regions of the north and Siberia. The equivalent system on the open steppes was field-grass husbandry: peasants burned the steppe grasses, cultivated the very fertile, virgin black earth for a few years, before preparing new fields and leaving the old ones to return to the steppe. Change came, but only very late. On the steppes of the North Caucasus, for example, long-fallow systems were the norm as late as the 1880s, but the three-field system was making inroads by the end of the century. Livestock husbandry remained a large part of the rural economy in outlying regions, where pasture remained plentiful, throughout the eighteenth and nineteenth centuries.30 Many peasants in outlying regions continued to live in small, simple households throughout the eighteenth and nineteenth centuries. As in central Russia, however, there was a trend towards larger households with more complex structures from the late seventeenth and early eighteenth
29 SeeR. E. F. Smith andD. Christian, Breadand Salt: A SocialandEconomic History ofFoodand Drink in Russia (Cambridge: Cambridge University Press, 1984), pp. 327-56; E. Melton, 'Proto-industrialization, Serf Agriculture and Agrarian Social Structure: Two Estates in Nineteenth-Century Russia', Past and Present 115 (1987): 69-106; E. Melton, 'Household Economies'.
30 See A. M. Anfimov (ed.), Krest'ianstvo Severnogo Kavkaza i Dona v period kapitalizma (Rostov-on-Don: Izd. Rostovskogo universiteta, 1990), p. 56; J. Pallot and D. J. B. Shaw, Landscape and Settlement in Romanov Russia, 1613-1917 (Oxford: Clarendon Press, 1990), pp. 112-35.
centuries.[324] Peasant households in outlying regions continued to hold their land in household tenure. Indeed, this was compatible with the prevailing extensive systems of land use. Communal and repartitional land tenure spread only slowly to outlying regions, for example the North Caucasus and Western Siberia, only in the wake of the spread of the three-field system towards the end of the nineteenth century.[325] Thus, the newer practices and customs of peasant life spread little by little from the central to some outlying regions over the eighteenth and nineteenth centuries. Peasants in the more remote parts of Russia adopted more intensive ways of using the land and organising their labour in response to the increasing population density as a result of natural growth and, in particular, immigration, from central regions. Peasants altered the ways they did things in reaction also to the growing demands for
obligations that spread outwards from the centre.
***
Peasants in Imperial Russia adapted and altered their customs and practices again in the late nineteenth and early twentieth centuries to cope with further changes. The legislation of 1861 that set in motion the abolition of serfdom was followed by similar reforms for the peasants who lived on the lands of the state and the tsar's family. By the end of the century, most peasants were buying their land allotments by paying instalments in 'redemption' schemes administered by the government. The state also reformed the main demands it made on the peasantry. The poll tax was phased out and replaced by taxes on sales and businesses in the 1880s. The system of military conscription was reformed in 1874. The maximum term of service was cut to seven years, and young men from all levels of society, not just the lower orders, were liable to serve. Conscripts were selected by ballot, moreover, not on the whim of local authorities. A much larger proportion of young men served in the army than before the reform. In marked contrast to the previous system, however, most conscripts came home and resumed their previous lives after a few years' service. The imperial government implemented other reforms. Elected district and provincial councils (zemstva), with peasant representatives, were set up in many provinces in the 1860s, and new local courts were established for peasants. These reforms were part of wider changes. There were improvements in transport with the construction of a national railway network, a national market developed, industrialisation began to take off, and as a result there were more opportunities for wage labour in industry and commercial agriculture. Peasants became more mobile, migrating to the empire's rapidly growing cities as well as to Siberia and other far-flung regions. Peasants' horizons were broadened also by the growth of formal schooling and the spread of literacy in the villages. These processes should not be seen solely as changes from outside that were disrupting a 'traditional' way of life. Russian peasants were used to adapting to changes, and in late Imperial Russia they shaped the changing world they lived in just as much as they themselves were altered. A further development in this period was rapid population growth. Between 1857 and 1917, the number of peasants inside the mid-seventeenth-century borders of Russia increased three times, a rate of natural growth that to some extent prefigured the population explosion in the developing world in the latter part of the twentieth century.
Historians have debated whether peasants in late Imperial Russia were becoming more involved in and identifying with wider society. From the 1860s, more peasants than ever before came into contact with people, institutions and ideas from outside peasant life. The main areas of contact were the new local councils and courts, the reformed army, the growing cities and the new village schools. One line of interpretation has emphasised the extent to which peasants took over, or 'peasantised', many of these institutions (with the exception of the local councils) and transformed them in their image. It has been argued that customary norms of rural justice survived in spite of new courts, soldiers in the reformed army were simply 'peasants in uniform', the cities were swamped by migrants from the villages who brought their customs to urban areas, and peasants used schools to learn skills that they could use for their own purposes but sought to prevent their children from being socialised into an 'alien' culture. This view stressed the vitality, adaptability and endurance of peasant society and culture in Russia.[326] There is a great deal of evidence to support this view, at least in the short term. For example, peasants tried to subvert the Stolypin land reforms of 1906-11 that were intended to create a stratum of richer peasants who supported the tsarist regime.[327] There is another line of argument that, in the longer-term, peasant society and culture were changing rather more significantly, and peasants were becoming more involved in a wider, national society. The new courts, the reformed army, the growing cities, the schools and wider literacy were parts of this process of change, sites of cultural contact where new identities were formed. Towards the end of Imperial Russia, peasants seem to have been starting to construct newer, wider identities as they sought to adapt to and deal with the changing world of which they were a part.[328]
The older historiography of late Imperial Russia painted a picture of growing poverty in increasingly overcrowded villages as peasants, allegedly burdened with high payments and reduced land allotments by the terms of the abolition of serfdom, struggled to survive. The bad harvest and famine of 1891-2 and the rural revolutions of 1905-7 and 1917-18 were seen as the culim- inations of a growing crisis in rural Russia.[329] There is no doubt that many peasants believed that they should have been given all the land free of charge in 1861, nor that there was poverty in the villages. As radical intellectuals took a growing interest in the peasantry in the second half of the nineteenth century, moreover, educated Russians became acutely aware of the low living standards of their fellow Russians in rural areas. Contemporaries in the government and society blamed rural poverty on the peasants' 'backward' methods of cultivation, and believed that village communes and their communal practices were barriers to change. Furthermore, Russian scientists and agronomists became increasingly concerned about the impact of agriculture on the environment. Attention was concentrated on deforestation, soil erosion and climate change. In the 1870s, the Free Economic Society sponsored Vasilii Dokuchaev's path- breaking study of the fertile black earth, which was one of Russia's greatest natural resources, but suffered from recurringpoor harvests.[330] In the aftermath of the bad harvest of 1891, members of the society expressed concerns not only that Russian agricultural techniques were not able to cope with droughts in the steppe regions, but that they may have been contributing to changes in the environment that made droughts more likely.[331]
There are other ways oflooking at peasant living standards in late Imperial Russia. In spite ofthe views ofcontemporaries, peasants and radicals, it seems that the alleged negative aspects of the terms of the abolition of serfdom have been overstated. In time, the reforms of the i860s-80s led to a reduction in the burden of exploitation on the peasantry. While the population was growing rapidly, so were opportunities for wage labour. In spite ofperiodicbad harvests, on average grain yields were increasing as some peasants did adopt new techniques, and some village communes actively promoted innovation.[332]The growth of the railway network, moreover, created new opportunities to produce for the market, and meant that grain could be moved to deficit areas in times in dearth. Over the late nineteenth and early twentieth centuries, grain production per capita, i.e. allowing for population growth, and after exports have been deducted, was also increasing. On average, therefore, it seems that there was a slow improvement in peasant standards of living in the last decades of Imperial Russia. New research into the physical stature of the population provides further evidence for improving living standards. This conclusion does not deny, however, that there were areas, such as the densely populated Central Black Earth region, where poverty was widespread, or that there were short-term crises, for example in 1891-3 and 1905-8.[333]
Finally, it remains to consider how peasants adapted or altered the customs and practices that made up their ways of life in the changing world of late Imperial Russia. A mixed picture emerges. Rather than undermining aspects ofthe peasants' ways of life, at least in the short term, some of the changes taking place reinforced practices that had evolved earlier in different circumstances and for other reasons. The complex household system persisted. Young male migrant workers and married men who were conscripted into the army left their wives and children with their parents while they were away, thus maintaining multi-generational households. Migrant workers sent part of their wages home to support these households. Peasants responded to the rapid population increase that put pressure on the land by maintaining communal and repartitional land tenure, and introducing it in outlying regions, as a way of keeping households' land and labour resources in conformance.
On the other hand, the changes in wider society were also sowing seeds that led to changes in the ways peasants had organised their lives in central Russia since the late seventeenth and early eighteenth centuries. The reduction in the level of exploitation that followed the reforms, together with the removal of noble landowners from authority over their former serfs, led also to a reduction in the control exerted by household heads and village elders over the younger generation. The coincidence of interests between nobles and state officials and the elders of peasant society started to erode. The younger generation found greater independence for other reasons. The military service reform of 1874, with selection of conscripts by ballot for shorter terms of service, meant that village elders could no longer threaten to send, and send, recalcitrant young men to the army for twenty-five years. Younger peasants, both men and women, could find greater financial independence by working as wage labourers in the cities or on commercial farms. The growth of schooling and literacy gave younger peasants more access to ideas outside village culture. One result of these changes was the start of the breakdown of the complex household system in some areas, but later in the Central Black Earth region, as the younger generation sought to set up their own homes, independent of their parents' control. Many migrant workers and soldiers separated from their parents' households when they came home.[334] This was a reversion to the practices of household divisions before the deaths of the heads of households, and the consequent development of a large proportion of small, simple households, that seem to have been widespread in central Russia prior to the late seventeenth century.
There was another area in which peasants in late Imperial Russia reverted to practices that had disappeared in central Russia over the preceding period. The stresses and strains that accompanied the changes in society led to an increase in peasant discontent with their continued subordinate status. To the extent that some peasants were experiencing improvements in their living standards, dissatisfaction may have been fuelled by rising expectations, including hopes for a new land reform. Poverty among peasants who felt aggrieved by the land settlement of 1861 also caused disaffection. Over the same period, other groups in society, including the new middle classes and industrial workers, accumulated grievances. The authorities seem gradually to have been losing their ability to keep control over society at home and to defend Imperial Russia's international status abroad. In 1905 and 1917, military defeats by Japan and Germany led to revolutions in the cities. On both occasions, peasants joined in and spread the revolutions to the villages with the aim of seizing the land still owned by non-peasants. Thus, in the early twentieth century, peasants resumed the earlier practice of open, direct protest with radical aims. The rural revolution of 1917-18 was marked by other elements of continuity. The peasants who seized land were continuing the practice of increasing production to feed more mouths by bringing more land into cultivation rather than adopting more intensive and productive methods. The revolution in the villages led also to the resurgence of traditional peasant institutions, especially the household and commune.[335] The elements of continuity were short-lived, however, as the peasantry's ways of life were shattered by Stalin's forced collectivisation of agriculture in 1930.
***
At both the beginning and end of the imperial period, Russia's population was made up overwhelmingly of peasants, most of whom devoted a large part of their energies to agriculture. Thus, the peasants and their ways of life endured. They were able to ensure their subsistence and livelihoods by their ability to adapt to change. By adapting and changing their practices and customs, moreover, Russia's peasants were able to cope with the demands of landowners and the state, feed their ever larger numbers and settle in parts of the outlying regions of the vast empire. While peasants were constrained to some extent by the natural environments in which they lived, they were able to adapt to support themselves in conditions as diverse as the forests of the north and Siberia, and the steppes of the south and south-east. In their struggles to meet the burden of exploitation and support the growingpopulation, however, peasants transformed and degraded these environments, clearing vast areas of forest and steppe grasslands, thus sowing the seeds for the far greater human impact on the environment of Russia in the twentieth century.
The Russian economy and banking system
BORIS ANANICH Introduction
The beginning of the eighteenth century was a period of radical change in Russia's economy. These transformations are connected with the name Peter I, but they proved possible thanks to the development of trade and the accumulation of capital by the Muscovite government in the sixteenth and seventeenth centuries. The main sources of this capital growth were domestic and foreign trade, salt mines, fishing, payments to the treasury, customs duties and income from taverns. Capital was concentrated in the merchant class, the state and monasteries. Monasteries sold bread, salt and fish, and to a certain extent performed the functions of banks, undertaking credit transactions. Economically, Russia lagged behind the leading countries of Western Europe, where developed banking and stock markets already existed and where concepts such as bills of exchange and promissory notes were widespread.
In many ways, Peter I's transfer of the Russian capital to St Petersburg and his declaration of a Russian 'empire' predetermined the later development of the Russian government and economy. Peter's 'Europeanisation' of the country occurred during wars and was accompanied by the breakdown of old customs and societal structures. The foundation of the empire was an enormous financial burden on peasants and urban dwellers, and limited their freedom of movement as well. Peter I introduced a poll tax, military conscription and internal passport system. But the decisive role in Russia's economic development belonged to the government and state enterprises.
The 21-year war with Sweden greatly influenced Peter's commercial and industrial policies. Providing the army and navy with everything it needed required an intense development of industry and trade, all of which needed to occur in an extremely short period of time. Peter I went down in history as one of the founders of active government entrepreneurship.[336] As a result of the Petrine reforms there was a sharp jump in the development of manufacturing.[337] The state financed not only the construction of new factories but also founded new industrial districts. It owned industrial enterprises and enjoyed a monopoly over areas of foreign and domestic trade. In 1705 a state monopoly was introduced over salt and tobacco, products which brought state coffers significant revenues. The state also monopolised the right to sell key Russian exports. In 1706 yet another monopoly was introduced, this time on trade with China.
Peter I sought to turn his empire's capital city into a commercial and financial centre. He forcibly moved merchants from various Russian cities to St Petersburg, and when he opened a stock exchange in the city he forced merchants to appear and trade at the exchange at designated times.
Before the beginning of the eighteenth century, Russian foreign trade was conducted through the northern port of Archangel. In 1713 Peter broke with this tradition, declaring St Petersburg to be Russia's main trading port. Furthermore, delivering hemp, Russia leather (raft'), potash and other exports to Archangel was prohibited. Despite these measures, however, the state's share of the export trade in Russia in the first quarter of the eighteenth century did not exceed 10-12 per cent.[338] Russian financial transactions in Western Europe were conducted during this time mainly through foreign financiers and merchants, while credit transactions in the country were carried out by administrative institutions.
By the end of the Great Northern War, Peter I's commercial-industrial policies had changed in certain respects. As a result of the reforms of 1719-24 the Mining, Manufacturing and Commercial College was created to manage trade and industry. In these same years a series of measures was approved to encourage private enterprise in trade and industry. Beginning in 1719 government monopolies were eliminated for almost all export goods. In the 1720s the transfer of state manufacturing enterprises into private hands became a relatively common occurrence.[339] If in the seventeenth century salt mines and trade in Siberia had been an important factor in capital accumulation, then in the first quarter of the eighteenth century government contracts, wine sales and tax farming had become the main sources of capital.[340] Peter the Great was an advocate of mercantilism. In 1724 a protectionist tariff was enacted to defend the interests of Russian merchants. The 1729 statute on promissory notes and bills of exchange, which was under preparation in Peter's lifetime, helped the development of international trade and financial ties.
The reforms of Peter I provided an impetus and new direction for economic development in Russia.[341] This new dynamic continued during the reign of Elizabeth Petrovna through the reforms of P. A. Shuvalov. Internal customs duties were eliminated while conditions for a freer development of trade were created.[342] Only in the middle of the eighteenth century did the creation of Russian banks to finance merchants and the nobility become possible. In 1754 the Loan Bank (Zaemnii Bank) was established. This was a mortgage institution (for long-term credit) and commercial institution (for short-term credit). In fact it was made up of two constituent banks: a Bank for the Nobility and a Bank for the Merchant Estate.
The Catherine system
The second half of the eighteenth century represented a new stage in the development of trade and banking in Russia.
The commercial-industrial and financial policy of Catherine II furthered the 'Europeanisation' of the Russian economy. The credit system created under her reign became known as the 'Catherine credit system', and lasted until the middle of the nineteenth century.[343]
Catherine II declared herself a supporter of the economic teachings of the Physiocrats. The customs tariffs of 1767 and 1782 were a further step towards free trade. For the first time, Russian state credit gained access to the international monetary market. The state's encouragement of trade promoted the intensification of foreign commerce, especially with England.[344] Reforms in the area of local government helped industrial development in the provinces. The accumulation of capital, as well as the improvement of banking and monetary circulation, created conditions for private credit and the expansion of industrial production.[345] The number of factories using hired labour increased to 2,000 during Catherine II's reign, a fourfold increase. Most of these hired workers were peasants on obrok (quit-rents).[346] However, these changes did not undermine the foundations of the serf system.
Wars and the growth of the empire exerted an enormous influence on the Russian economy, especially through the annexation of the economically developed areas of Poland and the Crimea. The expansion of the empire's borders proved hugely expensive but also promoted the development of industry and foreign trade. At the end of the eighteenth century, this development became very noticeable. Western European states gladly purchased inexpensive Russian raw materials. Russia in return imported cotton, wool, silk and colonial goods including tea, coffee, sugar and wines.[347]
A sharp budget deficit, worsened by expenditures on the 1769-74 war with Turkey, became one of the reasons for introducing paper money into circulation at the end of December 1768. Special banks were opened in Moscow and St Petersburg in 1769 for financial transactions with the new paper money. In 1786 these banks were united into a single State Paper Money (Assignat) Bank. From 1783 to 1790 a new building for the bank was built by the Italian architect Giacomo Quarenghi in St Petersburg, at the intersection of the Catherine canal and Sadovaia Street. Printed money was exchanged mainly for bronze coins. It was also traded for silver coinage, but in 1772 the exchange rate of paper money vis-a-vis silver began to drop, and further trading into silver became rare. The government used the resources of the Paper Money Bank to cover emergency expenditures, including war needs.
In 1786 Catherine II signed a manifesto transforming the Bank of the Nobility into a lending bank. This bank provided credit for real estate, including industrial enterprises and the construction of private stone houses. The bank offered 4 per cent interest rates to depositors and issued loans for a period of eight years, including to cities. The bank also opened an insurance company.
Besides banks, other institutions also conducted credit transactions, in particular the Moscow and Petersburg foundling homes. These organisations were directed by committees of 'guardians/trustees'. They paid interest on deposits, conducted money transfers between Moscow and St Petersburg and offered loans, accepting real estate and precious metals as collateral.
During Catherine Il's reign the so-called 'court bankers' began to appear. These court bankers continued to exist in Russia until the i860 reforms. As a rule, court bankers were foreign. In Russia they served both the private and state sectors. Amongst the court financiers of the second half of the eighteenth century was the English merchant William Gomm, who traded through Archangel, the Dutch merchant Fredericks, and Richard Sutherland, who became widely known as a court financier of Catherine II. A central function of the court bankers was to manage the government's foreign payments and search for international credit. During Catherine II's reign, Russia began to take out foreign loans regularly. In 1769 the government of Catherine, with Fredericks serving as the middleman, concluded its first major loan with the Amsterdam banking house Raymond and Theodore De Smeth. The money was used to cover military expenditures, specifically the upkeep ofthe Russian fleet in the Mediterranean Sea and to strengthen Russia's influence in Poland. The loan of 1769 marked the beginning of the growth of Russian foreign debt. Russia's main creditor became the Dutch banking house of Hope and Company. This firm financed Russia's military operations during the entire Russo-Turkish war of 1787-91. Russia took out eighteen loans from Hope and Company just between 1788 and 1793. Richard Sutherland was the intermediary between Hope and Company and the government of Catherine II until his death in 1791. In addition, three loans were taken in Genoa from the banking firm of Aime Renny from 1791 to 1793. To help pay for the foreign debt, the tax on wine was increased.[348]
After Paul I's accession to the throne Russian debt to Dutch bankers was consolidated. The total was 8,833,000 guilders. This included the debt of the last Polish king and some private Polish debts. Paul I decreed in 1797 that a Special Committee for paying the debt be founded. The emperor reorganised the institute of court bankers. A royal decree of 4 March 1798 created the Office of Court Bankers and Commissioners (Vaught, Velho, Rally and Co.) to manage domestic and foreign financial operations. Their task was to maintain good relations with the Russian government's foreign contacts. Paul I intended to stop borrowing from abroad. However, in 1798 an agreement was concluded with the English government for a loan of £225,000 sterling plus £75,000 sterling monthly. This money was intended to finance a joint Anglo-Russian expedition in Holland and Russo-Austrian operations in northern Italy. Russia was to receive the money through the London banking house of Harman and Company. Many European banking houses, primarily from Hamburg, transferred money to the places of Russian troop deployment. London and Hamburg were the main centres through which Russian financial operations abroad took place. Through Harman and Company Russia received £815,000 in 1799, £545,494 in 1800, £250,000 in 1802, £63,000 in 1803 and £614,183 in 1807.[349] The court bankers also played a crucial role in financing Russian ground and sea military operations during the Napoleonic Wars (1805-14).
In 1801 Alexander I came to the throne. In 1802 a decree was issued to create ministries in Russia. In 1803 the Ministry of Finance set up an Office for Foreign Monetary Matters. Some of the court bankers' functions became the responsibility of this new unit. In 1811 the Office was formally closed, although it continued until 1816 to conduct limited money transfers abroad. In 1806 the Finance Committee was created. To a large extent, this committee determined the government's finance policies. After 1811 international financial operations were supervised by the Third Department of the Chancellery of the Ministry of Finance, which had been created to replace the Office for Foreign Monetary Matters. In 1824 it became the Credit Chancellery of the Finance Ministry and was subsequently again renamed as the Special Credit Chancellery ofthe Ministry of Finance. This chancellery controlled all foreign financial operations in pre-revolutionary Russia down to 1917.
The first minister of commerce, Count N. P. Rumiantsev, like Alexander I, was an advocate of free trade, which was fashionable in European intellectual circles at that time. But already by 1806 trade policy had become totally dependent on military affairs. In 1807 Alexander signed a treaty with Napoleon I at Tilsit. At France's insistence Russia joined the Continental System blockade against England, its main trading partner. The Continental System dealt a sharp blow to Russia's economy. But at the same time, it boosted the development of Russia's textile and sugar industries and furthered the development of trade relations in southern Russia. For example, Odessa's role as a major commercial port grew. Trade relations with England returned to normal only after the break with Napoleon I and the Grand Army's invasion of Russia. Under the influence of the 1815 Congress of Vienna, Russia introduced a customs tariff in 1816. This allowed much freedom for foreign trade. Soon after, the tariff of 1819 brought even lower duties on imported industrial goods.[350] However, within two years the government had returned to the policy of protectionism. The tariff of 1822 prohibited the import of 300 types of goods and the export of 21.[351] This tariff lasted until 1841, when it was slightly relaxed, and remained in its revised form until 1851.[352] Despite the policy of protectionism the period of the i820s-40s saw continued growth in Russia's foreign trade. Within twenty years the value of Russian exports almost doubled, from 55 to 100 million roubles; the value of imports did in fact double, from 40 to 80 million roubles. Seventy-five per cent of Russian exports were agricultural goods, 11 per cent were timber and commercial goods and 14 per cent were industrial goods.[353] Beginning in the 1830s, grain becomes an important Russian export as well. Sixty-two per cent of bread exports went through Odessa and other Mediterranean ports, 7 per cent through Archangel, 25 per cent through ports on the Baltic Sea and 6 per cent via land routes. The rise of bread prices on the European market further encouraged grain exports in the 1840s and the development of Russian factories specialising in agricultural equipment and tools.[354]
The 1840s also saw a growth in the development of Russian industry. In 1833 there were more than 5,500 factories and mills in Russia. By 1850 that number rose to 9,848, and the number of workers employed in them increased from 227,670 to 500,000.[355] Gradually, factories that employed serfs began to disappear. In 1839 Finance Minister E. F. Kankrin proposed to phase out factories with permanently assigned serf labour (posessionnye) forces.[356] In the first half of the nineteenth century, serf-labour factories slowly became capitalist, and the number of factories employing free labour grew greatly, their owners now sometimes being not only nobles and landowners, but also peasants.[357] Free labour was used, first of all, in the cotton industry. In the i830s-50s, this industry experienced significant success. In these years railway construction also began in Russia. In i837 the first railway was opened from St Petersburg to Tsarskoe Selo, and from 1843-51 a second rail line was built connecting Moscow and St Petersburg.
Despite these economic successes in the first half of the nineteenth century, Russia, devastated by the Continental System and the Napoleonic Wars, began to lag economically behind the West European powers, although its military prestige in Europe remained extremely high until the Crimean War. This economic backwardness was above all clear as regards the iron industry. In the first half of the eighteenth century Russia produced significantly more cast iron than England and until the end of the century it maintained a strong position in the world market. At the beginning of the nineteenth century, however, the export of iron from Russian began to decline rapidly as Russia lost its ability to compete with the economically developed European countries.
Beginning in this period, economic backwardness becomes a chronic phenomenon in Russia, and the government's commercial-industrial policy takes on a cyclical character. Periods of economic stagnation are followed by reformist activism aimed at catching up its European competitors and retaining Russia's influence in Europe.[358] Many Russian senior officials believed that the thirty years of stagnation during the reign of Nicholas I was the reason for Russia's economic backwardness.[359]
The Napoleonic Wars also disrupted the Russian monetary system and caused a budget deficit. To combat these ills, in 1839 Finance Minister E. F. Kankrin introduced monetary reform. A fixed exchange rate for paper money and silver was established, and then beginning 1 July 1841 it was announced that new banknotes would be introduced to replace the old paper money (assig- nats). By 1848 the old paper money had been fully exchanged into bank-notes (credit roubles) and the Paper Money Bank (Assignat Bank) was abolished. Bank-notes were also exchanged into silver, but with the beginning of the Crimean War this practice stopped.
In 1841 the emperor signed a decree creating savings banks. These were unique because they served all classes of society. The first savings bank opened in St Petersburg on 1 March 1842 on Bolshaia Kazanskaia Street. As industry and trade grew in the beginning of the nineteenth century, the question of commercial credit also became increasingly pressing. In January i8i8 the Commercial Bank was established specifically to address this issue. One of the bank's main functions was inventorying bills of exchange. But by the middle of the nineteenth century, it became clear that the system of state banks had become obsolete. Indeed defeat in the Crimean War demonstrated the degree of Russia's overall backwardness. The lessons of defeat forced the government of Alexander II to embark on radical changes in Russia's economic and financial systems.
The era of Great Reforms
In the summer of 1859 advocates of radical change in the Finance Ministry prepared a monetary and credit reform. The decision was made to abolish state treasury banks. In that same year, Jewish merchants of the first guild were allowed to settle outside the Jewish Pale and the practice of accepting serfs, or 'living collateral', for credit to landowners was ended. On 26 December 1859 the Loan Bank no longer accepted deposits. The Commercial Bank accepted deposits until 1 July i860. The supporters of financial and economic reforms in the Ministry of Finance were influenced by Western European economic theories, in particular, by the ideas of Saint-Simon on the all-powerful role of credit in industrial development. Relying on this theory, the famous bankers Isaac and Emile Pereire founded the major joint-stock bank Societe Generale de Credit Mobilier in 1852, which was closely connected with the government of Napoleon III. This new-generation financial enterprise actively engaged in railroad construction in France, Austria, Hungary, Switzerland, Spain and Russia. The extraordinary sweep of its operations drew attention, and the bank served as a model for similar institutions across Europe. The idea of credit's omnipotence conquered Russia as well and helped drive the development of private commercial credit, and later joint-stock credit.
On 31 May i860 the State Bank was established, marking the beginning of a new banking system in Russia. The State Bank was located in St Petersburg, in the building of the old Paper Money Bank. The State Bankbecame a distinctive symbol of the empire's financial strength. Its basements housed Russia's gold reserves. From the moment of its creation, the State Bank was under the authority ofthe Ministry of Finance. Its resources were used for important state needs. It was supposed to promote the development of trade and monetary circulation. It was allowed to discount promissory notes and other obligations, to buy and sell gold, silver and state bonds, to accept deposits and give out loans. The State Bank quickly became the 'bank of banks', and allowed the government to influence the economy and banking. The State Bank was commercial, and not a bank of issue: new bank-notes were released only at the order of the Finance Ministry. The main source of income for the State Bank was deposits at a 4 per cent interest rate. The first director of the State Bank was Alexander Stieglitz, the last court banker.
The Stieglitz banking house grew up in the 1830s and early 1840s. In 1840 the Russian Finance Ministry took out a series of 4 per cent loans. The intermediary between the Russian government and the bankers of Amsterdam, London and Berlin was Ludwig Stieglitz, and after his death in 1843, Alexander Stieglitz. Alexander did much to make his banking house prosper. He established relations with the London banking house Baring Brothers and Co. and through them in 1849 a loan was secured to complete a railway from St Petersburg to Moscow. The most important loans during the Crimean War were also secured by Alexander Stieglitz.
Before the beginning of railway construction in Russia, foreign loans mainly were used to cover military expenditures and to support monetary circulation. Railway construction gave birth to a new category of loans. Railway companies' loans often were guaranteed by the state. In 1857 Alexander Stieglitz helped to found the Main Society of Russian Railways, which was formed to build and operate a planned 4,000 versts of railroad lines. These railway lines were supposed to connect Russia's farmlands with Petersburg, Moscow, Warsaw and the coasts of the Baltic and Black seas. Bankers from Warsaw, London, Amsterdam and Paris also helped to found the company.
The international financial crisis of 1858-9 disrupted monetary circulation in Russia. The Main Society of Railways was also affected. This, in turn, diminished the authority of Stieglitz. The banking and financial reforms of 1860 led to the liquidation of the Stieglitz banking house. But his appointment as head of the State Bank was, despite the criticisms against him in the press and the Ministry of Finance, a perfectly logical occurrence. Stieglitz continued to control all the threads of the empire's financial management. His transfer to the State Bank meant that many of the functions of the old court bankers now moved to the new financial structures. The State Bank was charged with managing Russia's international financial dealings. The bank kept this responsibility until 1866, as long as Stieglitz remained the head of the State Bank.
In his short time at the State Bank, Stieglitz brokered several foreign loans. In 1862 he helped to secure a loan of £15 million at 5 per cent interest for monetary reforms from the London- and Paris-based Rothschilds. In May 1862 it was announced that henceforth the State Bank would exchange gold and silver coins and bullion for paper money. However, the State Bank was forced to cease this practice by November 1863. The reform failed because of the Polish rebellion of January 1863. The rebellion led to a sharp budget deficit and panic on the Petersburg stock exchange. The free exchange of paper money into silver and gold had to be halted. A long period of paper money circulation began. Resources were needed to support the budget, and in i864 and i866 Stieglitz concluded two large loans at 5 per cent interest rates with the English and Dutch. Thesebailouts, brokered by Hope and Co. (Amsterdam) and Baring Brothers (London) were intended to stabilise Russia's financial situation. Other measures were taken as well, but this was not enough to overcome the fall of the exchange rate for the paper rouble. The State Bank raised its discount rate to 8.5 per cent, and Stieglitz was forced to resign. After his resignation, the Foreign Department of the Special Credit Chancellery of the Finance Ministry took control over concluding foreign loans.[360]
In the i860-80s, a system ofjoint-stockbanks of commercial credit emerged in Russia, as did mutual credit societies. St Petersburg and Moscow became large banking centres.
In i864 in St Petersburg, the first joint-stock bank was founded, the Petersburg Private Bank. Soon after, several more banks opened in the capital: the Petersburg International Commercial Bank in 1869; the Volga-Kama Commercial Bank in 1870; and the Russian Bank for Foreign Trade in 1871. In 1899 the Siberian Bank transferred its board of directors from Ekaterinburg to St Petersburg and at the beginning ofthe twentieth century the Azov-Don Bank moved its headquarters from Taganrog to the Russian capital. This group of Petersburg banks began to play the leading role in the financial life of the empire.[361]
In contrast to the Petersburg banks, private banks in Moscow were connected to the government, foreign capital and European banking to a lesser degree. In Moscow capital was controlled largely by Old Believers, who were to a certain extent even anti-government. In i866 the Merchant Bank was founded in Moscow; in 1869 the Moscow Merchant Society of Mutual Credit; and in 1870 the Moscow Discount (Uchotnyi) Bank and Moscow Commercial Bank. A number of other banks were founded in the 1870s but many of them quickly collapsed. Around the beginning of the twentieth century new influential banks appeared in Moscow, linked to L. S. Poliakov's banking house. Poliakov moved the headquarters of the Moscow-Riazan Bank from Riazan to Moscow, and later the bank became known as the Moscow International Commercial Bank. He also transferred the South-Russian Industrial Bank's main offices from Kiev to Moscow.
In the beginning of the 1860s a new system of mortgage credit was formed in Russia. In addition, societies of mutual land credit and several joint-stock land banks opened. Also, two state banks for mortgage credit were founded in the capital: the State Peasant Land Bank in 1883, and the State Noble Land Bank in 1885. The creation of state banks for mortgage credit further strengthened the Ministry of Finance's control over banking.
Banks in the capital and banking houses were closely connected to the government and many ofthem acted as conduits of state policy abroad. Among such banks at the end ofthe nineteenth and the very beginning of the twentieth century was the Saint Petersburg International Commercial Bank. In i894 it actedjointlywithagroupofFrenchbankstofoundtheRusso-Chinese Bank. By the beginning of the Russo-Japanese War this bank became the main channel for moving capital from Russia to the Far East. The Discount-Loan Bank of Persia was created in Persia to benefit Russian investment and trade. In contrast to the Russo-Chinese Bank, the Discount-Loan Bank of Persia was not linked to foreign capital but instead issued credit at the expense of the State Bank and State Treasury. Hoping to break into markets in the Far East and Central Asia, the Finance Ministry also helped to create the short-lived Russo-Korean Bank.[362]The Great Reforms of the late 1850s to early 1860s, especially the banking reform and emancipation of serfs, allowed the government to set a course for faster development of Russian industry. Beginning in the 1860s, the commercial-industrial policy of the tsarist government acquired a systematic character. The Russian government in the second half of the nineteenth century was often an imperfect machine. However the Ministry of Finance was a noteworthy exception. It was headed by distinguished statesmen: M. Kh. Reutern, N. Kh. Bunge, I. A. Vyshnegradskii and finally S. Iu. Witte were ministers of finance for long periods and key figures in government. Bunge and Vyshnegradsky were also scholars recognised worldwide.[363]
In his first years as finance minister, between 1866 and 1870, Reutern advocated encouraging private enterprise. With European countries increasingly allowing private enterprises to form without explicit government permission, Russian leaders understood that new legislation was needed to give more room for private initiative in the founding of joint-stock companies.[364] However, this idea remained unrealised. Possibly influenced by the 1873 stock-market crisis, Reutern ordered that work cease on the proposed legislation in 1874 and began to support restricting the foundation of joint-stockpublic enterprises.[365] In 1877 Reutern argued that the government should use its resources to combat speculation on the stock market, regulate the exchange rate of the rouble and bonds, and discourage free competition. It was this logic that started the practice ofthe government supporting, accordingto its ownjudgement, individual enterprises and banks by providing them special loans from the State Bank.[366]As a result, in the 1870s the state developed several methods to influence the country's economy.
In the 1870s the Russian government floated a series of railway bonds on European markets. From 1870 to 1884 the tsarist government produced seven issues of consolidated railroad bonds to replenish the special government fund for supporting railway companies. The first four bond issues, as well as the seventh, carried an interest rate of 5 per cent; the fifth issue offered 4.5 per cent, and the sixth issue - 4 per cent. The first five issues (two at £12 million, and the rest at £15 millions each) were sold through the Paris and London Rothschilds. The total sum of £15 million ofthe fourth bond issue was partly floated through the Rothschilds, the State Bank, and also through Hope and Co. as well as the Paris banking house Vernier. The active participation of German banks in Berlin, Hamburg and Frankfurt was significant in the sixth and seventh bond issues.
In the second half of the 1870s, because of the deterioration in Anglo-Russian relations due to competition in Central Asia, Russia's main creditor became Germany rather than England. By the beginning of the 1880s major German banks (Diskonto-Gesellschaft, Bleichroder, M. A. Rothschild, Mendelssohn, Warschauer, Berliner Handelsgesellschaft) formed the so-called Russian Syndicate for floating Russian loans. The Amsterdam banking house Lippmann and Rosenthal also closely worked with this syndicate.
Reutern's successors as finance minister generally shared his overall views on the government's role in economic policy. But this does not mean that Russia's economic policy after Reutern was unchanged. In many ways, economic policy depended on the general direction of politics and the personality of the minister. In this regard, the views and activities of N. Kh. Bunge as finance minister are quite revealing. Bunge was a distinguished professor and rector of the University of Saint Vladimir in Kiev and the author of numerous works on the history of finance and monetary circulation, trade and credit. He headed the Finance Ministry from February 1881. The appointment of a university professor to such a prestigious governmental post was very unusual. In part it can be explained by the fact that Bunge was well known to the Romanovs. In the beginning of the 1860s he taught financial law to Grand Duke Nicholas, the eldest son of Tsar Alexander II, and in the 1880s he taught the future Tsar Nicholas II. Bunge was very familiar with contemporary Western economic theory and could evaluate the experience of industrial development in Europe and the United States. In his academic writings Bunge devoted much effort to studying the relationship between private enterprise and state involvement in Russia's economic development.
As a teacher, Bunge tried to persuade the future emperor Nicholas II that he should avoid the extreme characteristics of Nicholas I's policies of state intervention in the economy. Bunge believed that the state should aid private initiative only when the state's interests made this truly necessary.[367] He was worried by the state's increasing role in the economic life of the empire. In the second half of the 1890s, in his famous 'Notes from the Afterlife', Bunge wrote that on the eve of the Crimean War, 'the private hand' in 'spiritual and material life' had been far too restricted.
The disappointment felt by everyone during the Crimean War led to a domestic policy... which expected everything from private initiative, but this policy revealed itself sometimes in such deplorable forms that reasonable people began once again to cry out for governmental oversight and control, and even for replacing private with state activity. We are continuing in this direction even now, when people want the government to take over the grain trade and supply a population ofa hundred million. It seems impossible to continue on in this direction unless you assume that the government should plow, sow and reap, and then publish all the newspapers and magazines, write stories and novels and make progress in the fields of art and science.[368]
Bunge believed that Russia lagged behind Western Europe in industrial development by a half-century. He argued that one reason for this was that
Russian lacked modern legislation regulating factories.[369] In the beginning of the 1880s, Bunge introduced new factory legislation. On 1 June 1882, a lawwas passed forbidding the employment of minors in factories. For adolescents aged 12-15 an eight-hour work day was established. In 1882 a Factory Inspectorate was established under the Ministry of Finance. On 3 June 1886 a law was published which regulated relations between factory owners and workers. The new Factory Inspectorate was charged with enforcing this law. Bunge also thought that workers should receive a share of an enterprise's profits, as this would relieve some social tensions. Bunge formulated his opinions on the workers question by relying on Western models: the Swiss government, for example, had built special workers quarters in Bern, and he often used the dye plants of Leclarke in England as an example of a model enterprise.[370]
Bunge developed and implemented a range of other economic reforms. One of his most important tax reforms was the elimination of the poll tax in 1886. This became an important step on the path to replacing estate-based taxation with property-based taxation. In the beginning of i885 Bunge introduced an additional 3 per cent duty to the trade tax (promyslovyi nalog) and three years later a 5 per cent tax levy was added to incomes from monetary capital.[371]On 12 June 1886 the emperor authorised a law changing state peasants' obrok into payments towards purchasing their land. Thus, the opportunity arose for these peasants to become full landowners.[372] Bunge was a staunch opponent of the existing system of collective responsibility (krugovaia poruka) and of the passport system, because they hindered the free movement of the peasants.[373]At his initiative a passport reform was developed. However, following Bunge's resignation in December 1886, the reform got caught in bureaucratic red tape until the beginning of the 1890s.
The policy of forced industrial development
The poor harvests of 1883 and 1885 worsened an already unstable economic situation. Bunge's attempts to fix the budget deficit were unsuccessful. Advocates of a new course of state policy took advantage of this failure: The chief procurator of the Synod K. P. Pobedonostsev, the editor of the newspaper Moskovskie vedomosti M. N. Katkov, and their supporters spoke out against the liberal reforms. They argued that 'a People's Autocracy' was a distinctive, natural form of rule for Russia. In their view, the Russian nobility should be the connecting linkbetween the tsar and the people. Katkov's influence on Alexander III and state policy in the 1880s was so significant that in bureaucratic circles he and Pobedonostsev were seen as a second government alongside the legal one.[374] The central aim of Katkov and Pobedonostsev's economic programme was to strengthen autocratic power by developing domestic industry. They favoured protectionism, maintaining paper-money circulation, tight control over the stockmarket and private enterprise, using state monopolies (wine and tobacco) as a resource for taxation, and economic support for large landowners. The development of domestic industry was supposed to go together with the strengthening of communal landownership in the villages.
Pobedonostsev and Katkov began to campaign against Bunge in the press as early as autumn 1885. In January 1887 Bunge left the post of finance minister and was appointed to the prestigious but less influential position of chairman of the Committee of Ministers. I. A. Vyshnegradskii, who was close to Katkov, became the minister of finance. Vyshnegradskii was a former professor of mechanics, director of the Petersburg Technological Institute and also well known in the entrepreneurial world as a leading figure in the Petersburg Water Company and vice-chairman of the South-western Railways. But Katkov sought not only Bunge's resignation, but also that of the foreign affairs minister, N. K. Giers, and he hoped to replace the two 'Germans' with his own proteges, I. A. Vyshnegradskii and I. A. Zinovev respectively. But Katkov was not able to realise his plans fully: in the summer of 1887 the influential editor of Moskovskie vedomosti died.
I. A. Vyshnegradskii aligned himself with the Moskovskie vedomosti group long before his appointment to a ministerial post, and he actively supported Katkov's attacks on Bunge. In the middle of 1885, S. Iu. Witte, the young manager ofthe South-western Railways, joined the group. Vyshnegradskii set a goal - to eliminate the budget deficit. He quickly came to the conclusion that introducing a monopoly on tobacco was unrealistic and also decided against starting a monopoly on wine.
In March 1889 a Department of Railways was formed within the Ministry of Finance. It was headed by S. Iu. Witte. As a result of Vyshnegradskii's reforms, the state began buying up railways whereupon the income of the state railways rose, while expenditures on their upkeep declined.[375] Vyshne- gradskii also believed that it was wise to develop large and profitable private railways.[376] In 1889 and 1890 import duties were raised and a new customs tariff was introduced. This was a severe protectionist measure and influenced the development of domestic industry.[377] Customs revenues steadily increased.[378]Beginning in 1889, despite resistance from landowners in central and western regions, Vyshnegradskii created a system of state regulation of bread prices. The tariff legislation of 1889 was further developed in 1893-7. During these years the state's role in the development of the grain trade increased. Vyshnegradskii also re-examined Bunge's legislation on workers. He removed officials from the Factory Inspectorate who were strongly disliked by the business community. The Factory Inspectorate now allowed minors to work on Sundays and holidays, and provincial factory inspectorates and governors could allow night employment for women and teenagers. As a result of these changes, the Factory Inspectorate, created by Bunge to enforce factory laws, lost its influence to a certain extent.
Vyshnegradskii's attempt to adapt Russia's economic policy to the general political doctrine of Alexander III was reflected not only in the increase of state intervention in the economy and the tightening of worker's legislation, but also in his support for a conservative agrarian policy. In 1886 a law was passed restricting the right of communal peasants to divide their land, and in 1889 the institution of the Land Captain (zemskii nachal'nik) was introduced. The 'Land Captain' assumed many functions of judges in the mir system. They appointed office-holders in villages and volost' administrations, as well as volost' judges.[379]However, Vyshnegradskii did not blindly follow the economic programme of Katkov and Pobedonostsev. He rejected their idea of promoting paper- money circulation and continued with Bunge's course of trying to set Russia on the gold standard. In 1889 Vyshnegradskii tried to realise Bunge's plan of reconfiguring Russia's bond offers abroad. He sought to exchange current 5 and 6 per cent Russian bonds on European markets for new bonds that offered lower interest rates and longer maturation times. After the first group of new
Russian bonds were sold in 1889 Vyshnegradskii offered several more series in France. As a result, a significant part of Russian securities moved from German to French markets.
Vyshnegradskii's tenure as finance minister was marked by a sharp increase in exports. If under Bunge from 1882-6 the average yearly value of Russian exports was 574 million roubles, and imports were worth 508 million roubles, then under Vyshnegradskii from 1886-91 the numbers were 710.6 million roubles and 403.3 million roubles respectively. Grain represented the lion's share of Russian export. Bread exports rose from an annual average of 312 million roubles from 1882-6 to 441 million roubles from 1887-91. After abolishing the poll tax, Bunge had decided to forgive peasants' debt for unpaid poll-tax arrears from previous years. Vyshnegradskii believed otherwise, and from 1887 to 1888 was able to collect more than 16 million roubles in back taxes. Thanks to Vysh- negradskii's policies, the budget surplus between i888 and i89i reached the impressive figure of 209.4 million roubles. However, in the famine years of 1891 and 1892 the government was forced to spend 162.5 million roubles to aid the starving population.[380] These famine years and their destructive consequences proved to be a high price for Vyshnegradskii's aim to eliminate the budget deficit at any cost. Twenty-nine of Russia's ninety-seven provinces and oblasts suffered from the poor harvest, and more than 500,000 people died from famine and cholera.[381] Under these conditions, the failures of the 'Vyshnegradskii system' became obvious. In 1892 Vyshnegradskii became very ill and was forced to leave his post. S. Iu. Witte became the new finance minister. The famine of 1891-2 once again reminded the world of Russia's backwardness and of the necessity for radical changes not only in the economy, but also in the political system.
Alexander III died in 1894. The new emperor was Nicholas II. In his first public speech on i7 January i894 at the Winter Palace, meeting with representatives of the zemstvos (elected district and provincial councils), Nicholas announced that he did not intend to change Russia's political system in any way. But this did not rule out economic reforms. They were needed to promote the autocracy and calm liberal elements of society. Consequently, Witte led a series of important economic reforms at the end of the 1890s.
As finance minister, Witte tried to continue the economic course of Katkov and Pobedonostsev. However, Witte soon began to move away from their ideas for reasons of pragmatism, and between 1896 and 1898, when Witte's policies began to be seen as a 'system', they were actually a compromise between the ideologists of the 1880s and the advocates of economic changes of the 1860s and 1870s. The year 1896 became a turning point for Witte's own ideology: formerly a staunch defender of communal landownership, he suddenly declared himself an ardent opponent of the idea. At the heart of Witte's strategy was speeding up the development of domestic industry. Until the mid-i880s, Witte was influenced by Slavophile ideology.[382] However at the end ofthe 1880s, his idol became the famous German economist and advocate of protectionism, Friedrich List. In 1889 Witte published a small brochure 'The National Economy and Friedrich List'. In it, Witte argued for rejecting cosmopolitan views and instead following the teachings of List, the prophet 'of Germany's greatness, which was created by Bismark on the basis of his [List's] theories'.[383]
It would seem that the tragedy of the 1892-3 famine should have had a sobering effect on the proponents of higher taxes. Nevertheless, Witte, like Vyshnegradskii, continued to use indirect taxation as an important source of replenishing the budget. From 1892 to 1901, revenues from indirect taxation increased by 50 per cent.[384] The spirits monopoly proved to be one of the most effective methods of raising capital. In 1894 Witte introduced the monopoly in four provinces (Perm, Orenburg, Ufa and Samara); later it was expanded throughout the country. Distilling remained in private hands, however the state gained control over sales. Purifying the spirit and producing vodka occurred in private factories but only to fill state orders and under the supervision of excise regulators. The sale of spirits, wine and vodka was under the sole purview of the state.
In the autumn of 1892 Witte tried to increase the amount of paper money in circulation by introducing a special 'Siberian' rouble to cover the costs of the Trans-Siberian railway. Evidently, Vyshnegradskii did not tell Witte about the Ministry of Finance's long preparations to introduce gold coinage in Russia. N. Kh. Bunge brought Witte's attention to the dangers of inflationary policy, and within a year the finance minister set about monetary reform in earnest. He concluded the conversion operations begun by Vyshnegradskii and conducted a series of measures aimed at stabilising the rouble in a reform announced by the decree of 29 August 1897.[385] The amount of gold backing the rouble was reduced by one-third. Thus one paper rouble was worth 66.6 kopecks of gold. As a result of the reform the State Bank became an issuing institution and was given the right to issue bank-notes. All paper money in circulation, which totalled more than 300 million roubles, should have been backed in gold entirely. The introduction of the gold standard, on the one hand, opened new opportunities to obtain credit on European markets, but on the other hand, it required that the government constantly ensure that the rouble was backed by gold. Henceforth, the empire's loans were often needed not only for military expenditures, but to maintain the gold standard.
Foreign loans became one of the most important sources of finance for Witte's economic policies. He reorganised the system of commercial foreign agents within the Finance Ministry and by the beginning of 1894 he had opened agencies in Paris, London, Berlin and Washington, and later in Constantinople, Brussels, Yokohama and many other cities. In 1898 commercial agents were renamed agents of the Ministry of Finance and added to the ranks of Russian embassies and missions. As a result of this reform Witte was able to receive regular information about markets in Europe and other countries.
By the end ofthe i890s, Witte began to advocate that Russia attract as much foreign investment as possible. This policy faced serious opposition, led by the Grand Duke Alexander Mikhailovich, who favoured limiting foreign capital investment in Russia, in particular in the oil industry.
Witte's programme of encouraging foreign investment accompanied protectionism, increasing indirect taxation and the raising of the commerce tax. This tax increase consisted of two parts: a main tax and an additional one. Businessmen paid the main tax by purchasing permits to operate their business. The tax burden was determined not by which guild the owners belonged to, as had been the case under previous legislation, but by the size of their business. The supplementary tax for joint-stock companies was divided into a tax on capital and a tax on a percentage of profit. It was levied only if profits exceeded 3 per cent of the fixed capital. The supplementary tax for non-public companies was divided into an arbitrary tax and a percentage tax on profits. The tax burden was determined by calculating the average profits of various enterprises.[386] Thus, a significant part of the commerce tax was based on an archaic and primitive principle of apportioning taxation. Despite its imperfections, the new commerce tax increased state revenues. In 1898 collections from trade and commerce were 48.2 million roubles, and in 1899 - after the new commerce tax - 61.1 million roubles.[387]
By the end ofthe 1890s, Witte's economic programme had gained distinctive characteristics. The Finance Ministry's influence went far beyond its normal sphere of activity, and Witte had much influence on overall domestic politics. Witte linked Russia's economic development with a determined effort to gain access to markets in the East. In the second half of the i890s, the Finance Ministry attempted the so-calledpeaceful economic penetration of Manchuria, Korea, Persia and Mongolia with the goal of preparing future markets for Russian industry. Banks played a central role in this policy: the Discount-Loan Bank of Persia, which was essentially a branch of the State Bank, and also the Russo-Chinese Bank, which dealt with both Russian and foreign capital. Aided by state and 'neutral' foreign capital, and through generous expenditures, the government planned on doing what the weak Russian private initiative still was incapable of undertaking. Witte hoped that within several years Russian industry would reach a rather high level of development. Russian goods would become competitive on the markets of Central Asia and the Far East, and this would allow 'the surplus from exports in Asia to pay the interest on capital obtained in Europe'.[388] From the very beginning of his tenure as Finance Minster, Witte regularly consulted with scholars. His assistants in important economics problems were D. I. Mendeleev and also the well-known economist I. I. Kaufman. Witte, perhaps more than any other minister, understood the value of science in developing the productive power of the country. This explains, in particular, his decision to create a network of polytechnic institutes in Russia.
Witte's programme to speed up the development of Russia's industry bore fruit. Industry grew particularly quickly in the mid-i890s. In the last forty years of the nineteenth century the volume of industrial production in Russia increased more than 700 per cent, while Germany's increased 500 per cent, France's 250 per cent and England's more than 200 per cent.[389] This great increase in the pace of industrial production is partially explained by Russia's relatively weak level of industrial development at the beginning of the 1860s. This was accompanied by relatively low productivity and low production of goods per capita as well. According to the Ministry of Finance's statistics, in 1898 cast-iron production per capita in Great Britain was 13.1 pood (old measurement in Russia = 16 kg), 9.8 pood in the United States, 9.0 pood in Belgium, 8.1 pood in Germany, 3.96 pood in France and 1.04 pood in Russia. Great Britain extracted 311.7 pood of coal, Belgium - 204, the United States - 162.4, Germany -143.8, France - 50.7, and only 5.8 pood in Russia. This lag in production affected consumption and trade too. Russia's trade turnover, 1,286 million roubles in 1897, was less than a third of that in Germany and the United States, one-fifth of that in Great Britain, and was only equal to the turnover of Belgium.
In terms of capital, Russia was also poor. The total amount of capital in public companies, trade and industry, and also city and village credit was 11 billion roubles. About half of this amount came from abroad. At the same time, Germany's capital worth was 30 billion roubles, and England's was 60 billion.[390]
The development of industry promoted the growth ofthe working class and its consolidation. Data based on factory records, zemstvo documents and the 1897 census indicate that by the beginning of the twentieth century there were 14.5 million workers.[391] The development of industry also led to the growth of cities and urban populations. According to the i897 census the population of both Moscow and St Petersburg was over one million. Cities gained an industrial feel and image as well. Petersburg turned into a capital for machine building. New areas of industry were being developed there: chemical and electrical industry. The Moscow industrial region remained the strongest in Russia. Besides old areas (the Central Industrial Region and the Urals) new areas arose: the coal-metallurgical district in the south and the oil district in Baku. The metallurgical factories in the south were built with foreign capital. They were equipped with the newest technologies and became noted for their high productivity. By the beginning of the i890s, domestic production satisfied 93.7 per cent of the country's demand for cast-iron, 91.7 per cent of demand for iron and 97.1 per cent of demand for steel.[392] By the beginning of the twentieth century Russia became the world's leading extractor of oil. However, it was not able to keep this title and was overtaken by the United States.
In post-1861 Russia there was an intensive railway-building campaign, especially between 1895 and 1899. Russia entered the twentieth century with the second longest track in the world, and 40 per cent of it had been laid in the 1890s.58 At the end of the 1890s and beginning of the 1900s, Russian was one of the world's leading grain suppliers, competing with the United States. Russian grain exports in these years were nearly 500 million pood a year, about 20 per cent of its total grain harvest.59
A key financial characteristic of turn-of-the-century Russia was the extremely fast growth ofthe state budget. In i867 revenues numbered only 4i5 million roubles. Thirty years later, they had increased to one billion roubles and by 1908 to two billion roubles. Five years later the budget reached 3 billion roubles. Over this whole period, however, the budget grew 2.4 times quicker than national revenue. Increased budgetary expenditure greatly depended on the income from the spirits monopoly.60 As a result of the economic growth of the 1890s, Russia came closer to the level of industrially developed states, but did not reach it as Witte had planned.
By the 1880s the process of imperial expansion had ended. The expansion was noteworthy in its asymmetry from an economic point of view. Poland and Finland, Central Asia and Bukhara and the Caucasus clearly differed in their levels of economic development and business culture. Poland and Finland served as a bridge between Russian and European business culture. The economy of Poland and especially Finland enjoyed a certain degree of autonomy. For instance, Finland possessed its own customs system and currency. Finland also introduced gold money (zolotaia marka) twenty years before the gold standard was started in the empire. Finland independently concluded foreign loans, and during the First World War even acted as a creditor to the imperial gov- ernment.61 Areas where Islam was prevalent represented yet another level of economic development. Muslim entrepreneurship had its specific features. In these regions of the empire, even on the eve of the First World War, deals were concluded on the basis of sharia. The multinational and multi-confessional character ofthe empire affected the makeup ofthe Russian bourgeoisie and its disunity. For example, representatives of influential financial circles in Moscow,
58 A. N. Solov'eva, Zheleznodorozhnii transport Rossii vo vtoroi polovine XIX veka (Moscow: Nauka, i975), p. 27i.
59 T. M. Kitanina, Khlebnaia torgovliaRossii (Moscow: Nauka, 1978), p. 275.
60 Iu. N. Shebaldin, 'Gosudarstvennii biudzhet tsarskoi Rossii v nachale XX veka (do pervoi mirovoi voiny)', IZ, 56 (1959): 165.
61 See K. Pravilova, 'Finliandiia i rossiiskaia imperia: politika i finansy', IZ, 124, 6 (2003): 180-240; B. V Anan'ich, 'Zolotoi standart Finliandii i Rossii: finansovii aspect imperskoi politiki' in Rossiia na rubezhe XIX-XX vekov. Materialy nauchnykh chtenii pamiati professora V.I. Bovykina, Moscow, 20Jan. 1999 (Moscow: Nauka, 1999), pp. 115-24.
which were dominated by Old Believers, were very critical oftheir Petersburg counterparts. The Riabushinskiis, for example, believed Petersburg was a city of temptation, 'a frightening city', where 'market orgies' and 'unprincipled brokers' reigned.[393] This disunity would influence the Russian bourgeoisie's role in the political life of the country.
Financial and commercial policy at the beginning of the twentieth century
The world economic crisis at the beginning of the twentieth century and the ensuing depression brought serious harm to the Russian economy. The economy had not recovered when the country found itself locked in the Russo- Japanese War of 1904-5. In 1905 came revolution.
Witte's reforms did not pass these tests unscathed. During the war economic reforms were not possible. In addition, the Finance Ministry lost its special role in determining overall government policy after the creation in 1905 of the Council of Ministers, whose chairman was to play the role of prime minister. In the same year the Ministry of Trade and Industry was formed, and the Ministry ofAgriculture was re-named and strengthened, thereby reducing the Ministry of Finance's previous domination of economic policy.
In 1903 Witte was forced to leave the Ministry of Finance. E. D. Pleske replaced him as minister. Pleske was an experienced and knowledgeable bureaucrat but was not connected with financial or scholarly circles. The same thing can be said of V N. Kokovtsov, who headed the Ministry of Finance from 1904 to 1914, with a short break between 1905 and 1906. Until 1907, by Kokovs- tov's own admission, it was impossible even to think of any creative policies. His key concern was to maintain the gold standard, and then support P. A. Stolypin's land reforms.[394]
The revolutionary movement in Russia in November-December i905 led to a massive outpouring of gold from savings banks. At the end of December i905, the State Bank had almost exhausted its statutory lending limit. The fate of gold money in Russia depended on a large foreign loan. V N. Kokovstov was sent to Paris on an emergency mission to conclude a deal. His trip coincided with the worsening of Franco-German relations over a conflict in Morocco. The Moroccan crisis was supposed to be solved at an international conference in Algeciras in January i906. The French government repeatedly announced that it was counting on Russian support at Algeciras. Nicholas II ordered V N. Kokovtsov to tell the French government in Paris that Russia was prepared to support France at Algeciras. In return, the French agreed to organise a small, and once the Algeciras conference was over, a large loan for Russia.
On 29 December 1905 / 11 January 1906 a contract was signed with French banks for a loan worth i00 million roubles. The situation was so critical in Petersburg that officials did not wait until the loan documents arrived from Paris by post and hurried to add 50 million roubles to the balance of the State Bank's foreign accounts.[395]
When on 18/31 March 1906 an agreement was finally reached in Algeci- ras, the French finance minister allowed the Russian ambassador in Paris, A. I. Nelidov, to begin negotiations with bankers for a larger loan. The Russian 5 per cent loan of 1906 was concluded on 9/22 April for a sum of 2,250 million francs, i,200 million of which France paid, 330 million came from England, i65 million from Austria, 55 million from Holland and 500 million from Russian banks. The Russian government was unable to secure more international creditors for the loan: German, Italian, American and Swiss banks refused to participate.[396] The 1906 loan allowed the preservation ofWitte's gold standard.
The trials to which the Russian financial system was subjected in the years of war and revolution motivated Kokovtsov to reject further forced development of domestic industry designed to catch up with the more economically developed countries of Western and Central Europe.
The world economic crisis of 1900-3 slowed the growth of Russian industry and resulted in more then 3,000 enterprise closures. In 1903 Russia boasted 23,000 industrial enterprises employing 2,200,000 workers.[397] In 1904 the rest of Europe experienced growth while the Russo-Japanese War and revolution led to the destabilisation of monetary circulation and a fall in industrial production in Russia. After a series of poor harvest years beginning in 1906, Russia finally produced a strong harvest in 1909. This immediately made an impact on the general economic health of the country. According to customs statistics, Russian exports were worth 1,300 million roubles in 1909, the highest figure of the decade by more than 325 million roubles. The trade surplus increased by 500 million roubles. This affected monetary circulation and increased Russia's gold reserves. By i January i909 the gold reserve was i,307 million roubles, and by the end of the year the sum had reached 1,708 million roubles, having increased by 401 million roubles.[398]
Russia's entrance into the Entente in 1907 strengthened Franco-Russia relations and coupled with renewed industrial growth promoted the development of co-operation between French and Russian banks. In particular, the French helped to improve the finances of the Petersburg private banks. In 1910 the Northern and Russo-Chinese Banks united. Together, they formed the new Russo-Asian Bank. During the years of economic growth before 1914 Franco- Russian financial groups were formed. From the Russian side, the main participating banks were: the Petersburg International, the Russian Commercial- Industrial, the Azov-Don, the Petersburg Discount-Loan, the Russian Foreign Trade, the Russo-French, and the Siberian Commercial Bank; and from the French side - Credit Lyonnais, Comptoir National d'Escompte, Banque Francaise pour le Commerce et L'Industrie, Banque de L'Union Parisienne. French and Russian banks co-operated on railway projects in Siberia, Turkestan and the Caucusus and in joint operations in the Balkans.
The Franco-Russian financial co-operation did not end German influence in Russian banking, which continued to exist on the eve ofthe First World War. All the major Petersburgbanks continued to workwithbanks in Berlin and Vienna. English capital became an important factor only immediately before the war. Petersburg banks undoubtedly played the central role in international banking connections. By 1914 the eight largest Petersburg banks controlled 61 per cent of the market share of joint-stock banks, which exceeded similar indicators of banking concentration in England and Germany.[399] On the eve of the First World War banks began to finance industrial enterprises more actively. Both Petersburg and Moscow banks played an important part in the development of industry in central Russia. The growing role of joint-stock banks affected their relationship with the State Bank. After the gold standard was introduced in Russia, the State Bank became the primary lending institution and commercial bank. It retained its status as the 'bank of banks', but by 1914 it nevertheless had less total financial strength than the joint-stock banks. Fifty joint-stock banks with 778 branches boasted balances of 6,285 million roubles compared to the State Bank's 4,624 million roubles.[400]
Banking houses also retained their influence in the economic life of the country, especially in St Petersburg and Moscow. By 1913 there were sixteen large banking houses in St Petersburg, including branches of Moscow firms. Among them were the banking houses: Zachary Zhdanov and Co., Kaftal, Handelman and Co., G. Lesin, A. I. Zeidman and Co., and I. E. Ginzburg. The Ginzburg banking house played an important role not just in the economy, but also in the cultural life of the capital at the beginning of the twentieth century. In Moscow, the banking house of Riabushinskii remained very influential. In 1912 it was reorganised by the Riabushinskii brothers into a large joint-stock commercial bank.
After the revolutionary events of 1905-7 the activity of political parties intensified, as did the consolidation of capital. These new party and business leaders took the initiative to formulate a programme for the development of Russia's productivity and industry. These problems were regularly discussed in St Petersburg at the meetings of the Council of Congresses of Representatives of Industry and Trade, where scholars and economists were invited to present research. In Moscow, the Riabushinskii banking house became a centre for such discussions, with debates on the economy taking place in P. P. Riabushinskii's apartment on Prechistinskii Boulevard. Famous historians, economists and law scholars took part in these discussions, including M. M. Kovalevskii, N. Kh. Ozerov, P. B. Struve and S. N. Bulgakov. Financial leaders' concern with the productivity of the country was reflected in a new series of commercial publications. In 1909-10 alone several newspapers and magazines appeared which were devoted to economics and finance: Birzhevoi artel'shchik, Finansovoe obozrenie, and the Bankovskaia i torgovaia zhizn .
In 1911, at a meeting of the Congress of Representatives of Industry and Trade, V. V. Zhukovskii, a St Petersburg businessman and one of the leaders of the Council of Congresses defined the role of commercial-industrial circles in the following manner:
We must think about the general situation of the country. We must take a systematic approach to solving the peoples' tasks, we must try to be a part of the very brains of the country, we cannot stop our ideological work. The wealth of the people is based not only on the land, but also in the factories; not only in money, but perhaps mainly in the people's moral foundations and values. And in this regard the commercial-industrial class needs to show its work, its ideas, its conscience. And once we succeed in uniting, we will have the right to define and work towards a government programme which is drawn up from our commercial-industrial perspective and which is a synthesis of our practical interests and our ideological viewpoints.[401]
The growth of business organisations' influence in the financial life of Russia was linked to the new industrial growth in the country. However, at least until the beginning of the First World War, despite the co-operation of the state with representatives of financial circles, there were no signs of direct participation by business circles in the formulation of economic policy.
Industrial growth was very strong in 1910 and continued until 1914. By 1913 there were 29,315 industrial enterprises in Russia, employing3,115,000 workers. The average yearly growth of industrial production was 8.8 per cent. Its value was 7,358 million roubles. Russia was second in the world in oil extraction, third in demand for cotton, fourth in steel production, fifth in coal extraction and sixth in iron ore.[402]
The grain harvest between 1909 and 1913 averaged 4,366.5 million pood yearly. This allowed Russia to increase its grain exports significantly, especially from 1909-10. However, already by 1914 the yield of almost all grain crops was dropping.[403]
On the eve of the First World War co-operation between Russian and French banks became even closer and more varied. The amalgamated railway loan of 1914 for 665 million francs, or 249 million roubles became an important event in Russo-French financial relations. Representatives of a large syndicate of powerful French banks helped float the loan, as did a small syndicate of provincial banks.
By i9i4, seventy-one Russian industrial properties were listed on the Paris stock market. Their total value was 642 million roubles, and they included the stocks of fifteen of Russia's largest metallurgical factories, twelve oil and fifteen coal enterprises, and five banks. In Paris, stocks of Russian coal enterprises were traded that amounted to 60 per cent of the total money invested in these companies.[404] The French controlled 80 per cent of Russia's
foreign debts, and 35 per cent of foreign capital invested in Russia came from
France. [405]
The Russian Empire entered the First World War with a significant state debt - more than 9 billion roubles. Of this, 4.3 billion roubles was foreign debt, more than twice the value of all foreign investment in the Russian economy. At the beginning of the twentieth century Russia had the second largest state debt, after France, but had the largest loan repayments. From i904 to i908, according to official statistics, Russia paid an average of 4.2 per cent interest on its foreign loans, and in the next 5 years paid 4.5 per cent annually, while France paid less than 3 per cent each year during the same period.[406]
Despite economic growth, Kokovtsov's policies became the object of sharp criticism in the press and by a series of influential opponents in government. Witte was one of the most uncompromising critics of Kokovtsov. He not only started a campaign against Kokovtsov in the press but also spoke out against him on 10/ 23 January 1914 at the State Council, accusing the minister of using the spirits monopoly not to fight alcoholism, but to 'pump out money from the people into state coffers'. 'The Russian people', said Witte, 'spend one billion roubles each year on vodka while the government spends only 160 million roubles on the Ministry of Education.'[407] The revenues from the sale of spirits occupied an important place in the budget not only in Russia, but in other countries as well. In the Russian budget, spirit sales were one of the most important sources of income. In 1895 the state received 16 million roubles from the sale of alcohol, and in 1913 - 675 million roubles. This was caused partly by the government's repeated increase of vodka prices.[408]
In January 1914, Kokovtsov was removed from office. I. L. Goremykin was appointed prime minister, and P. L. Bark was placed in charge of the Ministry of Finance. After Bark's appointment the government proclaimed a 'new course' in economic policy. However, the First World War destroyed their plans. After the war began, bread exports across European borders and the
Black Sea straits nearly halved (from 647.8 million pood to 374 million pood). Grain was Russia's main export, and Germany was an important trading partner. As a result, Russia lost its positive balance of trade as regards European commerce and a negative balance of trade developed across Asian borders as well. England became a key importer of Russian goods.[409] The war led to fewer joint-stock companies being founded. The abolition of the spirits monopoly at the beginning ofwar dealt a sharp blowto the budget. On 23 July / 5 August Nicholas II signed a decree prohibiting paper money to be exchanged for gold and expanding the State Bank's issuing authority.[410]1. L. Goremykin's government believed these would be temporary wartime measures. However, the gold standard proved incapable of surviving the First World War, not just in Russia, but throughout the world.
With the onset of the war, given state military orders, government control over industrial production inevitably increased.[411]
Conclusion
Russia did not enjoy total entrepreneurial freedom, even on the eve ofthe First World War, when political parties and bourgeois organisations had formed inside the country. Until 1917 Russia retained a system where joint-stock companies required state permission to incorporate. The tsar ignored suggestions from industrialists, bankers and scholars to tear down the barriers hampering the development of free enterprise. For example, Nicholas II did not react to a paper given to him on this topic by the famous economist Professor I. Kh. Ozerov. He drew the government's attention to the fact that Russian industrialists were starting their companies abroad, in France and England, where there wereno legal obstacles. I. Kh. Ozerov tried to convince Nicholas II to eliminate restrictions for the European population of Russia, noting the United States' success as regards co-operation between people of different nationalities in the development of American productivity.[412] The idea of Americanising' the Russian economy was rather widespread in economic literature during the First World War. However, it cannot be said that it was universally accepted in
Russian financial circles. For example, the Riabushinskiis, leading representatives of Old-Believer enterprises, tied their hopes to a rebirth of Europe after the war and thus viewed the United States as a dangerous opponent.82
Just before the war, in July 1914, the Council of Congresses of the Representatives of Trade and Industry sent the Council of Ministers a memorandum arguing that a special meeting was needed to discuss measures to develop Russia's productivity. This question continued to be discussed in business circles during the war, along with the possibility of building wide-scale and 'cultured' capitalism in Russia.83 But how should this 'cultured capitalism' lookin Russia? The answer to this question is one ofthe complex riddles ofhistory. Ruth Roosa, who dedicated many years to the study of bourgeois societal organisations in Russia, offered her theory on this mystery. She concluded that 'Russian society under the auspices of its business class in the twentieth century might well have had more in common with the moderate socialism of Scandinavia, the syndicalism of Italy in the 1920s, the authoritarian rule of Poland and the Baltic states between the wars, or the pattern of industrial organization that emerged in postwar Germany than with the open and competitive society that has been the American ideal.'84 Whether or not this is true, one thing is certain: the government's role in Russia's economic development under any conditions would have been very significant given Russia's social and economic traditions, and the history of the formation of its entrepreneurial class.
The distinctive features of Russia's economic development and the degree of its backwardness have been a constant source of debate for historians. Until the beginning of the 1930s, Soviet historiography featured lively polemics on this subject, with a variety of viewpoints. At the end of the 1930s the Short History of the All-Union Communist Party was published. In it, pre-revolutionary Russia was described as a backward country dependent on foreign capital. This viewpoint became mandatory for all students of Russian economic history in the Soviet Union. After Stalin's death, at the end of the 1950s and beginning of the 1960s, a new polemic resurfaced on the distinctive features of Russia's economic development. Ultimately, the prevailing theory was one that said Russia belonged to the group of countries with a neither very advanced nor very backward level of economic development.85 In Western historiography until the beginning ofthe 1980s Alexander Gerschenkron's theories dominated:
82 Anan'ich, Bankirskie doma, pp. 126-7.
83 M. V Bernatskii, 'Pravitel'stvennyi nadzor nad kommercheskimi bankami', Promyshlen- nost' i Torgovliia, 19/221 (14 May, 1916).
84 R. Roosa, Russian Industrialists in an Age of Revolution (Armonk: M. E. Sharpe, 1997), p. 160.
85 K. N. Tarnovskii, Sovetskaiaistoriografiiarossiiskogo imperializma (Moscow: Nauka, 1964).
he argued that Russia had been backward and the government's intervention in the economy had been exceptional. However, in later years his views have been revisited and revised.86 Inparticular, Paul Gregory has suggested a new concept of the distinctive features of Russian economic development. He believes that Russia possessed a market economy on the eve of the war, that agriculture, 'despite serious institutional problems, grew just as quickly as in Europe', and that 'if Russia had remained on a market-oriented model of development after the war, its indicators of economic growth would have been no less than before the war': in other words, the pace of Russia's development would have surpassed the European average.87
86 A. Gerschenkron, Europe in the Russian Mirror: Four Lectures in Economic History (Cambridge: Cambridge University Press, 1970); Economic Backwardness in Historical Perspective (Cambridge, Mass.: Harvard University Press, 1962).
87 P. Gregory, Ekonomicheskii rost Rossiiskoi imperii (konets XIX-nachala. XX vekov) (Moscow: Rosspen, 2003), pp. 248-9, trans. from the English (P. Gregory, Economic Growth of the Russian Empire: New Estimates and Calculations). Also see P. Gatrell, The Tsarist Economy 1850-1917 (London: Macmillan, 1986).
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